The Joy of Not Knowing Things When No One Else Does Either

If politicians know one thing, they know this. Explaining things that you yourself don’t understand can get you in trouble – explaining economics, for example.

 

People listen politely, then someone in the back, sensing that they’re hearing nonsense, smiles. You catch that smile in the corner of your eye, and plow on, trying to be forceful and compelling, as best you can. It might have been nothing – someone thinking of their child. But then you hear a cough in a far corner, and then another somewhere else, then someone starts to giggle. Heads turn that way. You continue explaining, but worried now that they’re onto you. You know you are just pulling this stuff out of your ass, but you’d been hoping your audience didn’t know that much about the subject and you’d come off as wise. That was the whole idea.

 

But giggles do spread – crowds are like that. Then someone softly laughs, and laughter is, as they say, infectious. That spreads here and there, and the soft laughter here and there turns into howls everywhere. You’ve been caught.

 

The only halfway graceful recovery is to just stop talking, grin broadly and shrug, and admit what you had been maintaining was indeed drivel – but then no one knows anything about economics, really, so we’re all in this together. A bit of self-deprecation will get the audience back on your side. You do a goof on yourself, but subtly let them know that no one could have pulled it off, no one at all – everyone is groping around in the dark on such matters. You hope they buy that.

 

The alternative is to adamantly maintain the drivel is indeed wisdom. Actually, that’s the more common tactic – keep maintaining up is down and black is white, just say it again and again. Wear them down, wear them out. You know the old adage – say something often enough, and in politics, get the press to put it on air and in print often enough, and even if what you maintain is bracketed, front and rear, with the words that this is just not so, people have heard it and seen it in print, so it just might be so. People skim the news. They don’t pay close attention to the details. And you get it – whatever it is – out there. It now won’t go away. You win.

 

Actually, we all expect politicians to take the latter route – they do not ever say they just don’t know about this thing or that, and they’ll have to think about it. That would open them up to attack – they’d be called unprepared and indecisive. That’s the kiss of death. Luckily, for most of us, life is not at all like politics – for most of us, saying we don’t know and we’ll have to think about things, and will have to do some thoughtful analysis, is just fine with everyone concerned. That’s considered the normal, adult thing to do – we all gave up our cock-sure-of-everything adolescent bluster long ago. Politicians didn’t. We know that, and adjust for it.

 

Of the current four who would lead us, Obama seems to have the least bluster about him – a dangerous way of presenting yourself to voters who expect forcefulness, who want a fighter for what they themselves want. That he is thoughtful is refreshing, and unsettling. On the other hand, his running mate, Joe Biden, is all bluster – but it’s all in good humor, and under it are his serious positions, which he has thought out and are the result of more than thirty years of thinking through the big issues. McCain doesn’t do bluster well – his heart doesn’t seem in it at all. He gets this sickly death-grin and seems to be seeking approval. Did he say the right thing? He used to admit what he didn’t know – now he doesn’t, and that seems to make him uncomfortable.

 

McCain’s running mate, Sarah Palin, is another matter entirely – she has Biden’s stinging bluster without any of the underlying substance. She hasn’t spent years thinking through the big issues – she’s young, with a minimal education, ran a small town for a few years, and spent a year and a half as governor of Alaska, with a population less than a medium-sized county in Ohio, and awash in oil revenue with no real budgetary problems. Hell, Alaska hands out a big cash stipend each year to each of its citizens, from the oil profits. Her substance, such as it is, is thin, and narrow.

 

This puts her in danger when she speaks. She can give a rip-roaring speech – a traditional values conservative tearing into the godless, wimpy liberals – but you do get some drivel.

