Can We Please Refrain From Consensus-Defending Narratives When the Consensus Was Wrong? « naked capitalism

Thursday, March 4, 2010

Can We Please Refrain From Consensus-Defending Narratives When the Consensus Was Wrong?

I’m having a Dean Baker moment.

Baker’s blog Beat the Press engages in short-form shreddings of the economic reporting of the day, with the New York Times and the Washington Post his favorite targets (for instance, Baker at least once a week criticizes the MSM for relying on forecasts from economists who failed to see the crisis coming).

Usually, I do longer form treatments, but this remark from an article by David Leonhardt, “Weak Economic Reports Raise Specter of Double Dip Recession,” jumped out at me:

But whatever you thought at the start of the year about the recovery — strong, moderate, fragile — you probably need to be more pessimistic today.

Yves here. Huh? Do we live in Soviet Russia, where all views move in tandem? The subtext is unduly flattering to mainstream opinion, and says flatly that everyone has revised his outlook downward, and denies the possibility that someone, in fact a LOT of someones, read the apparent strengthening of the economy as unlikely to be sustained. Our own Ed Harrison has been talking of a double dip recession for some time and he is far from alone.

Many commentators saw the fiscal stimulus as too weak and too attenuated to have any lasting effect. The extraordinary monetary stimulus programs are being dialed down. The big 4Q GDP figure was largely inventory driven, which is not a continuing source of growth. Despite more than occasional happy talk about improving employment outlook, surveys of small businesses, which were the engine of job growth in the last upturn, reported a sharp cutback at the end of the year in already awful hiring plans. Banks are facing further balance sheet hits, from commercial real estate loans (particularly construction loans, which can have very high loss severities) and clawbacks by the GSEs and private investors over securitization fraud (as in selling loans into securitization vehicles that did not meet the standards that the selling bank represented contractually that they would).

This is far from a complete list. Some professional investors who e-mail among themselves (I’m on the periphery of their conversations) have both seen the trend in the improvement of the reported data and have felt it was unlikely to continue (and they all played the rally last year pretty well; these are not perma bears). In fact, one of them remarked late last year that he was afraid 2010 could be really awful, in the same way that the first wave down after the Japan bubble was followed by a return to a semblance of normalcy and a recovery of a significant percentage of the initial losses. We all know what the later acts of that play looked like.

While I am using Leonhardt as the object lesson, the fact that he is so up front about it makes his orthodoxy-flattering stance easier to call out. The “whocouldanode” message, sadly, is deeply and more subtly embedded in a lot of reporting about the economy.

32 Comments:

Hugh says:

March 4, 2010 at 2:09 am

Most of our elites simply haven’t gotten used to the realities of the internet. One of the great strengths of the internet, which the blogosphere exploits, is memory. Politicians, government officials, financial titans, and media figures still act as if we all live in a pre-net world. In such a world, few could remember who said what a few days or even a few months ago. The network news was there and gone. Yesterday’s newspaper suffered the fate of yesterday’s newspaper. So even if you did remember, it was hard to prove because the resources were not to hand. The moving bubble of Conventional Wisdom could be factually wrong or take positions diametrically opposed to ones taken in the past and basically get away with it. We the hoi polloi didn’t have the resources to challenge the narrative and those few who did did not have medium to convey the message. The net and the blogosphere have changed all that. We can now not only do our own analyses, individually or in conjunction with the blogging community at sites like this. We can remember together, share knowledge, challenge the Conventional Wisdom, be involved and aware. One of the reasons the MSM is failing is precisely because it remains in denial about how much their audience has changed. We are not the rubes they think we are.

DownSouth says:

March 4, 2010 at 8:21 am

Oceanic society rests ultimately on the belief that Big Brother is omnipotent and that the Party is infallible. But since in reality Big Brother is not omnipotent and the Party is not infallible, there is need for an unwearying, moment-to-moment flexibility in the treatment of facts. The keyword here is blackwhite. Like so many Newspeak words, this word has two mutually contradictory meanings. Applied to an opponent, it means the habit of impudently claiming that black is white, in contradiction of the plain facts. Applied to a Party member, it means a loyal willingness to say that black is white when Party discipline demands this. But it means also that black is white, and to forget that one has ever believed the contrary. This demands a continuous alteration of the past, made possible by the system of thought which really embraces all the rest, and which is known in Newspeak as doublethink.

