Stealing in the name of the victims
Posted by aogThursday, 05 August 2010 at 19:37 TrackBack Ping URL

Obama Administration is planning to siphon money from Justice Department prosecutions to politically favored non-governmental groups. But clearly we should never worry about any polticization of such tax farming, where NGO actors apply their creativity in generating cases for which they get money. Such apparatchiks simply don’t have incentive to cut such ethical corners.

Comments — Formatting by Textile
Harry Eagar Sunday, 08 August 2010 at 19:02

I hope some of that credit counseling is given to the heads of Wall Street’s top financial institutions. They need it.

Annoying Old Guy Monday, 09 August 2010 at 20:55

It’s telling that bypassing Congressional control of funding, and extorting via tax farming by the Executive branch is not something that concerns you. Only slamming on Wall Street financiers matters. That’s a rather severe case of spite you’ve got, which I don’t think is a good basis for policy.

Harry Eagar Monday, 09 August 2010 at 22:25

The part that bothers you has been going on for years. Suddenly it’s a crisis because some rightwing pressure group wants to raise your systolic number?

It’s true, though. The greatest damage to the society is done by nitwit bankers, not by hardworking warehousemen. And why wouldn’t I slam Wall Street financiers? Don’t they deserve it?

Annoying Old Guy Tuesday, 10 August 2010 at 06:28

I think it’s a bit different when it becomes official Department of Justice policy.

As for slamming bankers, it’s one thing to dislike them and bring up their failures when relevant. It bespeaks an irrational obsession to bring them up in all discussions, even when completely irrelevant.

Harry Eagar Tuesday, 10 August 2010 at 12:16

I thought it was funny. The more I think of it, the funnier it gets.

As for the policy, I have always been slightly dubious about it, but it was never a big deal. To pretend it is new just because some — gasp! — group of small-time liberal busybodies gets the pelf sounds like something I have heard about recently. What was it Oh, yeah, the McCarthyite slanders of ACORN.

You see a pattern, I see a pattern. But not the same pattern.

erp Tuesday, 10 August 2010 at 16:21

McCarthyite slanders of ACORN = exposing corruption and hopefully killing it dead.

AVeryRoughRoadAhead Tuesday, 10 August 2010 at 19:28

It’s telling that bypassing Congressional control of funding, and extorting via tax farming by the Executive branch is not something that concerns you. Only slamming on Wall Street financiers matters.

That’s because the damage done by Wall Street financiers eclipses that of back-room gov’t patronage subterfuge by several orders of magnitude. Further, the vast majority of that Wall Street-caused damage has yet to be felt in the economy, and by the taxpayers.

Tax farming, and Executive bypass of Congressional funding control, can be reprehensible or distasteful, but are hardly unknown in the annals of American history - both are rather common, in fact.

But to get back to Wall Street financiers, there are probably thousands of such who, in a world of perfect justice, would be serving Bernie Ebbers-type prison sentences. The fact that so far none are, is why the Wall Street slamming should continue.

Harry Eagar Tuesday, 10 August 2010 at 20:54

When I first started reading the Wall Street Journal cover to cover, back around 1970, the part that really interested me was the third page. That was where all the con artist stories that weren’t Bernie Ebbers-huge were played.

Over and over, you’d see a story about some individual or corporation who’d stolen $100 million or so — almost real money in those days — and the corporation would pay a fine, and offer a statement that it would “have no material effect on earnings.”

Seldom, very, very seldom did anyone spend even a day at Danbury.

Markopolous says he uncovered 20 billion-dollar scams using his Madoff detector.

I’ll stop jeering at Wall Street when Wall Street indicates that it has learned something about its place in society.

Annoying Old Guy Wednesday, 11 August 2010 at 09:32

AVRRA;

That’s because the damage done by Wall Street financiers eclipses that of back-room gov’t patronage subterfuge by several orders of magnitude.

