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Posted by: Doug Henwood | October 20, 2010

Me against the right

I debate right-wing money manager and former Senate candidate Peter Schiff on The Real News Network: Schiff Vs. Henwood on Economic Crisis. Topics covered include the StimPak, Schiff’s intolerable tax burden (which makes it impossible for him to buy a submarine!), the intolerable restrictions on Wall Street (which evidently make it impossible for them to do business), the wisdom of neoliberal economic policy (to Schiff, Reagan was a wimp), etc.

Interesting factoid: Schiff is the son of notorious tax protester Irwin Schiff, who’s doing 13 years in federal prison for repeated tax evasion and the persistent and prominent counseling of others not to pay. As much as I dislike the bourgeois state, this seems a fruitless way to voice your objections.

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Responses

  1. …and of course Schiff was a Ron Paul advisor and
    ran for US Senate in the R primary in Ct. His Senate run was not much, but his side is winning, nevertheless.

    good work taking him on, but you came across more as a liberal democrat than a karlmarx guy. a stealth campaign?

    see the comments on the page referring to you as the Keynesian – Schiff has many camp followers on the web.

  2. Martin Wolf has one of the most succinct destructions of the Austrian theory of depressions:

    I think there are important aspects of this way of thinking with which I agree: first, credit and debt are hugely important; second, money is decidedly non-neutral; and, third, among the important distortions created by these first two facts is mistaken investment plans. What is not clear, however, is how far this set of ideas diverges usefully from those of [Hyman] Minsky (to which I am even more sympathetic).

    I also still do not see why the optimal response to a series of big errors is to let everything go into reverse. This idea that economic processes are readily and cheaply reversible seems to me to be one of the most dangerous consequences of “physics envy”. Even as great a thinker as [Friedrich] Hayek, who fully understood the significance of evolutionary process, seems, at the same time, to have been seduced by this notion of reversion to “equilibrium”. But one way of thinking about Keynesian economics (and Fisher’s debt deflation even more) is that they are arguing, in different ways, that there is no such way back. The state of the economy, after the massively distorting bubble, is unavoidably different from the old one.

    This is why I opened my discussion with the view that even if Austrians were right about the cause of the crisis (which I think is an exaggeration, but not entirely false), they could be completely wrong about the optimal response. In particular, I believe they hugely underestimate the costs of mass bankruptcy. The point may be put in their language, as follows: the cost of trying to liquidate “malinvestment” is likely to include the destruction of vast numbers of viable businesses, at huge human cost. The alternative, in a dynamic economy, is to grow out of the disaster. I cannot see why that should be logically impossible.

    http://blogs.ft.com/martin-wolf-exchange/2010/04/01/hello-world/

    And Edward Chancellor has an excellent account of the interdependence between sectors of the marco-economy:

    http://www.ft.com/cms/s/0/a7df74f6-7002-11df-8698-00144feabdc0.html

    Of course, in the grandiose vision of Ron Paul and friends, what separates their righteous anarchy from a Hobbesian war of all against all is the emergence of spontaneous order. So, true believers will always demand our surrender to “apparent” chaos. Anything less, and they would betray their principles. And as so many progressives and leftists so reverently say, these people are impeccably honest in their beliefs.

  3. poor doug. arguing with evidence against an ideological schmuck.

  4. Great debate, thoroughly enjoyed it.

    IMO, Schiff’s entire schtick pivots on the false dichotomy between Evil Government and Good Business. He even goes so freakin’ Manichean far as to say, it’s all the fault of big bad gov’t interference, still disregarding the solid fact of the Revolving Door between them.

    Anything that hinders poor 2%-tax-bracket Peter from getting wealthier as fast as industrially possible is just so evil! Won’t you have pity on the po’ wittle rich guy? He’s only trying to enrich himself at our expense.

    Most astonishingly, dude’s a financial “guru,” yet he admits in the interview to being a welfare bum.

    And now that he’s gainfully employed, how is he giving back to the society in which he grew wealthy? He’s so pious a free-marketeer, he’s offshoring jobs. No doubt to protect us from them, so we can collect those fat unemployment checks that ran out months ago. What a guy.

    This is the very real soft power of a worldview.

