Monday, October 13, 2008

Amit Varma, Ottoman

Between 1915 and 1919, the Ottoman Empire killed between 1 and 1.5 million ethnic Armenians as part of a campaign to wipe out their Armenian population. This group of events is generally accepted by historians to be a genocide. Many international organisation, most religious groups, and many governments accept this categorisation of the killings as a genocide.

The government of Turkey, however, refuses to accept that there was a genocide. They protest recognition of the genocide by other nations, and acknowledging the genocide is a crime in Turkey.

Do you know who else denies the Armenian genocide? Amit Varma. Yes, that Amit Varma. Since he began blogging in the December of 2004, Amit Varma has not published a single article accepting the commission of a genocide of Armenians by Ottoman Turkish forces. Nor has he condemned the conduct of Ottoman forces towards Armenian civilians during and after the First World War. Clearly, this is because he denies that the genocide ever occurred, out of sympathy for the Ottoman cause.

This whole sordid affair also raises questions about Libertarianism in general. Why do libertarians accept such an odious Armenian-genocide denier into their ranks? Why has Amit Varma not been expelled from the Libertarian Cartel for his gratuitously pro-Ottoman views?

This is a serious issue, and one that all libertarians should think about.


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Anonymous KT said...

This is not a valid comparison. The libertarians choosing to remain silent over the bailout is not the same as they remaining silent over the armenian genocide.

4:39 PM  
Blogger Kunal said...

You just say that because you are complicit in Amit Pasha's perfidy.

4:41 PM  
Blogger Abhishek said...

you poking fun at this right?

Its unfair that you expect your readers to be familiar with not only the writings of your libertarian brethren but also the stupid people who dare to objectively criticize and make fun of you.

1:20 AM  
Blogger Kunal said...

Unfair? You think this is unfair? The world is unfair, bro.

But thank you for putting that in the comment section, so people can see what I am talking about without me compromising my artistic integrity ;)

8:13 AM  
Blogger Chetan said...

C'mon Kunal just because your ideology is falling apart does not mean your sense of humour should follow too taking alongwith it your sense of proportion, sense of comparison and all other faculties needed to make a sarcastic point.

For your analogy to be accurate I needed to have made a "Jao pehale uss aadmi ka sign leke aao" charge on the cartel, which I didn't. And if the analogy was meant to portray that it is so fucking obvious that libertarians would be against the bail-out and that silence could only reflect dissent rather than assent, then it fails there too. Many prominent libertarian bloggers are supporting the bail-out. The libertarian wolf, Martin Wolf that is, is calling for regulating salaries of bankers. Megan McArdle and Tyler Cowen are having tough time coming up with convoluted arguments that try to show how their support for the bail-out is not inconsistent with their previous ideological stances. I just assumed their cartel fanboys, who fawn over every other posts of theirs, would either agree or protest vehemently at their high priests abandonment of their faith.

But I guess I was wrong.

7:14 PM  
Blogger Kunal said...

>>C'mon Kunal just because your ideology is falling apart does not mean your sense of humour should follow too taking alongwith it your sense of proportion, sense of comparison and all other faculties needed to make a sarcastic point.

Damn, that sentence was going so well! Why did you stop? Ran out of senses, didja?

The analogy was not meant to portray that silence means this or silence means that. Silence means nothing. That is kinda the point of silence. Especially since most of those blogs you linked to are either dead, or posting much less than normal these days.

Also, I am amused by your notion that my "ideology is falling apart". I encourage you to read "The End of History" by Francis Fukuyama, I figure you will find much to agree with.

10:00 PM  
Blogger Chetan said...

So to explain the 'point of silence' you needed to discuss Amit Varma's silence on Ottoman excesses and how that ought to disqualify him from the libertarian cartel?

Full marks for the effort. A little bit of clarity on the correlation might not have hurt though.

>>Why did you stop? Ran out of senses, didja?

Have you been watching a lot of Palin speeches lately? Didja and all that.

Oh and regarding my thoughts about your ideology falling apart... I just put that in there to rile you a little. I don't think its going away anytime soon. And that is a good thing (no sarcasm). However, like with the proverbial Wall Street I-banker, it will lose its swagger.