Your view then is that is is wrong to talk about anything other than the singled biggest problem? Because your logic here applies just as well to any other discussion.

Mr. Eagar;

Humor is fine, and there’s nothing wrong with jeering at Wall Street in general. I still think this represents a distinct change in policy and in a way that will be damaging in the long run, even when the GOP gets control of the “qualified” list.

erp;

When you don’t have the facts, pound on the table, and the best way to fight against “McCarthite slanders” is to issue baseless slanders yourself.

erp Wednesday, 11 August 2010 at 11:32

aog, at the risk of being repetitive, McCarthy didn’t issue baseless slanders as anyone who’s interested in the truth/facts can learn for themselves with a couple of Google clicks.

Harry Eagar Wednesday, 11 August 2010 at 14:44

If it were true that McCarthy did not issue baseless slanders, then his traatment by the right deserves some examination.

On the other hand, if the critique of McCarthy is generally correct, then the embrace of his memory by today’s right deserves some consideration.

erp,in two clicks, I found this at — wait for it! — reason.com:

‘Evans provides almost no representative selections from McCarthy’s speech about Marshall, thus insulating the reader from the true biliousness and absurdity of the senator’s attack. If Evans had so chosen, readers would have seen a hero of World War II besmirched with contemptible claims of treason and with the bizarre suggestion that the Marshall Plan for the economic revitalization of Europe was inspired by U.S. Communist Party boss Earl Browder.’

pj Thursday, 12 August 2010 at 16:00

AVRRA - Since all the damage done by Wall Street bankers is through tax and regulatory farming, by which they’ve cost us trillions, and that is a SUBSET of back-room gov’t patronage, you can hardly use the former to minimize the latter.

AVeryRoughRoadAhead Thursday, 12 August 2010 at 23:39

You’ll have to explain to me how you think the damage done by Wall Street can be attributed, even in part, to tax farming.

Regulatory capture was necessary for the damage to grow so immense, but in and of itself regulatory capture wasn’t sufficient.

So I don’t think that using “all” or “through” in your post actually applies, which basically negates the point about back-room gov’t patronage. But I eagerly await a more substantial argument; possibly all will become clear.

pj Friday, 13 August 2010 at 07:36

AVRRA - There was the TARP money, and the Maiden Lane AIG bailouts that have stuck the Fed with almost $100 bn in losses, but much bigger than those were the Federal Reserve bank bailout (buying $1.5 trn in MBS from the banks at prices almost double the March 2009 levels, probably at least 30% above market) and the Fannie/Freddie/FHA bailouts (refinancing underwater bank mortgages onto the government’s balance sheets). The bill for these bailouts is concealed right now but there will be a $1 trn bailout of Fannie/Freddie/FHA before this is all over, and that’s probably a good measure of taxpayer transfers to the banks.

All of these bailouts were arranged in back-room deals without overt Congressional authorization, and many of the key regulators/officials arranging the bailouts were former Wall Street bankers. Pelosi, Reid, Paulsen, Summers/Geithner, Bernanke, Fed Res Bank of NY with its Goldman/JPM dominated board and management, Chris Dodd and Barney Frank — these were the major back-room players.

Harry Eagar Friday, 13 August 2010 at 16:08

Agreed that the bailout was incompetently done by Bush, but the failure that required a bailout was totally free of any regulatory or tax implications.

CDSs and CDOs were unregulated in any way, and were taxed as ordinary income (unless, I suppose, someone could construe them as a capital gain).

AVeryRoughRoadAhead Friday, 13 August 2010 at 18:32

pj:

I guess it depends on whether one thinks that the damage was done when Wall Street placed the bets which will ultimately destroy all of the major American and European banks, actions based on regulatory capture but not classic gov’t patronage; or when they convinced the American gov’t to share their cup of hemlock.