The alteration of the past is necessary for two reasons, one of which is subsidiary and, so to speak, precautionary. The subsidiary reason is that the Party member, like the proletarian, tolerates present-day conditions partly because he has no standards of comparison. He must be cut off from the past, just as he must be cut off from foreign countries, because it is necessary for him to believe that he is better off than his ancestors and that the average level of material comfort is constantly rising. But by far the more important reason for the readjustment of the past is the need to safeguard the infallibility of the Party. It is not merely that speeches, statistics, and records of every kind must be constantly brought up to date in order to show that the predictions of the Party were in all cases right. It is also that no change in doctrine or in political alignment can ever be admitted. For to change one’s mind, or even one’s policy, is a confession of weakness. If, for example, Eurasia or Eastasia (whichever it may be) is the enemy today, then that country must always have been the enemy. And if the facts say otherwise, then the facts must be altered. Thus history is continuously rewritten. This day-to-day falsification of the past, carried out by the Ministry of Truth, is as necessary to the stability of the regime as the work of repression and espionage carried out by the Ministry of Truth.
–George Orwell, 1984
DownSouth says:

March 4, 2010 at 9:06 am

And Hannah Arendt, in her discourse concerning “the end of tradition,” the end of the remembrance of the past, the end of common sense, and the baleful consequences this has had on modern life:

It lies in the nature of a tradition to be accepted and absorbed, as it were, by common sense, which fits the particular and idiosyncratic data of our other senses into a world we inhabit together and share in common. In this general understanding, common sense indicates that in the human condition of plurality men check and control their particular sense data against the common data of others (just as seeing and hearing and other sense perceptions belong to the human condition of man in his singularity and guarantee that he can see by himself: for perception per se, he does not need his fellow men). Whether we say that the plurality of men or the commonality of the human world is its specific sphere of competence, common sense obviously operates chiefly in the public realm of politics and morals, and it is that realm which must suffer when common sense and its matter-of-course judgments no longer function, no longer make sense.

Historically, common sense is as much Roman in origin as tradition. Not that the Greeks and Hebrews lacked common sense, but only the Romans developed it until it became the highest criterion in the management of public-political affairs. With the Romans, remembering the past became a matter of tradition and it is in the sense of tradition that the development of common sense found its politically most important expression. Since then common sense has been bound and nourished by tradition so that when traditional standards cease to make sense and no longer serve as general rules under which all or most particular instances can be subsumed, common sense unavoidably atrophies. By the same token, the past, the remembrance of what we have in common as our common origin, is threatened by oblivion. The tradition-bound judgments of common sense extracted and saved from the past whatever was conceptualized by tradition and was still applicable to present conditions. This “practical” commonsense method of remembrance did not require any effort but was imparted to us, in a common world, as our shared inheritance. Its atrophy, therefore, has caused immediately an atrophy in the dimension of the past and initiated the creeping and irresistible movement of shallowness which spreads a veil of meaninglessness over all spheres of modern life.
–Hannah Arendt, The Promise of Politics

nowhereman says:

March 4, 2010 at 2:13 am

What market? Professional investors are professional gamblers. It’s a casino baby, and if you don’t know who the sucker at the table is, IT’S YOU.

I can’t believe people are still talking about a market, that’s so 1999.

nowhereman says:

March 4, 2010 at 2:17 am

Hugh, I’m with you.

Jr Deputy Accountant says:

March 4, 2010 at 2:29 am

While I admire your point, Hugh, we *are* the rubes they think we are (generally, speaking, of course) because so many of us choose to seek comfort in the false reality of a time we can no longer return to instead of facing the truth and preparing accordingly.

That’s the only reason MSM still has a job; there will always be a rube anxious to be told everything is OK and they will always outnumber those who refuse to accept the pre-packaged reality of corporate media outlets.

nowhereman says:

March 4, 2010 at 2:51 am

Jr Deputy Accountant, alas, while it appears that there is comfort in denial, that period ends and anger rears it’s ugly head.
It is here, as Hugh so eloquently puts it, in the blogosphere where we have moved past this stage and are seeking to make sense of it all. And a major part of that is understanding the MSM;s motives in it’s pre-packaging of a specific reality.
Believe me, the MSM will be held just as responsible as the banksters and the government, because the blogosphere is relentless, that is until we are made enemy combatants.
John Danger says:

March 4, 2010 at 10:11 am

Sadly true, think what will happen to a politician that, in his/her campaign will tell his voters that they will have to make sacrifices; think what will happen to a diet program that tells its customers that they need to WORK to lose weight; think what will happen if a TV station suggest its viewers they were fooled (and stupid implicitly) before and “this” instead of “that” is the economical/political/social reality.
Think of something else: that the average IQ of this site’s readers is (conservatively) more than 120; this means that almost 98% of the population is less intelligent. In fact, half of the population has an IQ less than 100 (that’s how IQ is defined). They VOTE, they DECIDE, they are far easier manipulated. In order to get elected you have to cater your message to the stupidest 50.000001% of the population.
Sad but true …

attempter says:

March 4, 2010 at 3:05 am

I could’ve laughed when I saw that blurb. Be more pessimistic? Even me? Things must be bad if Mr. “growth is not finite” is saying that.

