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"War Criminal says Sorry, Sobs," was the headline in the Nation on 9 February, 2004. Robert McNamara had just done something extraordinary for secretaries of war: with tears in his eyes, he apologised for his role in the Vietnam War. The war made ghosts out of 58,000 American soldiers. On the Vietnamese side, the total was over a million. On Monday, he went to meet them.
Why do smart people do such stupid things? Philosophers have wondered for ages. Today, we make a modest contribution to the genre. Getting right to the point: the rich man believes his money sets him apart; the handsome man favours mirrors; and the man favoured by nature with superior computing power believes everything is a bridge. Bridges yield to logical calculation. Alas, bubbles, wars and lovers often do not.
McNamara was described – by both the International Herald Tribune and the Financial Times – as the "architect" of the Vietnam War. This is news to us and libellous to real architects; as near as we could tell, the war went on without plans or blueprints. Instead, McNamara took an economist's approach to war.
His formula had only three numbers: how much damage he could inflict on the enemy; at what price; and how much pain the Vietcong/North Vietnamese could stand. Later, he discovered that the enemy wasn't even counting.
Long gone are the days when economists thought deeply about how life actually works. Adam Smith, Adam Ferguson, Anne-Robert Turgot – the great 'moral philosophers' – all died hundreds of years ago. Since then, the trade has gone bad. They're all numbers guys now.
An economist, of the modern variety, is a statistician... an extrapolator... and a mountebank. If numbers go up two months in a row, he predicts they will go up another one. He rarely stops to ask whether his numbers really make any sense. Instead, he merely adds them up and rolls them out.
Thus – at the bubbly top in 2006 – he was able to describe the likelihood of default on a certain derivative instrument as a "six sigma event" without laughing. A six sigma event happens once every 2,500,000 days. Then again, when the Bubble of 2002-2007 popped, they happened once a week. The blogs are full of chatter on the subject. What good is the economics profession, asks Paul Samuelson, if it cannot foresee the biggest single economic event in at least a quarter century?
Yet, those same economists – who failed so miserably at diagnosis and prevention – barely hesitated. Rather than spend months in drunken shame, contemplating their own incompetence, and wondering what a bubble really is, they deny the wild bubble altogether – and moved directly to try their hands at prescription.
As we reported last week, president-elect Obama's economics advisors went to Congress last autumn to predict that without the stimulus measure joblessness in the US could rise to 8%! "If we don't pass this bail-out bill today, we might not have an economy tomorrow," said Ben Bernanke, perhaps exaggerating.
How he could know the future, when he demonstrably knew so little about the recent past, was a mystery. Still, the politicians in America and Britain responded by enacting the biggest bank bail-out boondoggles in history. Public deficits rose to record levels – about 13% of GDP – to pay for them.
What would have happened had the legislators failed to jump when economists threw them a bone? We don't know. But we know what happened after the stimulus measures were passed – they failed to stimulate. The employment numbers for June showed they had misjudged both the direction and the speed of the oncoming bus. Instead of shifting down, the rate of job losses increased. Instead of going forward, the economy was backing up!
Do economists stop to wonder if their theories are bogus and their numbers are nonsense? Nope; they do what McNamara did. They turn up the heat. They propose to spend more money they don't have on programmes that don't work. Predictably, Obama advisor Laura Tyson now suggests that the stimulus thus far is "too small". Other economists too are talking about a "son of stimulus" that will offer even more credit to the debt-saturated consumer. Only trouble is, none of consumers, businesses or banks cooperate. Despite trillions in cash and credit to banks, lending is going down.
Robert McNamara was as smart as any of today's number crunchers. A Harvard 'whiz kid' with a 'can do' attitude, he was one of the 'brightest and the best', the kind of American who makes you proud to be one. He was an efficiency expert. Everything has its place. Poetry is not much in demand from bridge builders. For warriors and lovers, on the other hand, efficiency is at best a second-tier concern.
When asked to take the job at the Defense Department, McNamara replied to John Kennedy that he was "not qualified". That was the last thing he was right about. Thirty years after the event, Mr. McNamara visited Hanoi, explained his formula and reasoning. He posed the question: "How come you didn't come to the bargaining table?"
"We understood the math," said the old general Giap, or words to that effect. "But we didn't know you were trying to reason with us; we thought you were trying to kill us." Sometimes it is the brain that fails. Sometimes, it is something else.
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Bill Bonner
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