Peter Schiff Takes on Cornell West and the 99%
We were stuck in Chicago O’Hare. Our connecting flight to New York had been delayed by several hours. What made it all unbearable, however, was Cornel West.
The television monitors are inescapable these days. We’re not sure when it happened, but there’s hardly a corner of the waiting area to hide from them. At the airports, they’re all tuned to the same station. We believe it’s called the Talking Head Channel (THC). We can’t be sure. It’s been years since we’ve owned a television, and we haven’t kept up on the offerings.
What caught our attention, however, was footage of Peter Schiff among the Occupy Wall Street protesters. He was holding a microphone and a sign that said, “I’m the 1%. Let’s talk.”
And talk they did. There was a lot of shouting from the people on the street about “paying fair shares.” Mr. Schiff held up admirably, making his case for the entrepreneur.
After that, we were treated to a debate between Schiff and Dr. Cornel West, moderated (sort of) by Anderson Cooper. The folks at The Daily Bell summed it up nicely:
“Libertarian financial tycoon Peter Schiff has done the free market yet another service by blasting socialist/communist Princeton professor Cornel West virtually into the stratosphere with a brief debate moderated by CNN’s Anderson Cooper on his ‘360’ program.
“Dr. West, a leading light of the progressive movement — someone who has worked for the most prestigious universities in the world — proved on-air that he didn’t know the first thing about economic history and that his much-vaunted beliefs (endlessly quoted by the media) are based not on faulty analysis, but simply on ignorance.
“This cannot be denied. It is on video for anyone to see. One example is West’s astoundingly ignorant claim that 1930s depression in America was, basically, the result of the 1920s rampant capitalist speculation and greed.
“Schiff immediately attempts to rectify Dr. West’s misunderstanding by informing him that the 1929 stock market crash was caused by the newly formed Federal Reserve’s expansion of the money supply in the 1920s. He doesn’t bother to tell West that this expansion was, in fact, both stealthy and criminal, and that FDR ended up shutting down the banks in the 1930s to ensure that people didn’t try to exchange their phony, overprinted dollars for the Fed’s nonexistent gold.
“West denies it, of course. He, apparently, musters the most cogent argument he can; it goes something like this: ‘No, no, no…Brother Peter. No, no, no…’
“West’s ignorance is breathtaking and further evidence that the Internet Reformation is beginning to penetrate the last bastion of the Anglosphere power elite’s defenses — its brainwashed progressive allies who call for yet more government, more regulations, more taxes, without knowing even the rudimentary elements of real economics, let alone economic history.”
It also sounded very familiar, like the debates I’d had with my own father (who wore an Afro for two decades and resembled Dr. West, to boot)…and one that we carry on here at the Whiskey Bar.
Mr. Schiff, of course, championed free-market capitalism. Dr. West went on about necessary government protections and the failure of a completely free market. Bank accounts, for example.
To this, Schiff replied that legislation like Glass-Steagall was only “necessary” after the government got into the business of guaranteeing bank accounts. After FDIC insurance, banks were free to take more risks with the money on deposit. One extra-market protection led to distortions that required yet another extra-market fix.
Every nonmarket action — every application of political force or coercion — has a knockoff effect somewhere down the line. Often, it’s the opposite of the intended consequence.
A guarantee not provided by market mechanisms tends to create a moral hazard. Just as government-funded welfare, government-funded money for unwed mothers and their children and unemployment benefits, actually, all create more poverty, fatherless households and people willing to stay out of work longer. This is why we often accuse government of propagating the problems it purports to solve.
We don’t dare compare ourselves to the impressive Mr. Schiff, but today, we stand like a pygmy against our own intellectual, market-blaming giant…
In a recent article, Nouriel Roubini writes:
“The result is that free markets don’t generate enough final demand. In the U.S., for example, slashing labor costs has sharply reduced the share of labor income in GDP. With credit exhausted, the effects on aggregate demand of decades of redistribution of income and wealth — – from labor to capital, from wages to profits, from poor to rich and from households to corporate firms — – have become severe, owing to the lower marginal propensity of firms/capital owners/rich households to spend.
“The problem is not new. Karl Marx oversold socialism, but he was right in claiming that globalization, unfettered financial capitalism and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct. As he argued, unregulated capitalism can lead to regular bouts of overcapacity, underconsumption and the recurrence of destructive financial crises, fueled by credit bubbles and asset-price booms and busts.