I don’t see how to be more pessimistic. “The recovery” is a Big Lie. Some of these liars seem a little schizoid, torn between corporate ideology and reality, and use the term “jobless recovery”, which is absurd and insulting on its face. The basic measure of the health of any economy is how many real, productive, livable jobs it creates relative to the population. By definition (I’m of course talking about moral, human measures and definitions; I’m therefore being incomprehensible to economists and other corporatists) an economy which has been destroying every such job in sight for decades is not healthy, and can never start “recovering” until it starts recovering those jobs.

And I’ll never regard the word “recovery” as anything but a vicious lie until we also start recovering other things lost to corporate robbery like freedom, democracy, morality, the rule of law, and justice, such as justice for the finance criminals.

As for the MSM, while I agree its audience contains alot of sheep desperate to be told they’re not being permanently fleeced, I think I’ve seen stats to the effect that alot of this audience is aging and simply hangs on out of inertia.

We’ll see what happens to the bank flacks and jingoes at the NYT once they start trying to charge for stuff again. I sure won’t pay for it, or for any other MSM outlet.

If I had money to give to media it would be to alternative media like TomDispatch or a subscription to Monthly Review (which I was happy to see featured in today’s links).

Thursday’s Caught On The Web - The Source - WSJ says:

March 4, 2010 at 4:14 am

[...] Naked Capitalism: Can we please refrain from consensus-defending narratives when the consensus was wrong? [...]

psychohistorian says:

March 4, 2010 at 5:05 am

Nice comment and nice posting.

Are we all having fun now?
- LeeAnne says:
  
  March 4, 2010 at 12:41 pm
  
  psychohistorian,
  
  “… that is until we are made enemy combatants.” is for me the salient part of that statement. How long before the PTB punch holes in Internet freedom of speech? They’ve already guaranteed that we no longer have guarantees under the constitution and rule of law.

blagroll says:

March 4, 2010 at 5:16 am

Kudos, Hugh. You hit upon one of the positive aspects of the internet and personal computers. We now have some data at our disposal and a host of web sites where analysis and storage of data (even the stupid statements and lies of politicians around the globe)can be accessed. I also hope there is a secondary effect, albeit a slower one. The internet and better websites often offer opinions and analysis not addressed by mainstream outlets. This site will reference some Socialist, Austrian School and divergent content once in a while. You don’t have to agree with what is written or opined, but we do get the option to look at problems from different angles. At least these differing analyses take us out of the comfortable concensus zone once and a while. Not a bad thing imo.

fresno dan says:

March 4, 2010 at 6:55 am

My big problem is that GDP measures are never explained well enough, and that any decrease in the rate of downturn is by definition “good.”
Kind of like falling out of a 20 story buidling – when you hit the ground you are no longer accelerating – which must be good! (except your dead – thats the problem, the MSM leaves out the dead part)

Eric says:

March 4, 2010 at 1:04 pm

Umm, no, the situation is that you experience a very high acceleration. A = dv/dt and you get plenty of dv in not very much dt.

fresno dan says:

March 4, 2010 at 7:14 am

I couldn’t resist giving this link as it does a good job on this whole “nascent” recovery thing. I don’t know if “nascent” has an expiration date, but we sure must be getting close
http://globaleconomicanalysis.blogspot.com/2010/03/is-anyone-else-sick-of-this-nascent.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

liberal says:

March 4, 2010 at 7:34 am

I’m having a Dean Baker moment.

Only thing I see missing from ECONned’s index: Dean Baker!(*)

He got the housing bubble right, for the right reasons, earlier than almost anyone.

Not to mention calling the dot com bubble, which saved me quite a bit of money. :-)

——————-

(*) Well, not entirely. No reference to Henry George or e.g. Michael Hudson either. If we taxed the cr*p out of land, credit markets would be much much smaller, and bubbles would be far fewer. Otherwise book seems really good.

Yves Smith says:

March 4, 2010 at 7:45 am

Thanks!

Just so you know, Palgrave fought me on book length (look at teeny type of endnotes and the treatment of the dedication…). Given that that the book covers over 60 years of territory, that forced some choices.

alex says:

March 4, 2010 at 7:49 am

Yves Smith: “I’m having a Dean Baker moment.”

Then you’re guilty of thinking clearly and are obviously not a Serious Person.

