Jane Mayer's Problem
By David Henderson
George Melloan, a retired editor of the Wall Street Journal, had a review in a recent issue of the Journal of Jane Mayer’s new book, Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right.
The review is pretty good but he made a huge economic error and, in doing so, passed up a chance to make an important point.
Quick background for those who don’t know: Mayer’s book is a hit piece on Charles and David Koch.
She chides the Kochs for opposing President Obama, noting that their fortunes have tripled since he came to power. Ms. Mayer doesn’t seem to understand that the fortunes of wealthy people on both left and right were ballooned mainly by the asset inflation engineered by the Federal Reserve. Small savers have been the victims.
Where’s the error? Since the discussion is about the Kochs, I’m assuming that they don’t hold a lot of the toxic assets whose prices the TARP artificially increased. That, therefore, leaves one mechanism by which the Fed can cause asset inflation that would affect the Kochs: keeping long-term interest rates low. But the Fed has virtually no effect on long-term interest rates. Long-term interest rates are low. That doesn’t mean the Fed is the cause. Do I know the cause(s)? No, l don’t. But it makes no sense to use an explanation that can’t be true just because we aren’t sure of the right explanation.
Here’s what I would have written, had I been writing that part of the review:
She chides the Kochs for opposing President Obama, noting that their fortunes have tripled since he came to power. But this puts her in a contradictory position. Throughout the book, Mayer shows that she believes strongly in two premises: (1) David and Charles Koch are smart and devious, and (2) their main goal in their political activism is to preserve and enhance their wealth. But then, if Obama’s policies caused their wealth to triple, they should be strongly supporting him. They aren’t. So which assumption should Mayer drop? Either (1) the Kochs are not smart and devious or (2) their main political goal is not to preserve and enhance their wealth. My money and a lot of other evidence are on (2).