Given that Wall Street has been attracting the nation’s best and brightest for roughly a generation, since the mid-80s, (Are Bankers Over-Paid? - Thomas Philippon, NYU Stern School of Business),

and given the rise of the math & physics Ph.D. “quants” on Wall Street, it seems incredible that collectively, they could have been so very, very foolish. Guys like Angelo Mozilo, Chuck Prince and Henry “Devil-spawn” Paulson knew that there was only one way that this could end, but instead of easing off the gas and turning defensive, they pressed their bets, trying to parlay just a couple more times and take the very last penny off the table…

Harry Eagar Friday, 13 August 2010 at 21:45

Now you have entered into the vexed problem of defining intelligence. I like Melvin Konner’s approach, as it does not require that we genuflect to these guys on account of their supposed intelligence.

I say they were morons when it came to the subject for which they collected paychecks, unless they were crooks. They may perhaps have been skilled or intelligent at something else, but as bankers they were morons.

Over at the Daily Duck, we have seen several posts by Skipper about what you need to know to do to fly an airplane. These guys understood as much about banking as I do about flying airplanes.

pj Saturday, 14 August 2010 at 14:27

AVRRA - True, the bubble was in significant part a result of misregulation and log-rolling by government and banks, always eager to make money now and put off problems to the future. But the losses didn’t have to be transferred from banks and their investors to taxpayers. That’s tax farming.

I’m not sure how foolish the best and brightest were, since they’ve come out of the last 30 years richer than anyone. If their reputation is diminished, their pelf is much increased. Of course when Ponzis collapse, some of the instigators won’t get out in time. Still, they had a good run.

Short-termism has come to dominate all our “elite” occupied institutions. The government, the Fed, the banks, they are all willing to trash their balance sheets for some extra income today. Even the media is willing to devastate their firms’ reputations as objective news sources to win a minor propaganda victory today. We need a new elite with more care for the country and the future.

erp Saturday, 14 August 2010 at 16:03

We need a new elite with more care for the country and the future. Amen!

Harry Eagar Saturday, 14 August 2010 at 17:40

No, the losses didn’t have to be transferred, but it was a cinch they would be. In that case, the new elite you are fretting about was behaving exactly like the old elite, so I don’t take your point.

Besides, from everything I have absorbed from this blog, managing for short-term and personal advantages is not only admirable but anything else somehow robs our grandchildren of their freedom and prosperity.

pj Sunday, 15 August 2010 at 09:48

Harry - For a writer you don’t read well. I was speaking about a new elite we need to replace the current elite, not one that “was behaving” badly in power.

As for your smear of this blog, it’s beneath refutation.

Harry Eagar Sunday, 15 August 2010 at 14:05

I thought you were talking about a new, new elite, since the sentiment here is that the current crop is some sort of devolution from the good old days.

Annoying Old Guy Sunday, 15 August 2010 at 15:33

First, let me say I agree with pj. That written, let me take some more specific items

I thought you were talking about a new, new elite,

We were talking of having an elite rather than a ruling class. What we think of as the “not quite so bad days” had more of that property. An elite which does not think no aspect of our lives is beyond their control. You argue about which masters we like better, where as we are arguing for not having masters. That’s one reason I disagree with this

No, the losses didn’t have to be transferred, but it was a cinch they would be.

I think it was only a cinch because of the prevailing ethos of the New Deal. Remove that and we can reduce the instinctive acceptance of transferring private losses to the public purse. It is a big reason I oppose government economic intervention in general, because defending this intervention vs. that one inevitably degenerates in to not opposing any of them.

This leads directly to refuting

managing for short-term and personal advantages is not only admirable but anything else somehow robs our grandchildren of their freedom and prosperity

What this weblog maintains is that there is no way to effectively legislate against managing for short-term and personal advantages without also robbing our grandchildren of the freedom and prosperity. We are seeing exactly that sort of slippery slope in operation today and for the last couple decades. One need only consider creating a legal definition of “short term”, “personal advantage”.

This weblog also sees that such managing must take place with a context of consent maximization, something which cannot happen if the government engages in specific interventions. And the only way to stop that is to solve the Prisoner’s Dilemma with a blanket prohibition.

