At the beginning of the month the Republican Jewish Coalition, in a demonstration of typically self-defeating pettiness, barred Ron Paul from appearing at the event they had organized to let Jewish Republicans hear what the primary contenders had to say. It seems from their explanation that they simply thought it would be a waste of time to invite him because Jewish voters would never support him. Perhaps this is because of his strong stance in support of wearing Shaatnez or his 30 year record of advocating driving on Shabbos (or was that conservative Judaism, I get confused so easily), but the main reason seems to have been his “misguided and extreme” views on foreign policy, specifically Israel and Iran.
Now, I feel no particular reason to defend Ron Paul’s foreign policy, not least because I don’t agree with it. It does, however, seem to me preferable to the “mainstream” Republican policy of spending hundreds of billions of borrowed dollars on bringing democracy to Arab countries that patently aren’t capable of any form of political organization much more civilized than that of Bonobo monkeys. I also can’t understand why some people are so blockheaded as to be unable to see that whatever Israel loses from a suspension of military aid is outweighed to the point of total insignificance by the end of American aid to the Palestinians, who will be unable to maintain their 40 year youth bulge, instantly solving the ‘demographic crisis’ that, allegedly, makes it necessary for Israel to create a gangster kleptocracy on its eastern border ruled by the Mugabe-esque thugs of the PA, whose leader has, literally, a PhD in Holocaust denial. However, better is not best and I’d far prefer America to follow a frugal and sober foreign policy, something like what John Huntsman is offering, that would rationally weigh up the best way to respond to the vagaries of that farrago of thuggery and crime called international relations, unencumbered either by the childish utopianism of Neo-Conservatism or the self-flagellatory Blame-America-First-ism Ron Paul picked up from Murray Rothbard.
To exclude one candidate, though, for having a simplistic and unrealistic foreign policy and then let six other candidates talk about their simplistic and unrealistic (and eye wateringly expensive) foreign policies, seems to me plain stupid. However, my objection to what the Republican Jewish Coalition did is more fundamental than that. The real problem is that by ruling out Ron Paul on foreign policy grounds alone, the RJC demonstrated it has absolutely no clue whatsoever why millions of people who support Ron Paul do so.
I’m not a doctrinaire libertarian, in fact I’m not any kind of libertarian at all; if you put me in a room with Ron Paul or one of his diverse supporters, we could easily find a thousand and one things to disagree about. I couldn’t possibly claim to be any sort of representative for Ron Paul’s support base, but I am perhaps in a position to explain why someone like me can line up with people of very different ideological persuasions. The reason is really very simple and just as pertinent to Jews as anyone else, so here goes.
In 2008 the global financial system collapsed. Just think about that for a few seconds. No-one, underwater cave dwellers excepted, could have failed to notice what happened, but far too many people haven’t really processed the events of that fateful year because if you think that, say, extending a payroll tax cut for two months is of any consequence at all whatsoever, you need to pay more attention. But, anyway, back to the story.
Stunned by the speed with which this enormously sophisticated and complicated edifice simply fell apart, governments and central banks embarked on the most ambitious programme of monetary ‘stimulus’ the world has ever seen. First came the bank bailouts and nationalisations, carried out with unseemly panic and haste, hundreds of billions of dollars being poured into broke firms before anyone could work out what was going on. Next, central banks slashed interest rates either to or near zero, finally fulfilling one of the more outlandish suggestions of John Maynard Keynes. Then, deciding that the conventional open market operations weren’t up to the task at hand, central banks embarked upon Quantitative Easing, in which new money was produced not, as usual, for some other macroeconomic goal, but simply to increase the amount of money in circulation.
