Los Angeles Times
The Rah-Rah Boys
There are no mea culpas from the gurus who prophesied an unending bull market. They're still cruising from one posh gig to the next.
By THOMAS FRANK
CHICAGO -- Many of the '90s icons have passed from the scene: The swashbuckling dot-com entrepreneurs have moved back in with mom, the rule-breaking CEOs are being hauled before Congress for tongue-lashings, the day-trading seniors who were supposed to "beat the pros" are thanking God that Social Security still exists. But one group remains untouched: the public intellectuals of the bull market. The writers of Dow-worshipping books and commentators who handed down daring pronunciamentos from the silicon heights are still cruising from one posh gig to the next.
If you tuned in to CNBC at any point during the long, slow meltdown of the last couple of months, you probably saw the news reader turn to a representative of Forbes magazine, formerly one of the world's most enthusiastic pushers of bull market optimism, now cast as an expert on a market in retreat. If you kept watching for a few hours, you probably enjoyed the surreal sight of James Cramer, one of the late boom's most prolific publicists, trying to feign outrage at the same forces he once cheered. And you undoubtedly gaped in disbelief when you recognized Cramer's co-host as Larry Kudlow, the hyperexuberant economist who once proclaimed from the op-ed page of the Wall Street Journal that the free-market policies of the Reagan/Clinton years were so profoundly correct that they would one day cause the Dow Jones industrial average to hit 50,000.
The Journal itself, far from showing contrition for its New Economy excesses of a few years back, recently ran a defense of the nation's beleaguered stock analysts by none other than James Glassman, coauthor of the 1999 book "Dow 36,000." In his article, Glassman argued that analysts from the big Wall Street firms are being unfairly singled out for blame by killjoys like the New York attorney general. "Every bear market requires a scapegoat," Glassman wrote, "and this time the chosen victims are stock analysts." Glassman is certainly right about the stock analysts. However guilty they are for puffing the bubble, analysts alone shouldn't be forced to bear the blame for the subsequent catastrophe. That burden should be shared--by, for example, Glassman himself, the editors of the Wall Street Journal op-ed page, Forbes magazine, Cramer and Kudlow.
Messrs. Cramer and Kudlow should, by all rights, have been sentenced to some kind of lengthy intellectual exile, required to spend the next decade in a defunded public library somewhere, reading the complete works of John Maynard Keynes. But a full year into the slow-motion crumbling of the Nasdaq, CNBC decided instead to reward these two great salesmen of the bull market with their own daily program, where their thinkings, alternately frenzied and surly, can reach an even wider audience than before.
So too with Glassman. Instead of being required to write "I will not confuse libertarian hallucinations with practical investment advice" 36,000 times, he was indulged with a seat on President Bush's 21st Century Workforce Council.
We are finally rid of the most egregious corporate swindlers of the 1990s. Why aren't the intellectual snake-oil salesmen following the dot-cons into oblivion? On the most elementary level, it's because the nation's newspapers, think tanks, magazines and TV networks have a great deal to lose were we to turn on the New Economy theorists in the manner they deserve. If the intellectuals of the '90s boom are to sink like the stock analysts and CEOs into the depths of public scorn, those newspapers and think tanks would bear the brunt too. After all, any comprehensive list of those guilty for puffing the '90s bubble would read like a who's who of American media.
Try to remember what it was like in those feverish days. Virtually everyone agreed: The stock market was a form of democracy. It was a juggernaut powered by the divine inevitabilities of Silicon Valley and the awesome assembly of the people of the globe. This was well-nigh universal stuff: Both Tony Blair and Bill Clinton were believers, as were Al Gore and George W. Bush. Small-town papers across the country carried the stock-picking homilies of the Motley Fool. Bookstores everywhere allowed you to choose between reassuring stock tips penned by the Beardstown Ladies, a set of kindly Midwestern grandmas and irony-drenched stock tips penned by the Capitalist Pig, a hip Chicago Gen-Xer. Your next-door neighbor had seen the light and was day trading from his rec room, and you were thinking about doing it too.
Another reason that so many of the hyperventilating pundits of the 1990s have proven impervious to the usual consequences of error is that generating an accurate depiction of economic life really wasn't their main function. When they told the world about the miracles of the Internet and the obsolescence of all previous economic knowledge, the public thinkers of the New Economy were interested in something else.
That something else was politics. After all, the central tenet of the New Economy faith was that the free market was the highest and most rewarding form of human existence, a notion that would have seemed transparently ideological had it not always been couched in the language of technology and in lofty phrases about the juggernaut of history and the will of the common man. The great economic commentators of the '90s didn't dissect the corporation so much as propagandize for it, looking ahead to a time when the little people would identify more with the corporation than with the government.
Again, Glassman provides the apposite example. Marveling at the great things that were to happen when we the people drove the Dow all the way to 36,000, he and his coauthor wrote, "The first change we expect is political." Just as "the crash [of 1929] was the catalyst for the modern welfare state," so an eternally rising market will have "the opposite effect. As more and more Americans gain a larger and larger stake in stocks, their views undoubtedly will shift on such matters as business regulation, taxes, antitrust policy, trade, and even foreign affairs."