Harry Eagar Monday, 16 August 2010 at 12:52

If you guys had accepted the little intervention of Glass-Steagall — which did not obviously reduce the income of grandchildren — then there wouldn’t have been any call for a big intervention.

I am not a fan of the current intervention, either.

Anyhow, I’m a small-d democrat. I’d rather have everybody participate than rely on an elite. I don’t believe elites exist. Specifically, I don’t believe any group with more than about 25 members will exhibit less range than other group, no matter what entry criteria are used. We went through this in the context of CEOs. It would be hard to argue — given the examples of HP and BP just within the past few weeks — that there is some minimum level of talent and ability you have to rise to in order to become leader of a Fortune 10 company.

RtO just had something to say about it in the context of Michael Lewis’ ‘The Big Short.’

Annoying Old Guy Monday, 16 August 2010 at 13:42

If you guys had accepted the little intervention of Glass-Steagall — which did not obviously reduce the income of grandchildren — then there wouldn’t have been any call for a big intervention.

I completely disagree with that statement. I don’t remember when I objected specifically to Glass-Steagall, only to the idea that it was the sole dike holding back the flood. The root cause was the massive intervention of Fannie Mae / Freddie Mac. All the subsequent interventions are like a bad situation comedy where one mistakes sets of a series of further mistakes, each making the situation worse.

Anyhow, I’m a small-d democrat. I’d rather have everybody participate than rely on an elite.

Participate in what? That’s the key question.

Specifically, I don’t believe any group with more than about 25 members will exhibit less range than other group

So I had two groups of a million people, and one group was all San Francisco style artistic hippies, except for one engineer, and the other was all engineers except for one San Fran art hippy, you would say there’s no difference between the groups because they have the same range of behavior?

Harry Eagar Thursday, 19 August 2010 at 13:17

Would it surprise you to know that I have a nephew who is both a typical San Francisco hippie and a qualified computer architecture engineer?

However, that’s irrelevant, unless the hippies were presenting themselves as engineeers or the engineers as qualified hippies, since no one is pretending that a random million people is an elite. The point is that when elite is selected, or declared, its composition is indistinguishable from a comparable non-elite set.

In my experience, no matter how hard you try to select out an elite, once it gets beyond a small size, selection pressures other than qualifications to do the job — skin color, religion, ability to get along with golfers, etc. — become as important as or more important than ability. The manifest incompetence of the American military high command and of leaders of large corporations needs some sort of explanation, and that’s mine. What’s yours?

Annoying Old Guy Thursday, 19 August 2010 at 15:31

My experience is that if I note something as a “key question”, you will ignore it and respond to the most minor point you can find in my comment. My experience is that trying to extract any sort of abstract principle from you is a Sisyphean task. You would make all of the corporate marketing guys I know hang their heads in shame at how poorly they could weasel and evade compared to you.

The minor point to which you responded is your claim that two groups are indistinguishable if they have the same range of behavior. Scroll up a bit if you’ve forgotten. Your most recent comment doesn’t address that at all. Let me ask again, since you picked this out as the most relevant — do you think the two groups I described

  1. Have the same range of behavior
  2. Are indistinguishable

P.S. Note I wrote “artistic hippie”. That was not an accidental and irrelevant word.

In my experience, no matter how hard you try to select out an elite, once it gets beyond a small size, selection pressures other than qualifications to do the job — skin color, religion, ability to get along with golfers, etc. — become as important as or more important than ability.

So, elites don’t exist but you can described their general characteristics? Once again your clarification has decreased my understanding of you, your opinion, and your experience.

The manifest incompetence of the American military high command and of leaders of large corporations needs some sort of explanation

You have yet to learn the dangers of making massive blanket generalities as claims, have you? Now we have the military high command and leaders of large corporations being manifestly incompetent throughout the entire history of the USA. Apparently our military victories and periods of economic dominance are the things that need explanation.

erp Thursday, 19 August 2010 at 16:19

aog, when I was about 13 or 14, I agreed to tutor a fellow student with her algebra. Although she wasn’t stupid, she simply couldn’t understand the concept.