 

Monday, September 8, we got the new McCain-Palin ad – the Original Mavericks. The claim here about Plain is that “she stopped the bridge to nowhere” – which is just not true, as is most evereything else in the thirty-second spot. But if you say it often enough, you can make it so. From the Newsweek fact check:

 

While it’s technically true that Palin abandoned plans to build a $400 million bridge from Ketchikan to an island with 50 residents and an airport, it’s completely misleading to portray Palin as a “crusader for the thrifty use of tax dollars” and claim, as the Alaska governor did in her convention speech last week, that she “told the Congress ‘thanks but no thanks’ for that Bridge to Nowhere.” Ultimately, Palin’s decision to pull the plug on the project had nothing to do with principle. In fact, she supported the remote project – with some reservations – while running for governor in 2006, telling her potential constituents that she would “not allow the spinmeisters to turn this project or any other into something that’s so negative.” It was only when people like John McCain succeeding in convincing Congress that the project was a waste of money–and Congress subsequently killed its funding–that Palin decided to quit. As Palin said last year when ordering state transportation officials to ditch the bridge, “it’s clear that Congress has little interest in spending any more money on a bridge between Ketchikan and Gravina Island.” In other words, McCain’s new running mate nixed the project – which, again, she originally supported – because the politics were untenable and not because she was against earmarks (she subsequently spent the money on other transportation projects). “Both Presidential candidates have both confirmed that they will work towards earmark reforms,” she said in July. “So, just recognizing that, seeing the writing on the wall, and dealing with it is where I am.”

 

It’s a bit beyond spin. Many call it a lie, like all the others. See this video clip, Obama laughing, saying “they must think you’re stupid.” Actually, they’re counting on it, or assume no one pays attention to the fact-checking – and whether you like it or not, that’s smart politics.

 

So Sarah Palin’s latest public appearance, where like all the others she had to say something, anything, on the government taking over Fannie Mae and Freddie Mac, presented dangers. She seems to know nothing about what they are and how they work – these private, but government-sponsored entities (GSE’s) buying, repackaging and reselling half of the nation’s mortgages, keeping the housing market liquid. She could again make some comment that anyone could show was just not true in ten seconds on Google, what they call a major gaffe – or she could say such a thing and bluster her way through, relying on no one doing any fact-checking, or no one else knowing what they do either. She would be skating on thin ice, or driving on the edge, or whatever metaphor you like.

 

As above, explaining things that you yourself don’t understand can get you in trouble – explaining economics, for example. And, indeed, on that fateful Sunday she got herself in trouble:

 

Speaking before voters in Colorado Springs, the Republican vice presidential nominee claimed that lending giants Fannie Mae and Freddie Mac had “gotten too big and too expensive to the taxpayers.” The companies, as McClatchy reported, “aren’t taxpayer funded but operate as private companies. The takeover may result in a taxpayer bailout during reorganization.”

 

Economists and analysts pounced on the misstatement, saying it demonstrated a lack of understanding about one of the key economic issues likely to face the next administration.

 

“You would like to think that someone who is going to be vice president and conceivable president would know what Fannie and Freddie do,” said Dean Baker, co-director of the Center for Economic and Policy Research. “These are huge institutions and they are absolutely central to our country’s mortgage debt. To not have a clue what they do doesn’t speak well for her, I’d say.”

 

Added Andrew Jakabovics, an economic analyst for the progressive think tank, Center for American Progress: “It is somewhat nonsensical because up until yesterday there was sort of no public funding there. Even today they haven’t drawn down any of the credit line they have given to Treasury. ‘Gotten too big and too expensive’ are two separate things. The too big has been a conservative mantra for a while and there is something to be said of that in that they hold about half of the mortgage guarantees that are out there. And in the last year they have been responsible for roughly 80 percent out there. The ‘too expensive to tax payers,’ I don’t know where that comes from.”

 

Steve Benen argues this is a tough one to spin:

 

Fannie Mae and Freddie Mac weren’t receiving any taxpayer money. So how could they be “too expensive to the taxpayers?” Indeed, Palin seems to have it backwards – now Fannie Mae and Freddie Mac will be funded by the government and will be expensive to the taxpayers, a policy dynamic both presidential candidates support.

 

In all likelihood, Palin doesn’t know much about Fannie Mae and Freddie Mac, and hadn’t been briefed properly on her position on housing policy.

 

How embarrassing is this likely to be? My hunch is, not very.

 

She lucked out. No one knows what they do:

 

Plenty of reporters noted Palin’s quote, but practically all of them omitted any reference to her confusion. For that matter, most Americans probably don’t know that much about Fannie Mae and Freddie Mac, either.