    Free-marketeers firmly believe the free market brings economies into being, and surely, being a just and loving god, the free market will only take out those most deserving. If you’re rich, god sure must love you, right? And if you’re poor, well, you dumbass, you must’ve done something to piss off the Biggest Man Up the Highest Stairs. Don’t you know sucking up to that heavenly power is the one true royal road to riches?

    As if The Invisible Hand wasn’t at the end of the arm of some public-private hybrid monster!

    That gives me an idea for a Zen riddle. No fair peaking below the line.

    What’s the sound of Schiff’s Invisible Hand clapping?

    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    You can hear it on any “news” show or White house press briefing. Sounds like MOTU making up excuses for their crimes while casting themselves as the victims of their self-same god.

    Thanks much, Doug, I’m much obliged.

    I bow in your virtual direction.

  5. Everything is out of whack.

    I have no love for the Schiff family but a 13 year stretch for tax evasion, even including encouragement of others, is a bit much.

    As a former criminal defense attorney I routinely dealt with violent criminals who got much shorter sentences.

  6. Re sounding like a liberal democrat, two points. One, there actually aren’t many of those around these days – it’s left to the reds to play them on TV. And two, when you’re in a debate like that, with a large chunk of the audience likely to be fairly mainstream, you have to talk in language that they’re sort of familiar with. If I talked like a Marxist, they’d have tuned me out. Besides, Schiff already thought I was a Bolshie.

  7. Thanks for taking the time to counter someone like Schiff and his nonsense. I loved the eye-rolls, but not all may appreciate them.

    Recommendation for future debates: you were too nice and let him interrupt you too often. The first time they interrupt, you should give them a warning that if they let you speak, you will let them speak, if they continue to interrupt then you have to interrupt back, in as polite, but direct a manner possible.

    One thing that helped Schiff is that he always comes back to “government is the problem” and that allows him to keep on message. I think you did a good job at challenging that (30 years of their policies is enough to see that they are a failure was a very good point), but I thought you could have hammered him more on how much of the last several financial crises were caused by the financiers and were dealt with by pain for the bottom 90% and govt. bailouts. Not that you didn’t, but it would have been more effective if said succinctly perhaps.

    On dress, I suggest a suit jacket, but you could go with a collarless shirt if you wanted to set yourself as different.

    Great work that I know will be better the next time around. Thanks!

    BTW: Am I missing something or did he really state that FDIC banking insurance is what helped cause the crisis and needs to be eliminated?

  8. Nice work, Doug. Schiff’s oily display of self-righteousness is quite disturbing. I can only hope that the rest of our financial/business elite are not so proud and callous in their arrogance.

    It’s interesting that the discussion touched on China’s economy and its five-year plans. To me, having a long-term agenda for the nation and the economy sounds like a very sensible idea. Do we really expect self-interest to spur the kinds of investment in infrastructure, technology and education that the US needs to make?

    Schiff, on the other hand, seems to advocate a sort of right-wing “Cultural Revolution”: rip apart the fabric of society lest it smother the precious embers of the free market.

    In China’s case, the Cultural Revolution was an “anti-rightist” political campaign that turned into a brutal, anti-intellectual, score-settling witch-hunt, one that effectively crippled the nation for ten years. The Cultural Revolution was also a power play by Mao Zedong, whose competence and authority had begun to be questioned.

    Schiff seems to argue that American finance needs to similarly reassert its dominance, pitching society into freefall in a misguided quest for an entrepreneurial utopia. Where Mao advocated a state of permanent proletarian revolution, Schiff preaches unfettered competition, social entropy and class war of a different order. His theories are just as dogmatic and self-serving as Mao’s; put into practice, they would be incredibly cruel and destructive.

  9. It’s interesting that the discussion touched on China’s economy and its five-year plans.

    It’s fairly obvious that the Washington Consensus doesn’t have a rebuttal to China’s rapid growth. The whole – it will collapse due to a weak banking system – argument is now a joke.

    In many respects China is an odious society to live in, but one can’t look at it and say that a heavy state role in economic planning is an abject failure.

    Most of the developing world, as far as I can tell on my travels, looks at China as the model for development . Washington still has no idea of the magnitude of credibility crises it faces domestically and internationally.

