What's the technical term for this?
Posted by aogWednesday, 29 April 2009 at 12:34 TrackBack Ping URL

So now it seems that large American corporations have to ask permission to continue with normal operations — that is, CitiGroup is asking “Mother, may I?” to the federal government with regard to paying out standard bonuses. Fascism? Socialism? Corporatism? I always enjoy getting bogged down in terminology disputes but I am not going to let that cause me to lose sight of the fact that whatever we call, it’s un-American and a Bad Idea.

The only bit of silver lining is this, which I can’t rewrite to be any better —

As far as having executives poached, I’d call that a free-market correction at this point. Citi chose to take government funds and let Obama in their boardroom. One consequence of that is that Obama apparently gets to make their compensation decisions, which puts them at a market disadvantage. That should serve as a warning to other firms looking to suck off the taxpayer teat.

Put me in the “worse is better” school for intervention in this regard.

Comments — Formatting by Textile
Bret Wednesday, 29 April 2009 at 13:52

To me, banking and banks are a special case.

Money and credit are a public good since our central bank (“The Fed”) creates and controls all dollars and credit. Since banks channel and profit from a public good, I think they can be more legitimately subjected to government regulation. If banking and credit were private (as some people advocate), the private banks would have their own set of regulations (contract terms), so why shouldn’t the government?

Of course, that doesn’t mean the government should be stupid with its regulations.

Annoying Old Guy Wednesday, 29 April 2009 at 15:10

That might make me feel better if this were restricted to banking and banks, but have you read anything about General Motors and Chrystler in the last month or so?

Plus, we’re not talking about “government regulation” here, but direct process control of normal business operations.

But reasons …

  1. The same reason government run anything is almost always inferior to private action, the lack of accountability. Private banks go under with bad internal regulation, government banks just take more taxpayer money.
  2. Private banking would have a variety of regulations, providing a level of resilency, experimentation, and feedback. Government banks will have one set of regulations which we just have to hope are correct.
  3. Government backed entities are far more prone to corruption and mismanagement than private ones (on average).
Harry Eagar Thursday, 30 April 2009 at 01:52

Bret, that is a charmingly naive belief, that the Fed and only the Fed controls the money supply. I suggest you tear yourself away from the ridiculous crank Friedman and read some of Martin Mayer’s very accessible books about banking from the ‘70s.

Who controls the creation of dollars isn’t even an American. You can create dollars in Hong Kong by simply selling a bond that has to be redeemed in dollars. And you can sell it in any currency you like.

Guy, as of this afternoon, you have a bit of a dilemma, since your bete noir (bete deminoir, in this case, I suppose) explicitly says he wants government out of productive business. The simplest exit would be to propose that he was telling a lie, I guess.

I believe that each of your reasons, 1, 2 and 3, has been contradicted by experience, but unquestionably 3 has been.

Annoying Old Guy Thursday, 30 April 2009 at 07:19

I think all of my propositions are well served by history, including the theory that President Obama is saying whatever he thinks sounds good at the moment, regardless of its accuracy. I am sure that Obama means what he says in this case just as much as he meant that he would be fiscally prudent, reduce wasteful government spending, review government programs for effectiveness, cut the deficit in half, and give 95% of Americans a tax cut.

Bret Thursday, 30 April 2009 at 12:08

aog asked: “…have you read anything about General Motors and Chrystler in the last month or so?

No, I’ve been to busy blogging and commenting. :-)

That’s why I said banking is a special case.

aog wrote: “…government run anything is almost always inferior to private action…

I more or less agree with this. I think that government run central banks with fiat currencies may be an exception. I agree there are serious costs, but I also think the benefits (for example, ease of commercial transaction with all parties using the same monies) outweigh those costs in this case.

aog wrote: “Private banking would have a variety of regulations, providing a level of resilency, experimentation, and feedback.

Maybe. But part of the issue is even if I agreed that it would be better (which I don’t), how do we get from here (central bank with fiat currency) to there (no central bank or fiat currency) with out severely impacting the economy. There are numerous serious details. For example, which bank would the government use for the treasury?

aog wrote: “Government banks will have one set of regulations which we just have to hope are correct.

The Fed has evolved a great deal over the years. Even governments are theoretically capable of improvement.

Bret Thursday, 30 April 2009 at 12:11

Harry Eagar wrote: “…that is a charmingly naive belief, that the Fed and only the Fed controls the money supply

I don’t believe my statement included the word “only”, which makes it different than what you wrote. I’m glad you find it charming though.

Harry Eagar Thursday, 30 April 2009 at 12:46

You said our ‘central bank creates and controls ‘all dollars and credit.’

I disagree that it can do that.

Bret Thursday, 30 April 2009 at 18:17

Harry,

Note that I didn’t say that the Fed “directly” controls dollars and credit. I assure you that the Fed at least indirectly controls the value of every dollar on earth.

Harry Eagar Friday, 01 May 2009 at 14:45

Really, then why does it have so much trouble getting them to do what it wants? Why doesn’t the Fed insist that the deflator be 0?

Bret Friday, 01 May 2009 at 16:01

Because it’s (mostly) indirect control of interest rates, not direct control.

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