I learned two things by that experience: 1. I didn’t ever want to teach, and 2. Some people simply can’t understand what you’re talking about no matter how many times and how many different ways you attempt to explain it. ‘Nuf said.

Harry Eagar Thursday, 19 August 2010 at 18:34

We are talking about elites, are we not? If a self-proclaimed elite displays the same range of abilities as some non-elite group, then how do we tell which is which?

I dunno if I have to explain the entire history of self-proclaimed elites? Am I required to explain that the Harvard alumni, when it was Judenrein, was not as elite as it liked to think itself? I hope not.

The manifest incompetence of today’s military high command and corporate leadership probably needs an explanation. I have an additional explanation — both are openly corrupt — but as far as I am concerned, that is just lagniappe to the fundamental incapacity of elites to self-select or to be selected.

Besides, vast enterprises can succeed even with top leaders who are not only not competent but not even sane. How many stars did Douglas MacArthur wear?

Annoying Old Guy Thursday, 19 August 2010 at 19:35

If a self-proclaimed elite displays the same range of abilities as some non-elite group, then how do we tell which is which?

Distribution of abilities. But you’ve done yet another bait and switch — we were talking about generic range which you’ve now qualified as “ability” without, as usual, any acknowledgement. It’s one of the things that makes your comment so unclarifying.

As for my original example, you could tell which was which by having a sample solve a differential equation, or paint a sunset. But let me try a different one which might be more understandable for you.

Suppose we have two towns with a million people in each. In one town, there’s one guy who makes $1M/year, and 999,999 people who make $10K per year. In the other town, there’s only one guy who makes $10K/year and everyone else makes $1M/year. These towns have the same range of incomes, so then how do we tell which is which?

Personally, I consider most self selected elites credentialed morons, but your explanation of it makes no sense. On the other hand, as far as I can tell, you believe in one elite, that of the appartchiks who are not, unlike the American military high command and corporate leaders, manifestly incompetent. I must say the idea the leadership of the federal government has demonstrated less incompetence over, say, the last decade vs. our military leadership would seem highly debatable. Yet you have no hesitation in turning over any and all aspects of our lives and economy to the former. Quite at odds with your claimed belief here.

I dunno if I have to explain the entire history of self-proclaimed elites? Am I required to explain that the Harvard alumni, when it was Judenrein, was not as elite as it liked to think itself?

You could explain whether you think elites exist. You claim you don’t, then give examples. The latter is called an “existence proof”, where you prove something class of thing exists by providing an instance of the class. So I hear “elites don’t exist, because here is an example of one”. Whether that Harvard elite had an accurate self image is quite irrelevant.

You are also defining “elite” rather narrowly, again without acknowledging that. People with personal wealth over $1B are an elite, even if their “abilities” are indistinguishable from the norm. The Old Media titans, back in the day, were an elite because of their control of societal information flows, even if their “abilities” were indistinguishable from the norm. That same with our new appartchik aristocracy.

The manifest incompetence of today’s military high command

Ah, today’s military high command. This kind of walkback is why I am so skeptical of basically everything you write.

Besides, vast enterprises can succeed even with top leaders who are not only not competent but not even sane. How many stars did Douglas MacArthur wear?

Ah, now you’re adding “sane” to the mix. I wasn’t aware that it was an opposite of “competent”. Clearly you don’t know many mathematicians or physicists. And clearly we see what a massive failure due to incompetence his efforts in Japan were.

Harry Eagar Friday, 20 August 2010 at 13:42

The way you are now defining elite would make all Catholics or all Frenchmen into elites. You called for a new elite.

I thought you meant that would be good because it would do a better job. If ‘better outcome’ doesn’t translate as ‘superior ability,’ I cannot quite imagine what it does mean.