  10. goddammit! the debate was a clunker! the moderator (and you, Good Sir Henwood) let it descend into a “who can talk louder/faster” contest! and when Schiff said “I don’t buy the productivity numbers. If we’re so productive, then why do we have such a large trade deficit with China?”

    You should have HAMMERED him on that. that statement showed ignorance of the highest order on Intro to Macroeconomics for Freshmen.

  11. However, to be fair, you destroyed him in that debate when it came to 1) the facts, and 2) logical understanding of basic economics – as in basic stuff like how supply and demand works and all that.

    But my complaint is that the way in which the debate went on, it allows the moronic Austerians to either claim victory (‘ohh! Schiff interrupted him SO good there!’) or for the economically illiterate or confused, conclude that it was a wash since people like that usually choose who’s “right” based on volume and quantity of responses.

  12. Peter Schiff may be the son of Irwin SchiffIrwin Schiff, an infamous tax protester, but that has nothing to do with the legitimacy of Peter Schiff’s economic arguments.

  13. I have become a very avid reader/listener to Peter Schiff and I’d like to comment on some other people’s comments replying back with what I believe would be the Peter Schiff’s responses

    >IMO, Schiff’s entire schtick pivots on the false dichotomy between Evil
    >Government and Good Business. He even goes so freakin’ Manichean far as to
    >say, it’s all the fault of big bad gov’t interference, still disregarding the solid fact
    >of the Revolving Door between them.

    I don’t think he did disregard the “revolving door” between government and big business at all. He even touched on it in this debate, calling it “corporatism” (and/or “fascism”), saying that big business tries to make regulations that are too expensive for small businesses to comply with (thus removing competition)

    >Most astonishingly, dude’s a financial “guru,” yet he admits in the interview to
    >being a welfare bum.

    He has mentioned this on his radio show. This happened when he was younger. He was unemployed and collected checks and spent his time on the beach. That doesn’t mean he’s not a guru. How many other people predicted the housing crash prior to it happening? Check on youtube for “peter schiff mortgage bankers” and listen to a speech of his from 2006 where he spoke to a room full of mortgage bankers and explained to them why the crash was going to happen.

    >And now that he’s gainfully employed, how is he giving back to the society in
    >which he grew wealthy? He’s so pious a free-marketeer, he’s offshoring jobs.

    I believe he did mention that in this debate. His reason was the amount of government regulations cost him so much money that it drove him to offshore part of his business. That doesn’t sound hypocritical to me though. In fact, it’s 100% in line with his “government needs to let the economy function by keeping out” theme.

    >I have no love for the Schiff family but a 13 year stretch for tax evasion, even
    >including encouragement of others, is a bit much.

    That was his father – Irwin Schiff.

    >One thing that helped Schiff is that he always comes back to “government is the
    >problem” and that allows him to keep on message

    For what it’s worth, I don’t think he’s merely saying that just to win popularity so he can get elected. I think it truly is his message. On phrase he has said repeatedly is something like, “yes wall street and main street were drunk. But WHO supplied the alcohol? The government/Federal Reserve for interfering in the market place”. One of his main arguments is that the government creates “moral hazards” by guaranteeing loans. When the government essentially guaranteed housing loans a moral hazard was created because the lenders stopped caring about a borrower’s ability to pay them back (since if the borrower defaulted then the government would just pay them). This also changed the way housing appraisals worked. Prior to the government guarantees, the banks wanted honest appraisals of houses since it was possible they might have to sell the house off if the borrower defaulted. After that worry went away (again, due to government guarantees), the lenders only would hire appraisers who gave unrealistically high appraisals of houses. This maximized the amount their clients borrowed. And the clients didn’t mind because they thought housing would just continue appreciating (which it had during the bubble). However, the reason housing appreciated was because the bubble hadn’t burst yet. Once it did then all the borrowers – who were fully leveraged and who relied on their houses to appreciate in order to afford them – could no longer pay.

    >Am I missing something or did he really state that FDIC banking insurance is
    >what helped cause the crisis and needs to be eliminated?