10:41 PM  
Blogger Kunal said...

All right, less flippant reply:

When I self-describe as a Libertarian, I mean to say that on balance, we will be better off with less government in our lives. Applied to the economic sphere, this means that free markets will generally work better than managed economies. Free trade is generally better than protection, freedom to open businesses is generally better than licensing, freedom to set salaries is better than salary caps and freedom to charge or offer interest rates is better than usury caps. I do not believe this because I believe that The Market makes perfect economic decisions, because that is clearly not the case. I believe that because I think that government efforts to manage the economy will suffer from the Law of Unintended Consequences, and the fallibility of individual knowledge.

That said, I am not against government management of the economy in all cases. If there were a large war that I supported, for instance, I would support government control of the economy, price caps, salary caps and rationing among other measures in the interest of the war effort. An analogous claim may be made, as I think Megan McArdle does, that the situation right now calls for a government intervention to ensure the survival of the credit markets. She believes this is necessary to avoid a Depression, given the current situation. Others, including Gaurav Sabnis, believe that the bailout will make things worse. These divergent positions have to do with different economic models, and nothing to do with political ideology. I would not say either viewpoint is inconsistent with Libertarianism, or even with a free market position.

Contra your suggestion that libertarian ideas have "collapsed" following the crisis, I would recommend you look up the Austrian Theory of Business Cycles, a way of looking at Boom/Recession cycles that has definitely gained a lot of publicity and adherents since this whole mess started. ABC theory is favoured by many (though by no means all) libertarians, and you might get away with calling it a libertarian theory thats gained cachet because of the current crisis.

I still don't think this is an adequate reply to your questions, so I might put up a post on this sometime during the next week. A serious post takes a whole lot more time and effort than a flippant one, which is why you see so many of the latter and not a single on of the former on my blog. So stay tuned. You might think that by refusing to change my thinking in light of the crisis I am being dogmatic, and my arguments are ex-post rationalisations, but I feel I have thought-out reasons for it. I'd like to make a good-faith effort to explain, and I only ask that you indulge me with a little time.

10:42 PM  
Blogger Kunal said...

I have in fact been watching Gov. Palin a lot. I think she's a shady person just like everyone else does, but she makes me want to talk folksy. Can't explain it, but thats how it is.

Oh, and I started typing the second comment as soon as I finished the first. Didn't mean to leave the first one up like that by itself, but the second really took time to type out.

10:45 PM  
Blogger Chetan said...

Thanks for the less flippant reply.

When I self-describe as a Libertarian, I mean to say that on balance, we will be better off with less government in our lives. Applied to the economic sphere, this means that free markets will generally work better than managed economies. Free trade is generally better than protection, freedom to open businesses is generally better than licensing, freedom to set salaries is better than salary caps and freedom to charge or offer interest rates is better than usury caps. I do not believe this because I believe that The Market makes perfect economic decisions, because that is clearly not the case. I believe that because I think that government efforts to manage the economy will suffer from the Law of Unintended Consequences, and the fallibility of individual knowledge.

I guess we are in complete agreement on all the points here. What a world of difference adding the word 'generally' before the word 'better' makes!

Seriously though, I am looking forward to that post. I am sure it would be extremely insightful.

12:22 AM  
Blogger Gaurav said...

Chetan, I already responded with a post on my blog. But elaborating a bit more here since a discussion seems to have begun.

Firstly, I don't buy wholesale that this mess is because of regulation and is completely the "fault" of free markets. The quasi-governmental nature of Fannie and Freddie is in no way compatible with free market ideas.

But let us assume for the sake of argument that everything is the fault of free markets, and no blame can be laid at the door of government regulation or intervention.

So what? No one has ever said free markets will usher in a perfect utopia. There will be booms and busts, and Kunal has rightly brought up the Austrian school. The only way people learn to avoid mistakes is by suffering the consequences of previous mistakes.

I oppose not just the contents of the bailouts, but also the alacrity with which they are being pushed through. Everyone is taken it as a given that if governments don't intervene, then the world will collapse... and that if they do intervene, the collapse will be averted.