NotTimothyGeithner says:

March 4, 2010 at 11:07 am

Even if one’s thinking is clouded or misguided, that would even prevent them from being a “Serious Person” in this country. They don’t think at all. The “Serious People” in this country are like dogs who respond to bells and nothing else. Some are rabid too.
- alex says:
  
  March 4, 2010 at 11:11 am
  
  Good point.

Jay Weinstein says:

March 4, 2010 at 11:48 am

I believe the proper spelling is “hoocoodanode” LOL

Rickster says:

March 4, 2010 at 12:45 pm

Dean Baker saved me a lot of money in the stock market. And at least we bought our house with our eyes wide open in 2006. However, when you have 3 cats, they want a place they can call their own and never move. Up to five cats now. Fortunately, they are good mousers which keeps down the cat food costs.

How Orwell would have appreciated the latest CPAC conference and Faux News?

Similarly, my favorite movie of the last ten years has been “V.”

Siggy says:

March 4, 2010 at 12:51 pm

Down South,

I marvel at your ability to muster cogent citations.

I also always marvel at certain time series analyses that are published regularly wherein the historic data changes. The reason for the change lies in the use of least squares regression algorithms whose degree of variance has been smoothed. The oft provided explanation is that ‘new’ old data has been uncovered. What really transpired is that the data was manipulated so as to enhance the statistical benchmarks that are recognized as being fair indicators of the accuracy of any derived indicator.

This changing consensus; or consensus apoligia thing is merely group adaptation to an error that will not be acknowledged. When there is a consensus point of view, I am inclined to be very skeptical. In economic terms, expectations are arrived at by way of a lens of perception that is molded by theory. Some theories have been found to to be consistently reliable, others have been found to be without application at any time under any set of conditions, Efficient Markets Hypothesis comes to mind.

While Henry Paulson campaigns to sell his history altering mea culpa, I continue to wonder if we would have in fact had an outright depression if AIG etal had been put into the bankruptcy court. I do believe that it is highly probable that GS, Morgan Stanley, B of A, SocGen and Deutsche Bank and several others would have failed. I susupect that it may well be true that our discomfort from that failing would be worse than what we now have. On the other hand it may well be that what has been avoided is precisely what was necessary to set things right.

The recurring question I have is: Can Phoenix rise when there has been no conflagration? The corollary to that is: Can we levitate ourselves to prosperity by borrowing even more than we can even afford now?

The consensus seems to be that we shall do everything imaginable to avoid the wholsale deleveraging that is reuqired. This avoidance includes the blatant fallacious adjustment of our history of perception and experience,

DownSouth says:

March 4, 2010 at 1:42 pm

Siggy,

You say “I continue to wonder if we would have in fact had an outright depression if AIG etal had been put into the bankruptcy court.”

It is my belief that the crises are deliberately and intentionally created, and then used to impose increasingly more pernicious forms of neoliberalism upon the populous.

At the point when hyperinflation was peaking at almost 5,000% and the country was enveloped in a crisis, the IMF was one of the strongest advocates of Alfonsín to resign and let Menem take over. They did not try to accommodate Argentina with an interim loan and wait a couple of months so as to have a smooth democratic transition to the next president. Instead, they played a clear role in assisting those fomenting chaos and fear to force the Argentian people to support Menem’s orthodox neoliberal approach.

–Paul Cooney, “Argentina’s Quarter Century Experiment with Neoliberalism: From Dictatorship to Depression”
http://www.scielo.br/pdf/rec/v11n1/a01v11n1.pdf

In Argentina, the Convertibility Plan of 1991 (implemented by Menem) was a response to the economic coup and crisis that induced the hyper-inflationary spurts of 1989-91. It marked the beginning of a new era in the political economy of Argentine society with the implementation of a severe structural adjustment program (SAP) that was to become an important showcase for international financial interests thereafter.
–Miguel Teubal, Rise and Collapse of Neoliberalism in Argentina: The Role of Economic Groups
http://www.hawaii.edu/hivandaids/Rise_and_Collapse_of_Neoliberalism_in_Argentina__The_Role_of_Economic_Groups.pdf
- Siggy says:
  
  March 4, 2010 at 2:22 pm
  
  My experience with Argentina dates to the 50s up to the mid 60s. It seemed like a decent country, but one that was impaired by a weak middle class. From that observation and opinion I come to the US today and it is my opinion that the US middle class is dwindling at a rapid rate.
  
  My education leans toward the concept of class differentiation as being made in terms of income, education race, and family standing. What I have tended to ignore is the fact there is this aspect of culture that mediates perception and the exercise of morality and ethical conduct.
  
