One of the more interestingly intellectual jihads I came across recently was this strange commentary in the FT this week. It was an incontinent lament against the evils of pragmatism. Never before have so many words been so eloquently spilled saying so very, very little.
Titled The excesses of pragmatism, I cannot tell if the writer actually believe his own empty tripe, or if he is truly ignorant as to how we got into the mess in the first place. Have a glance at this doozy of a paragraph:
"A beloved myth holds that dogmatists (or ideologues) get us into problems like these, and pragmatists get us out. In fact, the difference between dogmatists and pragmatists is hard to draw. We got into this mess in a pragmatic way. We kept following a method that had succeeded before. In the 1990s, securitised mortgages and various derivatives seemed to offer a sophisticated way of managing risk. Whatever works gets overdone. The longer the system went on without collapsing, the more incentive there was to strip protective “give” out of the system. The system became more complicated, diversified, elegant and (as we now know) fragile. There were horrible excesses, but they were excesses of pragmatism, not of ideology."
Um, not even close.
You may disingenuously ignore the changes that occurred over the ensuing decade after the 1990s. You can vacuously skip over the legislative changes, the monetary policy shift, the massive change in the way mortgage underwriters were compensated, and the way loans got written. But that doesn’t mean they didn’t occur.
Let’s review the ideological underpinnings of the current crisis.
• Greenspan believe we could clean up a bubble, rather than prevent one. So he let one form in the 1990s. Went it popped, he tried to clean it up by taking rates way, way down. Consider that the Greenspan Fed
maintained a 1.75% Fed fund for 33 months (December 2001 to September
2004), and eventually brought rates down to 1%, keeping them there for over a year.
• We also know that despite repeated warnings by fellow FOMC governors, Greenspan refused to supervise banks lending standards, as is the charge of the Federal Reserve. Hence, my accusation of nonfeasance.
• The exempting of CDOs from all
regulatory scrutiny thanks to the passage of the Commodities Futures Modernization Act of
2000 was another triumph of not pragmatism but ideology.
There are many many other elements, but for now, let’s stick with just these major ideological factors. To Caldwell, since these somehow worked in the past, that is considered pragmatism (?!?).
Those of us who live in planet earth call it rampant and extreme ideology.
Here’s another densely empty passage, one where innocent pixels were needlessly slaughtered:
"Dogmatism is pragmatism that has stood the test of time. Institutions
tend to be forged in moments of crisis. Ideas that fail are discarded;
ideas that succeed are retained, elaborated and then over-elaborated
until they collapse. The problems of 30 years from now will turn out to
have been hidden somewhere in the parts of today’s bail-out packages
that wind up being most effective. If we are lucky, the most effective
parts will be the most morally admirable parts. But that is not
inevitable. In politics, correlation often passes for causation. The
recovery of the Russian economy after the rouble crisis of 1998
coincides with the arrival of Vladimir Putin in power. If a strong hand
coincides with prosperity, the public sometimes assumes a stronger hand
will mean more prosperity. Needless to say, leaders always think like
Where does one begin with a paragraph so overladen with nonsense? Has Caldwell actually convinced himself that it was Putin that led to the Russian recovery? Gee, you would think a market guy might have noticed over the same time period Oil had gone from $30 to $145! Do you suppose that had a little something to do with the Russian recovery? Or is that Putin simply a genius?
Only ideologues are capable of such sheer intellectual dishonesty.
The author may be right about one thing: Ideas that fail are discarded. That process is going on right now. I suspect we are watching the death rattle of a certain type of ideology. Its a tainted brand called unregulated, market absolutism.
Good riddance to you.
The excesses of pragmatism
FT, October 10 2008 18:31