This is not dissimilar to the build-up of the Iraq war. The government and most components of the media were then convinced that it was absolutely necessary to attack Iraq. What has happened since has shown the stupidity of that move.

I view the bailouts in a similar fashion. Under the guise of protecting the rot from reaching main street, the governments no doubt influenced by lobbyists are actually saving the arse of the very executives whose decisions brought this mess upon us. Maybe they are protecting main street and maybe they are not. Maybe this is a better alternative than riding out the crisis and maybe it is not. What dismays me is the paucity of dissent and discussion, weighing the pros and cons.

Whether the bailouts were a good thing or bad thing, thinking from a utilitarian perspective, is something we can only pass judgment on after its consequences, intended and unintended, have fully played out. I don't pretend to know the world of finance well enough to speak about its utilitarian value with conviction.

But from a first-principles standpoint, it seems like a bad idea. Pumping more fiat money into the markets seems like a surefire invitation to inflation. It also sends a message, conscious or unconscious, that even if companies and execs goof up, governments will bail them out. That takes away a vital component needed for free markets to work - the disincentive against goofing up.

So that's that.

Moving on, where are you these days? Somewhere on the east coast? No mails or anything in a while. Send me a mail with updates. I keep going to NYC and DC every couple of months so if you are somewhere around we can finally meet.

9:42 AM  
Blogger Huzefa Mukadam said...

Nice try.

10:52 AM  
Anonymous shivam said...

I am not against government management of the economy in all cases.

Not a good cartellian!

1:33 PM  
Blogger Ashutosh said...

This comment has been removed by the author.

5:56 PM  
Blogger Ashutosh said...

The Good Sage Smith was quite emphatic about government 'interference' in certain sectors like education. The Chicago Boys would have had him doing the waltz in his coffin. Read Peter Dougherty's "Who's Afraid of Adam Smith: How the Free Market got its Soul" to avoid- or at least prolong- acrimonious shelling.

6:00 PM  
Blogger Chetan said...

@Gaurav and Kunal:

From a first principles stand point I suppose everyone opposes the bail-out. You will be hard pressed to find a person out there who says that he/she supports the bail out cheerfully without any qualms. It is not hard to discern that whichever way you look at it, the taxpayers are being dished out a raw deal. Most are in a catch-22 situation. Or a better analogy would be a Vikram Vetal situation. While they shoulder the burden of the Wall Street fat cats' greed and ponder what their response should be, Wall Street keeps whispering sinister questions in their ear about whether Damocles' sword will fall on them if they cut off the financial thread with which it is hanging on. However, if the taxpayer bails them out then it is a moral hazard and then the Vetal is free to do his shaitani again. Maybe not immediately, but when the memory of the crisis has receded. So you have taxpayers cornered. Not everyone knows economics and its not just lobbyist and Wall Street playing doomsayers but a variety of experts from varying ideological spectrum who think this is a once in a century crisis.

The point I am trying to make is it is futile to talk about this from a first principles standpoint. If we start arguing from that angle then it precludes all discussion. You guys win hands down. Because you will always talk about how things would have been different in an ideal situation where markets were truly free. That has never happened, hadn't happened leading up to the crisis and as such an honest discussion about whether or not your ideology's prescriptions were at least partially responsible for the cause of the crisis can never take place.

A doctor cannot make the argument that the drugs he prescribed to treat a patient for healing a wound did not work because the patient also had diabetes. This especially given that the patient has informed him before hand that he is a diabetic. Similarly, in spite of knowing the areas where there was or there would have been government intervention and voter pressure if you prescribed policies that proved to be ineffective then you have to accept responsibility.

You cannot shy away from the fact that these were one of the best years for your ideology in terms of favourable public opinion, political muscle and policy backing for your ideological prescriptions. Even if the prescriptions weren't implemented enough to your liking, they were still incrementally better implemented than in previous years. So now to take umbrage under the guise that it was no fault whatsoever of the ideological prescriptions since they were not implemented in their entirety is disingenuous.