It is my contention that, once a system is set up to run of itself, management doesn’t matter until the setup wanders outside its original parameters. So, in fact, the ‘success,’ such as it was in postwar Japan was built into the situation. Any other satrap would have done as well (or done as poorly if the North Koreans had not done the favor of inducing the US to vastly stimulate the Japanese economy).

Systems are set up to run of themselves by what we might call geniuses, or at least great system builders. I had to learn hwo to cook, but I did not have to invent how to cook.

And, of course, I never said I thought any and all aspects of our lives should be turned over to government, since I several times said that shouldn’t happen (search ASTM). On the other hand, if it is broke, I support fixing it.

Fixes will normally have to come from outside, since the insiders often benefit from not fixing it. An unregulated system with private property privileges mandates developing in a flood overflow area, no matter how obviously stupid such a course is from a social standpoint (see Pakistan today, or read ‘Rising Tide’).

Annoying Old Guy Friday, 20 August 2010 at 17:10

The way you are now defining elite would make all Catholics or all Frenchmen into elites

No, because “all Catholics” do not have some significant capability (such as enormous wealth, or informational control, etc.).

You called for a new elite

No. Let’s just scroll up, shall we? Ah, there it is

We were talking of having an elite rather than a ruling class.

I don’t care if some group of people (like Harvard graduates) call themselves an elite in your sense of the word. Go for it, I say. It’s when they decide that, because they are elite, they should decide how I should live, that I object.

I thought you meant that would be good because it would do a better job.

No, as I have stated repeatedly, I meant it would be good because it would do less of the “job” of controlling my life.

That said, you make two statements that once again seem to contradict each other. To wit,

If ‘better outcome’ doesn’t translate as ‘superior ability,’ I cannot quite imagine what it does mean.

vs.

It is my contention that, once a system is set up to run of itself, management doesn’t matter until the setup wanders outside its original parameters

So, until the latter happens, there would not seem to be any relationship, in your view, between “better outcome” and “superior ability”. Ability seems to be irrelevant. Why, then, do you spend time mocking the “manifest incompetence” of American CEO’s? How can you tell, since management doesn’t matter most of the time? In specific, why do you care if McArthur was incompetent?

Of course, I strongly disagree with that assertion. My view is that no human activity “runs itself” without constant “upkeep” from management. Your cooking example simply shows that knowledge doesn’t decay, but your learning to cook involved no operating “system”.

I never said I thought any and all aspects of our lives should be turned over to government.

This is in response to what, exactly?

I wrote

no aspect of our lives is beyond their [elite] control.

Which you did write, as cited there and here.

Harry Eagar Saturday, 21 August 2010 at 14:38

Let’s back up. This elite, who is going to be in it? Since you don’t admire self-selected elites, presumably somebody will choose it. Who? How?

‘Why, then, do you spend time mocking the “manifest incompetence” of American CEO’s’

1. because it’s manifest; and 2, because they’re supposed to be hired and paid to adjust to changing circumstances. Newspapers get mocked for not adapting, and I haven’t noticed you rushing to the defense of newspaper managements.

Annoying Old Guy Saturday, 21 August 2010 at 15:07

This elite, who is going to be in it? Since you don’t admire self-selected elites, presumably somebody will choose it. Who? How?

Don’t know, don’t care, not my problem.

I will repeat this yet again, what I want is less of a ruling class. What I want to do is live in a society where I don’t have to care who is in the elite. Self governance, it’s a concept whose time has come back.

I haven’t noticed you rushing to the defense of newspaper managements.

Could you point out where I have rushed to the defense of non-newspaper management? My questioning of your rather selective choices of disdain doesn’t count. My experience is that you a priori disdain American management and their “manifest incompetence” is a rationalization, not a reason.

Harry Eagar Sunday, 22 August 2010 at 12:53

Really, I could have sworn you claimed that American management was effective and that the selection of chief executives was based on some meaningful criteria.

