Hack Watch: John Stossel

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Ari Rutenberg

http://ww1.prweb.com/prfiles/2006/04/30/379513/stosselstudio.jpg

Most people with any familiarity know that John Stossel of ABC News is a shill for corporate interests.  In a op-ed today on RealClearPolitics Stossel makes the argument that re-regulation is not the solution to the current economic crisis.  His article is factually and intellectually incorrect from start to finish, with the occasional total fabrication thrown in for good measure.  Here I'm just going to address a few of the more outrageous and hackish statements.

1)Stossel starts by saying possibly the most on-its-face stupid comment uttered so far in the current crisis.  Stossel asks rhetorically  "Is deregulation is the culprit?" Answering "It can't be. There was no relevant deregulation in the last 25 years."  No relevant deregulation?  That is just wrong.  Whether it is wishful thinking or a lie remains to be seen, but if he really believes this he should be fired. 
A short time line:

1994: Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (IBBEA) repeals the interstate provisions of the Bank Holding Company Act of 1956 that regulated the actions of bank holding companies.
1999: Fannie Mae eases credit to aid mortgage lending (September)[2]; Gramm-Leach-Bliley Act repeals Glass-Steagall Act, deregulates banking, insurance and securities into a financial services industry (November)
2000: Commodity Futures Modernization Act of 2000 bans regulation of credit default swaps, many of which were sold to insure mortgage-backed securities and collateralized debt obligations
that later lost value as their component subprime mortgages went into
default. Concerns over swap issuers' ability to cover all of the
defaulted debt they had guaranteed contributed to financial crises for
companies such as Bear Stearns, Lehman Brothers, and AIG in 2008

So they completely removed the most effective depression-era
regulations and created law preventing new and highly complex financial
instruments from being regulated at all?  And this counts as "no
relevant deregulation?" He must be swimming in the cool-aid to believe
this tripe.  Even those who think deregulation is not to blame have not
attempted such a brazenly idiotic denial of reality.

2) Stossel maintains

"It's intuitive to assume that regulation prevents problems, but it's
rarely true. First, how would regulators know what to do? Leaving aside
the bias they might have and the brutal fact that regulation is
physical force, how can a small group of people understand the workings
of a market sufficiently to regulate sensibly?

First
to answer how would regulators know what to do...well first they are
all professionals and experts.  Secondly that is why government
consults with experts in particular fields.  It is not as if regulators
simply pick random option out of a phone book and then tell banks their
decision.  Sure regulators have bias, but so do private sector
professionals.  The difference is that in the private sector the bias
is towards accumulating personal wealth, where as the governments bias
is helping provide the safest and most reliable financial markets for
the American consumer.  In a contest of biases, I think most people
would want their interests looked out for rather than those of the
ultra-wealthy.  Finally in terms of how you regulate things
sensibly...well most of us use a combination of knowledge, experience,
curiosity, and common sense.  Only for people like Stossel, who assumes
that the world is supposed to fit a mathematical model does common
sense not enter the equation.  In his model, totally unfettered
markets work perfectly.  In the real world they create huge income and
education inequality, as well as massive and uncontrollable speculative
bubbles.

3) According to Stossel

"Nobel Laureate F.A. Hayek emphasized that government planners suffer
from a "knowledge problem" because "the knowledge of the circumstances
of which [they] must make use never exists in concentrated or
integrated form but solely as the dispersed bits of incomplete and
frequently contradictory knowledge which all the separate individuals
possess."

The argument here boils down to the fact that no one can know
everything, so therefore no one should even attempt to regulate.  I
mean no one person can know everything about particle physics, but that
doesn't stop us from having generally agreed upon theories and rules
that allow scientists to research and communicate effectively.  We do
not simply say "no one can no everything about physics, therefore we
cannot come to a consensus about the most accurate models of the
universe."  Also let me mention Friedrich Hayek, the founder of the
"Chicago School" of supply-side (read tax cuts for the wealthy and no
rules) economics.  Let me say a few things about Hayek: 1) his word is
not gospel; 2)his economic theories have lead directly to this crisis;
3) Hayek did not come up with any innovative theories; he simply
created technically complex and academically pleasing models of the
world to justify the same arrogant greed that the powerful have
exhibited throughout history.  The problem is that those models do not
fit the real world, and yet everyone loves Hayek and he apostle Milton
Freidman so much they assume that those guys were right and if the
world does not function as they predicted that there is a problem with
the world.  As perfect example of this comes up in the Stossel piece
when he says that another prominent supply-sider

"Israel Kirzner, applied Hayek's
insights to typical regulation, showing how it must interfere with the
market's discovery process, the profit-and-loss system that uncovers
information vital to making consumers better off"

Notice
how he says "must." Why "must" it interfere with that process? Well the
truth is that the reason he says "must" is because if that is not the
case that their whole theory comes apart.  Thus 'must' means it must in
order for our theory to be credible, not "must" as in it is the only
possible explanation.

The fact of the matter is that Hayek's philosophy is a greedy
philosophy subscribed to by those who want an intellectual
justification for their immoral greed.  It is the philosophy of greed
for the powerful, and no protection for anyone else.

4) Finally Stossel concludes that:

"Markets are never perfect. They are made up of people making their best
judgments, and people's judgments are never perfect. Yes, under some
circumstances market activity such as speculation and short-selling
could harm innocent bystanders. But those who say government is the
best protector are wrong because the knowledge problem is an
insurmountable obstacle."

I
couldn't agree more that markets are never perfect.  But rather than
simply allowing that imperfection to manifest itself in dangerous ways,
I would prefer to use regulation to temper some of those excesses
rather than simply allow decent, hard-working people to be screwed
because of the foolish actions of some greedy banker.  However the crux
is the last line: "those who say government is the
best protector are wrong because the knowledge problem is an
insurmountable obstacle."  This is wrong in every way.  First the
government is the only protector, so whether it is the best is a moot
point.  Second that same knowledge problem is insurmountable in the
private sector.  But instead of simply giving up and saying "well since
we don't have perfect knowledge, we simply will not try to create
effective regulation" we must attempt to strike a balance. 

John Stossel is a hack without the ability to produce an original
thought. He simply parrots the party line of an obviously bankrupt
economic philosophy, and takes solace in the knowledge that other
greedy assholes have hidden behind the veil for so long that they will
do almost anything to protect it.  I would love to debate Mr. Stossel
anywhere, anytime, and take his greedy, corrupt intellect to school
over the total vacuousness and fundamental unfairness of his economic
philosophy.  It's time for the working class to stop paying for greed
and start standing up for their real economic interests.