When these prescriptions were been advocated you guys knew exactly what the situation on the ground was. It was not as if libertarians were unaware of Fannie and Freddie's existence or the CRA or for that matter of government's agenda for promoting housing for the poor before Greenspan decided to keep the interest rate low or let the markets mess up before any corrective action could be taken. This purportedly to avoid unintended consequences. (As an aside. Could you let me know why you think the unintended consequences of not increasing interest rates or letting the housing bubble inflate despite knowing that it is a bubble would have been worse than the unintended consequences of letting the market take its own course and now spending trillions to repair the mess. And if possible try to avoid getting into a discussion on how it is impossible to know a bubble before it bursts. There were many voices who were talking about this bubble before it burst.)

Regarding deregulation: Yes, it isn't entirely deregulation's fault as democrats are shouting from the roof tops. But to deny that lack of regulation played no role in the crisis is not true either. Libertarians keep harping about the fact that banks are the most regulated entities. This is a complete non-sequitor. The crisis didn't happen because of the everyday regulated business of the banks but happened in the derivatives and credit default swaps markets which were entirely unregulated. There is absolutely no way of knowing what these contracts are, how many of these are there, what their value is, or whether the contracts could be fulfilled because there was no regulation. Isn't transparency in contracts better for capitalism? Or has the defensive position you have to adopt wiped out the memory of your agenda to save capitalism from capitalists?

Another place where you guys need to take a hard look at is the idea that market players can come up with a self-regulatory mechanism because it is in their interest to do so. Well, the rating agencies were supposed to do just that. But we all saw what happened when Moody's and S&P gave triple A ratings to risky mortgage backed securities. So what happened to the libertarian argument here?

Just like democrats are blaming deregulation free marketers are blaming Fannie and Freddie. Don't even get me started on the whining about how government forced sub-prime lending. Obviously, the banks didn't lend money to the poor out of any government pressure or out of any benevolence. They thought they could earn a hefty profit through sub-prime lending since the risk would be distributed owing to the trading in mortgage backed securities and derivatives.

I don't get it. I mean how can Freddie and Fannie be solely responsible for this crisis? Partly, yes. They did add fuel to fire by starting to deal with sub prime mortgages since 2004 on the suggestion of Congress. But essentially they were buying up mortgages from the banks, freeing their capital and then bundling a lot of these mortgages together and selling it in the secondary market where Investment Bankers and Hedge Funds were placing speculative bets on their prices. In fact, Fannie and Freddie claim in their defense that it was not just the Congress but market conditions that forced them into dealing with sub prime mortgages because the mortgage lending firms like Countrywide were threatening to take their business lock stock and barrel to the investment bankers who were more than willing to buy sub-prime mortgages and bundle them their selves and sell it in the secondary market. This would have meant a loss in profits for Fannie and Freddie who were answerable to shareholders despite being quasi government entities. It was the secondary market, and the swaps market that was built upon this secondary market to cover the risk of a credit event that has frozen the financial pipes. Fannie and Freddie had an agenda which was known to everybody in the market and that was to inject capital in the markets and aid affordable housing. The fact that they had a government guarantee was known. Yes, they distorted the market. But I would assume the market to be efficient enough to warp around this distortion and in fact leverage it to their advantage. There are several different equilibriums/equilibria where the markets can stabilize, right? This is exactly what the markets had been doing from 1968 since the formation of Fannie Mae. Why wasn't there a crisis before this. It wasn't Fannie or Freddie's agenda that changed but the market's gambling on the securities and the derivatives that changed the game.

One other gnawing issue is banker's compensation. Even Martin Wolf and Raghuram Rajan are writing about how the way the industry designs its compensation plans and bonus, results in perverse incentives to take the kind of short term risks that lead to crises like these. The banks know this is a problem as this has led to many crisis in the past. However, markets haven't come up with self-regulation to correct this. Banks have never changed their pay structure partly because if one bank does it and the other bank doesn't, the competitor might steal their best talent. But weren't the markets supposed to learn from their mistakes? This is a situation where no one wants to go first. Yes, you can say that it is the fault of the governments who keep bailing the banks out each time. But given that this (bail-out of banks after crisis) is bound to happen again and again with no change in the structure of compensation from the banks' side, should we just sit and watch repeated crisis unfold as leftists blame banker's greed and free marketers blame the government bailout?