I say the historical evidence is that ‘less of a ruling class,’ as for example in the mid’-20s, has not produced good results, while the greatest periods of prosperity (although not necessarily other social goods) have come when the national government took an activist position.

But I just don’t know what you mean by the word elite. You seem to be using it in a form I have not encountered before.

Annoying Old Guy Sunday, 22 August 2010 at 15:54

I could have sworn you claimed that American management was effective and that the selection of chief executives was based on some meaningful criteria

Swear all you want, but I don’t recall that. Feel free to provide a cite and crush me like the insect I am. But, given the multitudinous times you have misquoted me in this very comment string, you might consider entertaining some self doubt on the matter. Further someone once wrote “A series of gaffes […] that all have the same tendency begins to look less like incompetence and more like a plot”. Do you believe that? If so, at what point do you think it would apply to your frequent misquotes of me?

I have written that I don’t find American management incompetent compared to management in other nations, or the general populace. You have written things (such as this) which indicate you agree, but other things (such as this) which indicate you don’t. I have no idea which actually is a correct expression of your opinion. One explanation, though, is that you simply hate CEOs for some other reason and use what ever rhetorical lash is at hand. Feel free to enlighten me on the subject.

I say the historical evidence is that ‘less of a ruling class,’ as for example in the mid’-20s, has not produced good results, while the greatest periods of prosperity (although not necessarily other social goods) have come when the national government took an activist position.

I say the historical evidence shows just the opposite. The interventions of the late ‘20s and the entire 30s gave us the Great Depression. It was only when the interventionists backed off that we had prosperity once again. Then there’s this —

An unregulated system with private property privileges mandates developing in a flood overflow area, no matter how obviously stupid such a course is from a social standpoint

Here in the USA, we build in flood plains because of national disaster relief and federally sponsored flood insurance. Government intervention leading to an “obviously stupid course”. Par for the course I would say.

But I just don’t know what you mean by the word elite. You seem to be using it in a form I have not encountered before.

Hmmm, try this one, part (c) or (d), or perhaps this, part (a).

Harry Eagar Monday, 23 August 2010 at 00:02

The definitions aren’t clearing it up for me, since by the dictionary the ruling class you object is already an elite.

Actually, here in the US, we always built in floodplains, because building in floodplains was a way for Smithians to reap individual quick profits at the expense of other people. Federal flood insurance — about which I reported in detail 40 years ago — was an excellent example of regulation that answered a need and could have worked, but was sabotaged by special interests.

Yes, I know you would say that about interventions, but the great expansions of the late 19th and mid-20th centuries were periods of aggressive government interventions. The crash of ‘22, on the other hand, was the direct result of failure of government to intervene.

Annoying Old Guy Monday, 23 August 2010 at 11:03

An elite isn’t necessarily a ruling class per those definitions.

because building in floodplains was a way for Smithians to reap individual quick profits at the expense of other people. Federal flood insurance — about which I reported in detail 40 years ago — was an excellent example of regulation that answered a need and could have worked

What need? That of the Smithians to reap individual quick profits at the expense of other people? That of engaging in an “obviously stupid” activity? It would seem a better solution would be to not buy the buildings those “Smithians” built. End of problem.

but the great expansions of the late 19th and mid-20th centuries were periods of aggressive government interventions. The crash of ‘22, on the other hand, was the direct result of failure of government to intervene.

So, you observe a crash in ‘22 with quick recovery to the Roaring Twenties, and the decade of misery that was the Great Depression, and prefer the latter? Moreover, the mid 20th Century expansion was a result of a decrease in intervention as the New Deal and war rationalizations were relaxed, plus the devastation of competitors. Once the Great Society and its interventions started kicking in, we see the malaise come back, followed by the Reagan era in which intervention was rolled back and prosperity resulted.