“Even before the Great Depression, Europe’s enlightened ‘bourgeois’ classes recognized that, to avoid revolution, workers’ rights needed to be protected, wage and labor conditions improved and a welfare state created to redistribute wealth and finance public goods — education, health care and a social safety net. The push toward a modern welfare state accelerated after the Great Depression, when the state took on the responsibility for macroeconomic stabilization — a role that required the maintenance of a large middle class, by widening the provision of public goods through progressive taxation of incomes and wealth and fostering economic opportunity for all.
“Thus, the rise of the social-welfare state was a response (often of market-oriented liberal democracies) to the threat of popular revolutions, socialism and communism as the frequency and severity of economic and financial crises increased. Three decades of relative social and economic stability then ensued, from the late 1940s until the mid-1970s, a period when inequality fell sharply and median incomes grew rapidly.
“Some of the lessons about the need for prudential regulation of the financial system were lost in the Reagan-Thatcher era, when the appetite for massive deregulation was created, in part, by the flaws in Europe’s social-welfare model. Those flaws were reflected in yawning fiscal deficits, regulatory overkill and a lack of economic dynamism that led to sclerotic growth then and the eurozone’s sovereign debt crisis now.
“But the laissez-faire Anglo-Saxon model has also now failed miserably. To stabilize market-oriented economies requires a return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of unregulated markets and the continental European model of deficit-driven welfare states. Even an alternative ‘Asian’ growth model — if there really is one — has not prevented a rise in inequality in China, India and elsewhere.
“Any economic model that does not properly address inequality will, eventually, face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability, eventually, harming long-term economic growth and welfare.
Roubini seems to be arguing that the welfare state, as funded by progressive taxation, was a necessary gift to quell the middle class against the “natural” widening of wealth disparity that results from laissez-faire free markets.
Oh, where to begin…
If we’re to tackle an intellectual giant such as Dr. Roubini, we ought to aim low. We’ll start at the foundations.
Like many ready to expound on the failures of the free market, Roubini lists the free market’s shortcomings, while failing to mention that the most basic element of the market isn’t free at all…
We point out, yet again, that monopolization of currency issue by a government-backed entity (whether a “private cartel”) lays the seeds for the destruction of the free market. We speak, again, of the central bank.
But legal tender laws and an inflationary issuance of fiat currency aren’t the only problems, even if they are the problems that lie at the root of all economic malaise. Besides nonmarket interference with the supply and cost of money, there are direct state interventions into the market itself.
These interventions are especially destructive when they are done at the behest of powerful companies in order to protect their own interests…when state power is used as a cudgel to damage competition and protect profits. Even more distressing is when this type of corporate purchase of the state is called “capitalism”…as if capitalism can exist once political force is used.
And even when industry is injurious to the worker or the consumer, it’s generally because that industry has sought some extra-market legal protection from the state (this includes patent protections, by the way).
Left to themselves, markets address imbalances before they become world-destroying. Much has been made of the market’s failure to correct itself, but how can self-correction occur when central banks make borrowing to cheaply, disastrously skew demand and the resulting production, while the state restricts competition and bail out losers deemed “too big to fail”?
We agree that the roles of the market and state need to be rebalanced. We’d suggest that the states reverse their intrusion into the markets. A full retreat would be nice. After all, it was these intrusions in the form of currency monopoly, legislation bought by the powerful and ill-thought regulation, that caused the imbalances that eventually lead to protest.
The common man no longer seems to have any idea how wealth is really generated. Or what keeps it growing. He just suspects that everyone with lots of money got it unjustly, that those with “too much” ought to be forced to share. The problem, he thinks isn’t the government. It’s greed.
Granted, there are some who did get their riches unjustly. But their accomplice in that thievery was the state itself, either through inflation or legislation.
So the common man is up in arms, taking to the streets. Asking for redress and rebalancing…by the same state that caused the imbalance in the first place.
We admire Mr. Schiff bringing his alien message about liberty and the world-improving power of free markets to the masses. But we’re not sure it’s going to do much good. We couldn’t help but smile as we sat in the airport and watched him.
We expect that the majority will call for more of what made them poor and miserable in the first place.