Gaurav your point about boom and bust cycles would have been well taken had the boom been experienced by the general economy. During the Bush years the middle class wages had stagnated. Of course, middle class did benefit in absolute terms because of market innovations led to price declines in most items which might have been considered luxuries some time back. I am not disputing that. But when you have financial elite whose wealth grows exponentially which instead of trickling down gives a semblance of trickling up while the regular Joe does not see his income rise, it is bound to raise questions about whether there really was a boom. The boom benefitted the rich disproportionately because of Bush's tax cuts which libertarians support. And now you find the regular Joe is having to bail out these same fat cats who enjoyed the boom to avoid a bust for themselves.

The real question I think is whether it is better to digest a slight drop in growth with timely government intervention, despite its obvious inefficiencies and unintended consequences or let the growth be unhindered in spite of warning signs and then let everyone bear a massive hangover even though many didn't even get drunk. You guys' have always argued that the latter approach is better. Now in light of this crises I think the onus is on you to explain how and why?

P.S. I am cross posting this on my blog.

12:14 AM  
Blogger Gaurav said...

The point I am trying to make is it is futile to talk about this from a first principles standpoint. If we start arguing from that angle then it precludes all discussion. You guys win hands down.

Chetan, I have always maintained on my blog that I support libertarianism from a first-principles/moral perspective. It is rather clever of you to admit defeat in that regard, dispose of it summarily, and then try to bury us (at least me) in an avalanche of utilitarian arguments.

I am not qualified or knowledgeable enough to enter that argument. More importantly, I am not interested in that argument.

I understand that like everyone else, you feel the need to search for scapegoats that are not abstract or distant, but easily identifiable among you near-to-not-too-far circle of acquaintances. I empathize. At the end of the day, for whatever reason you are making it, it is still a "jao pehle uss aadmi ka sign lekar aao" argument.

1:54 AM  
Blogger Dilip D'Souza said...

This is an interesting discussion (thanks for the pointer, you know who), and for a thoroughly refreshing change from previous ones, vigorous without being nasty.

Frankly, I couldn't care less who is or is not silent, so let that be.

I also don't know enough about the issues to make or critique a "first-principles" argument, so let that be too.

Which leaves a few things I'd like to point out:

1) I don't think this "bailout" package is solely a rescue of Wall Street fat cats. It should not be characterised that way. That it was seen that way is, I think, the reason it was shot down in the House the first time. (Also, politically, that allowed the politicians who voted against it to go back to their constituents to say, hey look, I fought this fat cat rescue package on your behalf, and now I've taken a hard look at it and I believe it's good for the country so I'm voting for it the second time around).

The way to see it, I believe, is that this was a huge financial mess waiting to happen, and there had to be some kind of steps taken to (try to) clean up the mess. That's a trivial thing to say, but that's the root of it. It's why Iceland and Britain have both nationalized big banks in recent days, for example.

2) Which leads to a truth about banks: whatever the theories about interest rates and markets and the economy, they are ultimately institutions that are erected on a certain human trust, if that's the word. They hold depositors' money in the assumption that they can use it to earn more money: one basis of banking. They hold that money also assuming that all their depositors are not going to show up together and withdraw their money: that's another basis of banking.

Yet in a crisis, that's exactly what depositors feel pressured to do: run to the bank and take out their savings. (Put it under the mattress at home, of course). Any bank that sees that happen will promptly go under, and the depositors who get there too late won't get any of their money.

And that's why you have various mechanisms to prevent this from happening: the FDIC, for one.

Again, I believe that's the way to look at the bailout package: as a mechanism to shore up certain big financial institutions that, if they went bust, would not only take others down with them, but would also leave millions suddenly destitute.

3) Seen like that, I believe a government has an obligation to take such measures. (Whether they should take the specific shape of this bailout package is another issue, of course.) The whole spectrum of banking regulatory mechanisms the world over amounts, in essence, to just such safeguards.