 

But it doesn’t exactly inspire confidence in her policy expertise, either. If there are voters questioning Palin’s readiness for national office, flubbing housing policy in the midst of a foreclosure crisis, at a minimum, doesn’t help.

 

Kevin Drum sees it another way:

 

A gaffe! But how does it measure up? On a technical basis, I’d say it’s impressive. Until now, Fannie and Freddie haven’t cost the taxpayers a dime and their current problems aren’t really related to their size either. This leaves only a few conjunctions and proper names as sensible parts of this sentence.

 

On artistic merit, however, the judges have to score this one for Palin. Nobody cares about the minutiae of how GSEs work, after all, and liberal attacks on this score are almost certain to backfire because (a) we’re obviously harassing her unfairly over trivia because she’s a small town mom and (b) we’re just trying to show off how smart we are. Besides, as Palin said, John McCain is in favor of “reforming things,” so he’s obviously the right guy to tackle whatever problem it is that Fannie and Freddie suffer from. For liberal critics, then, there’s no there there.

 

And moreover, she said what her particular audience wanted to hear:

 

Actually, what’s really impressive about this is that even though Palin obviously didn’t know what she was talking about, she managed to dig smoothly into the standard movement conservative playbook to say something pleasing to the base anyway. Got a problem? It must be government’s fault! Something somewhere got too big and too expensive and conservatives need to rein it in. Nice work.

 

Anyway, I’m sure more like this will crop up soon.

 

Matthew Yglesias agrees. Harping in this will just make the other side look bad:

 

All this liberal sneering at public officials for not having, you know, an in-depth knowledge of policy matters is exactly why we’re seen as out of touch.

 

That is what McCain’s campaign manager, Rick Davis, said. This election will not be about issues – it will be about character. Only the feckless, urban elite concern themselves with issues and policy.

 

We’ve been here before. We’re here again.

 

But if you care, see Robert Kuttner here with a history of what we’re talking about:

 

In the past several days, before the U.S. Treasury Department acted to seize Fannie Mae and Freddie Mac, several people asked me if I thought it was a good idea for the government to “nationalize” the two mortgage giants. In virtually none of the coverage of the Bush administration’s latest emergency action, did anyone bother to tell the back story. Fannie Mae, nee the Federal National Mortgage Association, (FNMA) began life as a government invention. It was born “nationalized” – and it worked beautifully until it was privatized.

 

He covers it all, and Hale “Bonddad” Stewart, the former bond broker, noting these GSE’s sold repackaged mortgages all over the world, adds some spice:

 

Treasury Secretary Paulson has continually stated that US paper is owned all over the globe. Remember – Paulson was a big guy at Goldman Sachs. He has contacts all over the world. He knows, well, everybody. Frankly, he’s one of the few appointments of the Bush administration that is qualified for his job. When he says “so and so talked to me about this” you can bet it was a conversation between people who have known each other for some time.

 

The point is all of the press indicates it’s these conversations with foreign bankers that got Paulson’s attention. That means there are some nervous people all over the globe. And that’s what is driving this – at least partially. And that should scare everyone to death. We are no longer in complete control of our sovereignty.

 

Those who are financing our way of life got worried. And we’ll all pay for that. And there are things like bailing out the airlines and various banks, and the bipartisan plans to bail out the US auto industry, as well as the national highway fund.

 

Things are not pretty. Sarah may not be the one to face this for us.

 

And Paul Krugman in the New York Times argues that things are far worse than anyone imagines:

 

The just-announced federal takeover of Fannie Mae and Freddie Mac, the giant mortgage lenders, was certainly the right thing to do – and it was done fairly well, too. The plan will sustain institutions that play a crucial role in the economy, while holding down taxpayer costs by more or less cleaning out the stockholders.

 

But Sunday’s action needs to be seen in a larger context – that of the attempt by the Federal Reserve and the Treasury Department to contain the fallout from the ongoing financial crisis. And that’s a fight the feds seem to be losing.

 

He sees the problem as debt deflation – and that’s scary:

 

As the economist Irving Fisher observed way back in 1933, when highly indebted individuals and businesses get into financial trouble, they usually sell assets and use the proceeds to pay down their debt. What Fisher pointed out, however, was that such selloffs are self-defeating when everyone does it: if everyone tries to sell assets at the same time, the resulting plunge in market prices undermines debtors’ financial positions faster than debt can be paid off. So deflation in asset prices can turn into a vicious circle. And one consequence of what he called a “stampede to liquidate” is a severe economic slump.