Economists from both the Monetarist and Keynesian schools of thought were called in to provide theoretical justification for this orgy of intervention. This gave rhetorical cover for politicians and allowed economists to pose as technocratic saviors of the world, but what happened had little to do with any theory (even ones as flawed as Keynesianism and Monetarism). In reality, the people in charge noticed that the house of cards was tumbling down and just threw money at it and when they ran out they printed up some more and threw that too and kept on throwing until it stopped. Of course, implicit in world leaders abandoning ‘free-market principles to save the free-market system’ (as George Bush put it), was the assumption that economic growth could return within, at most, a few years; Ben Bernanke really believed that if the Federal Reserve had done the same in 1929 there would have been no Great Depression.
Well, four years on we know that it didn’t work; the most radical experiment in monetary stimulus in history has achieved nothing more than keeping what was left of the global financial system on life support. And that’s not the half of it because to achieve this modest goal, it wasn’t enough to stop there. QE1 turned into QE2 and, before too long, QE3, rock bottom interest rates – sold as an “emergency” measure – are still with us and, of course, bank bailouts are becoming as regular a feature of political life as public sector union strikes. The last one ($638 billion dollars!) was just last week, announced, as has now become typical, after the fact without even the fig leaf of democratic accountability that the first round of bailouts had. And they keep doing it for one simple reason: because they know that the second they stop, we go straight back to where we left off in September 2008 and will watch helplessly as one bank after another goes down just like Lehmann Brothers. If there’s one thing that has become obvious it is that, when push comes to shove, political elites will go to any length whatsoever to prop up the fetid, rotting system. Far from sobering up as the panic of 2008 recedes in the memory, the voices on both Left and Right arguing for yet more monetary expansion are becoming quite unhinged, while those few powerful figures, notably in the German government, arguing for some (not much) restraint are being stigmatized as psychologically ill.
Let’s turn back the clock a bit further to the time before the crash. No-one back then was advocating part nationalization of the banking industry and printing money with gay abandon. It appeared to be a golden age, with the fall of Soviet Union, the ‘end of History’ had arrived in which the liberal-democratic welfare state with a free market economy (except for a central bank) had solved the big questions about how to organize society. Politicians argued, of course, about gay marriage, and the war in Iraq, and marginal tax rates for the wealthy, but the more fundamental questions were off the table; the only people who thought there was anything radically wrong with the system were extremist cranks. Centrist politicians like Gordon Brown claimed to have ‘ended boom and bust’, and after decades of trial and error, it seemed that financial wizards like Alan Greenspan had all but abolished the ills of price inflation and recession, ushering in the ‘Great Moderation’, which promised sustainable prosperity for all.
Dissenting from this consensus was a motley gang of malcontents. On one side were the true believers in a centrally planned economy: socialists, Stalinists, syndicalists, social-nationalists, Maoists, Trotskyites, Trotskyists, national socialists and the rest, blissfully impervious to the results of the 100 year experiment in their daft theories that was the 20th century.
On the other were the Austrian economists. Austrian economics is a rich and fascinating school of sociological analysis, but for the big questions its theses can be summed up quite neatly. Recessions are caused by booms; booms are caused by credit expansion; credit expansion is caused by fractional reserve banking, in which (to put the best possible spin on this fraudulent practice) banks keep a small fraction of the money they need to pay out the current accounts of their customers, with the rest being lent out.
Fractional reserve banking must lead to the misallocation of resources, but its effects are limited in a free banking market where banks have to act very conservatively or go broke. Governments can make it easier for the banks to inflate in and almost always do so, since they are chronically short of cash and need someone to lend it to them as cheaply as possible. The first step (logically speaking, though this does correspond reasonably well to the history of the U.S since the Civil War) is to impose and support a small cartel of banks who can inflate more radically without smaller competitors redeeming their liabilities and sparking bank runs. The next step is to have a central bank manipulating interest rates, acting as a lender of last resort and regulating the system so the bankers can inflate in tandem without any of them going too far, or not far enough. The final piece of the puzzle is to remove all constraints on the central bank’s freedom of action by replacing the currency with a pure fiat system, backed by no commodity whatsoever, not even in theory.