Another clue to the real nature of the New Economy should have been the right-wing pedigrees of a number of its most prominent gurus. Glassman himself is a fellow at the American Enterprise Institute. The banker Walter Wriston, who wrote an influential 1992 book about the wonders of the Information Age, was once one of that institute's trustees. Kudlow worked for the Reagan administration, the George W. Bush transition team and the right-wing Empower America foundation. George Gilder, the most celebrated tech writer and stock picker of the 1990s, the man who launched a thousand silicon shibboleths, came to punditry after achieving considerable fame as an ultraconservative political theorist and a speechwriter for President Reagan.
The prominence of these people and others like them were, to a great degree, unrelated to their skills as economic prognosticators. Their trade was politics, and at it they were wildly successful. Americans were indeed persuaded to roll back the regulatory state in the 1990s, to give the corporations whatever they wanted, to slash welfare, to smash the labor unions and even to (sort of) elect the most pro-corporate administration since Herbert Hoover's, headed by a man who promised to privatize Social Security.
Today, though, the picture has changed. And for most of last year's gurus, the battle has simply shifted. Now it is a matter of blame and they are on the defensive, fighting to rescue their beloved free market with even more zeal than when they were talking up the Nasdaq back in '98. The crash has brought the consequences that crashes always bring: a return of the regulatory state, demands for the end of excessive CEO pay, public anger at businessmen rather than liberal college professors and--who knows?--maybe the revival of labor unions and the estate tax. For the business class the stakes are huge, and the job that confronts their army of economic commentators is weightier than ever.
Nevertheless, they have risen to the challenge with impressive creativity, cranking out a thick smokescreen of blame evasion where they once generated a fog of prosperity without limits. Whatever happens, they argue, it cannot possibly be the fault of the market. Never mind the fact that one of the very measures taken by corporations in the '90s to ensure that market rationality prevailed--the granting of stock options to top executives--is the single greatest culprit in the present fiasco: Markets never fail. Other parties, namely government, must be responsible. "This is Washington's recession," a glowering Kudlow said a little over a year ago, "for which nothing is more to blame than the arrogance of policymakers, who refused in the first place to recognize the real sources of prosperity and then refused to acknowledge that slumping stock markets were a referendum on Washington's mistakes."
Over the last year, dozens of candidates have been unearthed and pushed forward, then abandoned out of self-evident absurdity. Kudlow, for example, blamed the antitrust lawsuit against Microsoft. Gilder blamed antitrust restrictions placed on WorldCom. Others got indignant about taxes, which are always too high, since, by definition, they are equivalent to theft, or about New York's lawsuit against Merrill Lynch. With my own eyes I watched a TV show in which business reporters blamed government policy for tripping up the good people of Enron.
A more forthright school of thought blamed the public. In good times corporate ideologues had claimed to see the majesty of the vox populi in every blip and surge of the Dow; why not simply invert that argument in these desperate days? After all, it was "the Internet enthusiasm of small investors" that caused the bubble, the Wall Street Journal's Holman Jenkins wrote recently. It was mom and pop who "bear primary responsibility for driving up stock prices of speculative businesses and causing billions of dollars to flow into the creation of assets for which there is no demand now."
My personal favorite evasive maneuver, though, is the denunciation of thought crime, of those who harbor doubt and negativity. Markets can't take criticism, apparently, especially when it comes from liberal Democrats. One would think that the gurus would keep their distance from this line of blame assessment, as it seems to suggest that the stock market is a fickle, pusillanimous institution, turning tail at the slightest sign of adversity--which can hardly be reassuring to the millions of investors being told that the market is a safe place for their savings. Yet everyone from Tom DeLay to Rush Limbaugh has been hitting this issue hard of late. Critics must be silent or prosperity will never return.
But Rush and the gang have the matter entirely upside down. America's current problems stem not from an excess of dissent but from the utter unaccountability of corporate apologists like Cramer, Kudlow, Glassman and the Wall Street Journal. What was and is needed in America is not the complete and final quieting of dissent but a vibrant counterpoint to the chorus of promoters who virtually monopolized economic discussion in the 1990s. What will prevent bubbles and manias and mass delusions and maybe even bad government is a new set of public thinkers willing at least to entertain the notion that capitalism might not always allocate goods fairly or efficiently; that markets may not always be synonymous with democracy; that voting and collective bargaining are expressions of the popular will every bit as legitimate as shopping and day trading.
Maybe market meltdowns are what happen to a country when commentary on matters economic becomes the exclusive province of business thinkers. When labor unions are systematically crushed. When dissent is divorced from matters economic or social and becomes instead a quality of middle-class taste preferences, of "extreme" cars and "radical" packaged goods. When management theorists take it as their duty to dazzle us with a crescendo of free-market worship. When leaders of left parties cleanse their ranks of laborites, of New Dealers, of Keynesians, of socialists. When newspapers refuse to open their columns--on grounds of laughable, self-evident dinosaurdom--to doubters and second-wavers and old-school liberals.
Today we are paying for each of these, for all of the ways in which we expunged the common sense of our parents' America from our lives. With each month's nauseating returns, we are making good the intellectual folly of the last 10 years. If you want other stories on this topic, search the Archives at latimes.com/archives. For information about reprinting this article, go to www.lats.com/rights.