 

That’s what’s happening now, even if you don’t quite get it. It’s bad.

 

But elsewhere, he says we did what would could:

 

I wish people wouldn’t say that Fannie and Freddie have been “nationalized.” I mean, it’s basically accurate, but it conveys the wrong impression.

 

The fact is that Fannie Mae was originally a government agency; it was privatized in 1968, not for any good economic reason, but to move its debt off the federal balance sheet (and Freddie was created 2 years later as a competitor.) Private ownership of Fannie and Freddie never made any real sense, and was always a crisis waiting to happen.

 

So what we’re really seeing now is deprivatization. It’s not something like the UK government seizing the steel mills; it’s more like firing Blackwater and giving responsibility for diplomatic security back to the Marines.

 

And it’s good we did. Tyler Cowen provides the nightmare scenario:

 

But let’s say that the Treasury did not support the debt of the mortgage agencies. The Chinese bought over $300 billion of that stuff and they were told that it is essentially riskless. The flow of capital from them and from other central banks, sovereign wealth funds, and plain old ordinary investors would shut down very quickly. The dollar would fall say 30-40 percent in a week, there would be payments system gridlock, margin calls at the clearinghouses would go unmet, and only a trading shutdown would stop the Dow from shedding half its value. Most of the U.S. banking system would be insolvent. Emergency Fed/Treasury action would recapitalize the FDIC but we would lose an independent central bank and setting the money supply would be a crapshoot. The rate of unemployment would climb into double digits and stay there. Many Americans would not have access to their savings. The future supply of foreign investment would be noticeably lower. The Federal government would lose its AAA rating and we would pay much more in borrowing costs. The deficit would skyrocket.

 

Other than that, things would be fine. Ask Sarah Palin.

 

Of course, she, like all on the right, believes in free markets – minimal regulation, the invisible hand of competition will assure everything is for the best.

 

That may be absurd, even if elegant and simple. Matthew Yglesias argues that it is not how things ever worked:

 

… while we (mostly) use market mechanisms to set the prices of (most) stuff and do so for the very good reason that this encourages people to produce goods and services people want in appropriate quantities, that market activity doesn’t add up to anything like the “free market economy” of popular myth. Market transactions take place within a legal and institutional framework that involves many public choices at many points, choices that can (and are) made in different ways at different times and with different beneficiaries. We mostly don’t notice this stuff either because it operates silently in the background (copyright and patent law, say) or else because the changes tend to be small at any given point (Fed interest rate shifts) but when crisis strikes it leaps into the foreground.

 

And there’s nothing wrong with that, in principle. Faced with something like the Bear Stearns meltdown, it would be absurd for public officials to step aside and just “let things play out” irrespective of the damage done to the economy merely in order to bring practice into closer alignment with free market rhetoric.

 

But by the same token, an obligation exists to make sure not just that the economy “works” instead of collapsing, or works not just for the richest and best connected, but rather works for everyone who’s willing to work hard and contribute constructively to society insofar as he or she is able.

 

At various points in the past, the economy has worked like that. In recent years it has not. We need to make it work like that again.

 

Whether or not the current tendency of the rewards of economic growth to accrue almost exclusively to a small minority is the result of some kind of malfeasance is not, at the end of the day, really relevant. Insofar as it’s the result of shifting structural factors, the correct response is to use public policy to create counter-structures that will rebalance the situation.

 

Someone explain that to Sarah, before she makes her next speech. It does matter.

 

But through November we’ll get drivel. And we’ll love it. We won’t giggle. Explaining things that you yourself don’t understand can’t get you in trouble, when things more complicated than an adolescent spat between two more kids who are sure they are right just bores us.

 

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
This entry was posted in Character, Complexity, Economic Issues, Economic Meltdown, Elitism, Fannie Mae and Freddie Mac, Lying to Win, McCain's Authenticity, Obama, Obama Too Cool, Palin Lies, Palin Unqualified, Qualifications to be President, Sarah Palin. Bookmark the permalink.

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