No amount of ‘scientific management’ of the monetary system, though, can abolish the fundamental laws of economic activity any more than the government regulation can alter the law of gravity. Central banks cannot abolish recessions: they can only prolong the boom and the longer the boom, the bigger the bust.
There were precious few people making this argument during the glorious years of triangulation politics. In academia there were the stalwarts of the Ludwig von Mises Institute, written off in the halls of learning as fruitcakes and cranks; on television there was the redoubtable Peter Schiff, written off as a fruitcake and crank and, last but not least, in Congress there was Ron Paul, written off as a fruitcake and crank.
And they were dead right.
That is why I want Ron Paul to be the next President of the United States and not his opponents who, whatever their other ideological or personal charms, thought the global economy in the noughties was fundamentally sound when he was telling anyone who would listen that it was a basket-case on the point of collapse.
However, that’s not all. Those Austrian-school economists who predicted the recession also told us that bailouts, Quantitative Easing and record-low interest rates (plus all the fiscal ‘stimulus’ too) would not bring economic recovery. They also tell us something very frightening: there is no way out of this crisis, except a very deep recession, for only that can liquidate the malinvestments of two decades of boom. It is the recession that should have happened when the dotcom bubble collapsed, added to the recession that should have happened when the housing bubble collapsed, plus the recession needed to repair the damage caused by the last three years of reckless monetary expansion. For every second that those in charge manage to prolong the boom (a boom, you will observe, that is not even bringing about prosperity any more), the recession will be that bit harder. Clearly, a politician who predicted the crash, who predicted that stimulus wouldn’t work and who wants to minimize the damage it is causing should be in charge of setting policy, not shouting from the sidelines.
Yet, we have still not fully described predicament of the western world, for there is one way out other than recession and that is an inflationary collapse of the currency. This is the course that we are currently committed to, for governments and central banks will do whatever it takes to prop the banking system up which, in the end, must mean taking their respective currencies down with it.
The consequences of hyperinflation simply do not bear thinking about. The examples of the 20th century are bad enough, but there is good reason to think a repeat would be even worse. Traditionally, when people abandon a currency spiralling into worthlessness they fall back on a combination of using other currencies and barter. On the first count, the most likely candidates for collapse are the Dollar, the Euro and the Pound and if they fall, taking the many dollar backed currencies with them, large swathes of the globe simply won’t have an alternative currency to hand. On the second count, a barter economy is not simply massively inconvenient, it also means losing the price-system. The price-system the product not of some Einstein but the spontaneous co-operation of billions of individuals, is by far the most sophisticated tool for economic planning known to man, and the sole reason why capitalism has proved such a phenomenally successful system for creating wealth. Without it the amazingly sophisticated mechanisms human beings have derived for delivering a dizzying array of goods all around the world to where they are wanted will just fall apart. Take away money from a primitive feudal economy and life will go on, take it away from a intricate modern economy which can, for example, supply ample food for cities of tens of millions of people and … kaboom.
Now, possibly, Bernanke and co. will pull back before the brink, they are not mad, though their theories certainly are, and when inflation moves into double digits they could decide the cost of propping up the banking system is too great and pull the plug. If so, we will get the recession the Austrian economists say we need now, but it will be bigger, harder to get out of and will come without the important compensating factor of falling prices that, in the past, made depressions tolerable. That, remember, is the best case scenario, it’s also quite possible that the political pressure will be so great that, at the crunch point, central bankers will go full tilt and push us over the brink.
Avoiding either disaster is, I would have thought, as much in the interests of Jewish Republicans as anyone else. To be blunt, it won’t do much good having America backing Israel to the hilt if America is in precipitate economic collapse. If you want to halt Iran’s regional ambitions, having the western world implode on itself doesn’t seem the best way to go about it. By refusing even to let Ron Paul speak over issues that, frankly, are totally trivial when placed alongside with financial apocalypse staring us right in the face, the Republican Jewish Coalition have shown that they haven’t got a clue and have placed themselves firmly on the wrong side of history.