    See the above comment I made. Schiff thinks that the FDIC creates a moral hazard. If the government guarantees the money you put into a bank then the lenders won’t care which bank they put their money into. That, in turn, allows the banks to do whatever they want (regardless of how risky) because the people loaning the bank the money don’t care (since the government guarantees payback)

    >Schiff, on the other hand, seems to advocate a sort of right-wing “Cultural
    >Revolution”: rip apart the fabric of society lest it smother the precious embers of
    >the free market.

    Schiff is a republican (which scared me at first) but he’s part of the libertarian wing (not the neo-conservative wing). Schiff has criticized both democrats as well as conservatives. I heard him say very recently that democrats who want all these social programs have good intentions but these programs are unrealistic because they have to be paid for somehow. If they’re paid for in taxes then private citizens lose money that they could’ve used to create businesses (and jobs) themselves. If they’re paid for via money printing then the money supply is expanded (a.k.a. “inflation”) and our dollars lose purchasing power. Schiff mentions that in 1960 the minimum wage was $1.50 per hour. At that time, it would buy you roughly an ounce and a half or ounce and a quarter of gold. In today’s dollars (due to the price of gold) that would translate to roughly $42 per hour. Imagine your minimum wage was $42 per hour?! Schiff says that that’s how people earning minimum wage were able to support a family without the wife having to work. But the government instead printed money (which basically robs the citizens of their money – an “under the radar” tax) and waged a war on poverty, sent man to the moon, had a war on drugs, etc. Nowadays it takes 2 fully employed parents just to get by.

    >when Schiff said “I don’t buy the productivity numbers. If we’re so productive,
    >then why do we have such a large trade deficit with China?” You should have
    >HAMMERED him on that. that statement showed ignorance of the highest order
    >on Intro to Macroeconomics for Freshmen.

    The government has a very good reason to pretend that productivity is up. It allows them to pretend that inflation is not rising. Have you ever heard the word “hedonics”? If a computer in 2011 is twice as fast as a computer in 2010 then, even if the price of that computer went up by 50%, the government will say that the price of the computer went down by 50% (due to the 100% increase in speed). However, do we really become 100% more productive when the computer’s processor is twice as fast? For the overwhelming majority of us the answer is a resounding no. The government lies about unemployment numbers as well. They want people to think everything is rosy. They also like when prices rise because it pushes the value of taxable items (like real estate) up, allowing the government to collect more tax revenue. Take a look at shadowstats.com for info that is probably a lot closer to the truth than the government’s numbers.

    >However, to be fair, you destroyed him in that debate when it came to 1) the
    >facts, and 2) logical understanding of basic economics – as in basic stuff like how
    >supply and demand works and all that.

    Schiff would argue that consumption is a function of our ability to produce things. The US doesn’t produce nearly as much as it used to. Therefore when China pulls the plug on our line of credit (in other words when they stop purchasing our government treasury bonds), this country is not going to able to afford to import nearly as much stuff as it does now. And since we don’t produce nearly as much stuff as we used to, our ability to consume is going to drop dramatically. This country is going to need to rebuild its factories and start producing things that our own citizens can consume. Factories take years to build. Also, they require money for startup costs and salaries, etc. We may be a very poor country in the not-very-distant future so where will that money come from? Overseas? Maybe so but then where would those profits go? They’d go to foreigners rather than stay in this country.

    The above reasons are why Schiff is saying it is vital for our government to dramatically decrease spending and allow for the marketplace to function without odious/expensive regulation.

  14. I apologize for the horrible grammar of the 1st paragraph in the above post. It should have read as follows:

    I have become an avid reader of Peter Schiff and I’d like to reply back to the comments others on here have made about him (replying back with what I believe would be Peter Schiff’s responses).

  15. Corrections:

    I just re-read what I wrote and I need to correct a few things:

    ITEM #1 THAT NEEDS CORRECTION:
    If the government guarantees the money you put into a bank then the lenders won’t care which bank they put their money into.

    CORRECTION:
    I meant that the “buyers won’t care which bank they put their money into” (not the lenders)

    ITEM #2 THAT NEEDS CORRECTION:
    Schiff mentions that in 1960 the minimum wage was $1.50 per hour. At that time, it would buy you roughly an ounce and a half or ounce and a quarter of gold. In today’s dollars (due to the price of gold) that would translate to roughly $42 per hour.

    CORRECTION:
    Replace “gold” with “silver”


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