4) Seen like that, to me this says something yet again about free markets. Sink or swim, risks and rewards ... sure, that's true enough. But it is one thing if you're a car manufacturer, let's say, who's answerable solely to your shareholders. But what if you're a big bank that has intricate dealings with other big banks, holding thousands of retirement accounts and the savings of more thousands? Faced with bad times, do you then follow the market maxim and sink as you deserve to? What happens then to the others who drown with you? Does society at large, does a government, see a time that they will step in and attempt a rescue?

And having said that, you might also be a car manufacturer such as Chrysler. Faced with bad times, Chrysler under Lee Iacocca famously asked for and got a government bailout. Should that have happened? Should taxpayers have funded Chrysler's health?

These are uncertain times. But it's in uncertain times that our first principles, if you like, get the workout they need. For one small example: I can't stand what nationalization in the '60s did to India's banks. But what was the alternative this month in Britain and Iceland?

9:52 AM  
Blogger Dilip D'Souza said...

On another note: Kunal, you will note that in the end, every discussion returns to Iceland ...

10:00 AM  
Blogger Kunal said...

See? Goddammit, this is exactly why I wanted to stick to snarky soundbites! I haven't even read most of the comments since my last one (except for Dilip's last, which I liked) because they have been long ass. But I feel compelled to read and respond to all your comments, because well I just do. I'm going to have to sit up all weekend and read your long-ass comments, and reply. You've ruined my weekend. I hope you're all happy.

So here's the thing. No more commenting on this thread, unless your comment is snarky, flippant or involves goats (jokes about Vikings may also be tolerated). Violators of this policy will be deleted.

That is all.

10:17 AM  
Blogger Dilip D'Souza said...

Do goats have long asses?

10:20 AM  
Blogger Kunal said...

I believe there are long asses in the Rann of Kutch. Although these may be wild asses. I will check.

11:49 AM  
OpenID musefree said...

Small busts and cycles are natural parts of the free market. What makes them worse are bad policies.

And in the current instance, those bad policies had nothing to do with libertarianism. Some seem to think that deregulation caused the crisis. Can they explain why hedge funds are doing better than other investments, despite the fact that they are the least regulated? Or why Fannie and Freddie failed, despite being heavily regulated?

It is simply not true that the past few years were the best for libertarian ideology. If anything, the last eight years have seen some of the most unlibertarian policies by the US government ever. I'll give an example -- libertarians generally agree that taxes are bad. However when there is massive spending, as in Iraq, keeping taxes (for the very rich) low is not libertarian, it is stupid!

What, I am trying to say is, when you implement only part of the ideology, you have to select them smartly. If that were done, we would have been much better off.

So yes, both from a first-principles as well as from a consequentialist viewpoint, I continue to maintain that libertarian policies are the way to go.

As for my personal, pragmatic reaction to the bail-out, I support it, but not for the obvious reasons.

3:09 PM  
Blogger Kunal said...

Dude, Musefree, your comment is neither funny nor snarky and contains no mention of goats. You have clearly violated the new commenting policy on this post. I award you no points, and may God have mercy on your soul.

12:02 AM  
OpenID musefree said...

Oops sorry, hadn't noticed the comment policy. To compensate, I offer you this site:

Darn, looking at all those goats makes me crave some mutton curry.

3:22 AM  
Blogger Gaurav said...

If folks started withdrawing money from Kutch en masse, would it be called Rann on Kutch?

8:02 AM  
Blogger Dilip D'Souza said...

If folks started withdrawing money from Kutch en masse, would it be called Rann on Kutch?

No, they'd be called wild asses.

11:12 AM  
Anonymous Ajay said...

" Can they explain why hedge funds are doing better than other investments, despite the fact that they are the least regulated?"

Hedge funds are not doing all that well either. Some are (just as a few banks are holding up) but the majority of them are failing (despite no regulation). It's just an easy argument to make.

2:49 AM  
Blogger Kunal said...

Hedge funds are under tremendous pressure from goats.

8:27 AM  

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