  I have always felt that Latin American governments were corrupt and that they existed to protect and foster the interests of landed wealthy. I note that you have recalled points in time when the elites in SA have sought the assistance of such entities as ITT, United Fruit and the CIA. So, what you’re suggesting here has a degree of relevance and may well be quite accurate. I also suspect that these machinations are as much a result of intent as they are of accidents that find there energy by way of stupidity.
  
  For example the Church Commission was an exercise that had to be performed. The stupidity was that its perfomance in the public arena created the basis of destroying the clandestine arm of the agency. This business of creating financial crises to satisfy the whims of the financially elite can only be brought to heel by a populus that has full comprehension the remedies that are available under law.
  
  All of the foregoing gets me to the point that our once admirable ship of state has become a banana boat. It is now incumbant on each and every college grad to seek riches at any cost by any means if there is to be any realization of self.
DownSouth says:

March 4, 2010 at 2:18 pm

Siggy,

You ask: “Can we levitate ourselves to prosperity by borrowing even more than we can even afford now?”

The neoliberals, who currently enjoy a monopoly of economic and political power in the United States, would respond with a resounding “YES!”

It should be pointed out that part of Argentina’s debt increase was due to a drastic financial reform implemented by Domingo Cavallo, who was then (early 1980s) president of the Central Bank. Within just six months, 40% of the private sector’s debt was converted to public debt…

In March 1991, the Menem administration implemented an economic plan known as the Plan Cavallo, named after the Economics Minister Domingo Cavallo. This plan bore striking resemblance to that of the economic policies pursued by the dictatorship and Martinez de Hoz back in the 1970s. This is because they were both fundamentally neoliberal, as reflected by their three main elements: financial deregulation, reform of the state, and trade liberalization, not to mention the general pro-capital bias. The Menem administration was committed to an accommodation model with its base in finance and agro-industry, sacrificing manufacturing and thus producing a second wave of deindustrialization.
http://www.scielo.br/pdf/rec/v11n1/a01v11n1.pdf

[In 2001 Domingo Cavallo was] called upon to ‘save’ Argentina from the impending crisis and adopted new adjustments and schemes trying to generate ‘confidence’ in international financial organizations… Cavallo’s ‘expertise’ this time failed lamentably. Despite the great powers that were given to him by Congress (April 2001), and his megacanje de deuda (mega debt swap, June 2001) supported by his friend David Mulford of Credit Suisse and J.P. Morgan- Chase that implied restructuring foreign debt to the tune of US$30 billion, the crisis could not be controlled. In this debt restructuring process 65 different types of bonds, most of them denominated in dollars, for a total of US$28 billion were rescued. They were exchanged for five new types of bonds for a value of US$30 billion, but with future interest rates that amounted to US$85 billion, and of course an enormous commission paid to Cavallo’s banking friends. Argentina was to pay a yearly interest of 18 percent, 13 percent higher than interest on US treasury bills. Thus Argentina’s overall foreign debt increased to the tune of US$115 billion.
http://www.hawaii.edu/hivandaids/Rise_and_Collapse_of_Neoliberalism_in_Argentina__The_Role_of_Economic_Groups.pdf

nowhereman says:

March 4, 2010 at 1:37 pm

WHAO Siggy, that was brilliant.

sharonsj says:

March 4, 2010 at 3:28 pm

The MSM puts on a happy face to get us to keep spending and investing. I stopped doing both a long time ago.

I have only one small inherited stock that I hold onto for nostalgia, but I will never play the stock market because I don’t have supercomputers, I don’t have a math degree, and I’m not privy to inside info.

I buy everything second hand whenever possible. That’s because I can’t find anything in the stores except cheap Chinese crap, which will fall apart ASAP.

Our problems have been 30 years in the making. However, unless the country has real change, and the middle class can find decent-paying jobs, this banana boat is going down.

maynardGkeynes says:

March 4, 2010 at 11:29 pm

Leonhardt isn’t saying that. He’s saying, in effect, that no matter what you thought in January, you should be more pessimistic now due to recent data. He makes no claims, implicit or explicit, about a general consensus, except to say that some thought the recovery was strong, some thought it was fragile, and others were inbetween. That’s actually a truism.

What Went Wrong? | Rhetorik-Blog says:

March 7, 2010 at 1:55 pm

[...] Smith, der Autor von ECONNED und Blogger des nakedcapitalism-Blogs, erzählt in diesem Posting gut dokumentiert, was schief lief und warum die Krise durch falsche [...]

7 Things Never to Say to Your Boss says:

March 20, 2010 at 5:40 am

[...] Can We Please Refrain From Consensus-Defending Narratives When the Consensus Was Wrong? « nake… [...]

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