Harry Eagar Tuesday, 24 August 2010 at 16:29

There was no recovery from the crash of ‘22, not till the ‘40s. I also don’t recall much prosperity during the Reagan era. Iowa, where I then was, had been prosperous but was economically devastated by Reaganism, both on the farm and off. It wasn’t as bad as Hooverism but bad enough.

Flood insurance was drafted so that you couldn’t get insurance unless you built in a place that wouldn’t flood. The expectation was that this would deter building in floodplains, which had been going on since forever, with social costs that were never laid off on the profiteers.

But the expectation was subverted as often happens. But if you ever find a landowner who doesn’t want to be compensated for his own stupidity, let me know. He’ll be the first.

Annoying Old Guy Tuesday, 24 August 2010 at 19:41

There was no recovery from the crash of ‘22, not till the ‘40s.

The Great Depression started in 1922? That’s a rather non-standard view of economic history.

I also don’t recall much prosperity during the Reagan era

Almost everyone else does. You might try reading around a bit about it, rather than relying solely on your own memory. A good source might be all those people who voted to re-elect Reagan in 1984. Unless they were all bamboozled by Fox News. How did Iowans vote in that election, by the way? But if we’re using personal experience, I lived in the heart of farm country (literally in the middle of working farms) during the Reagan years and it seemed prosperous to me, especially compared to the Carter years.

Flood insurance was drafted so that you couldn’t get insurance unless you built in a place that wouldn’t flood.

One might note that if the place won’t flood, flood insurance in completely useless. So the government was trying to help people by making them pay for something utterly useless? Well, I certainly can believe that.

building in floodplains, which had been going on since forever

But you wrote “unregulated system with private property privileges mandates developing in a flood overflow area” and we haven’t had the former forever. Could there possibly not actually be the causal relationship you claimed?

But the expectation was subverted as often happens.

Yet you never learn from such experiences. Next time, for sure, it’s going to work.

if you ever find a landowner who doesn’t want to be compensated for his own stupidity, let me know

Why?

Annoying Old Guy Tuesday, 24 August 2010 at 21:06

A somewhat different view of the economic history of the early 1920s. It’s obviously correct and insightful because it agrees with me.

Harry Eagar Wednesday, 25 August 2010 at 13:45

Well, I wouldn’t expect anything like accuracy from the Mises Institute, and I notice he never says a word about farms — still the source of income for between one-third and two-fifths of Americans in 1921-22.

The farm economy crashed in ‘22 and it didn’t recover. Banks failed throughout the farm belt in the mid-’20s, to the extent that the Nebraska bank insurance fund went bust in ‘28.

The index of industrial production did rise during the ‘20s, until it crashed. And while Hoover failed to raise taxes, industrial production also failed to recover.

Bret Wednesday, 25 August 2010 at 15:44

This is actually a great illustration of Harry’s perspective: labor is everything and farm labor is the pinnacle of labor. Since employment in agriculture collapsed from about 1/2 the population to a mere 3% today, you can see that last century was mostly unmitigated disaster from Harry’s viewpoint.

Remember, if one laborer anywhere, in any sector, is displaced or suffers hardship of any kind while even one employer makes a profit, it’s a failure that ought to be rectified by the government from what I can tell of Harry’s viewpoint. Thus 1922 was as good a calendar point to declare the great depression as any.

Annoying Old Guy Wednesday, 25 August 2010 at 19:50

Mr. Eagar;

I wouldn’t expect anything like accuracy from the Mises Institute

Our opinions on that, like so much, are quite different. However, a more relevant point is why should I consider you more accurate than the Mises Institute? I do note the bait and switch from “crash” to “farm sector crash”. You should try to let more of that Narrative out at the beginning, to avoid so much back tracking later.

Bret;

Only if that worker suffer at the hands of the private sector. If it’s via government dictat (such as the Davis-Bacon Act or minimum wage laws) then it’s not a problem.

Harry Eagar Friday, 27 August 2010 at 14:18

It wasn’t one worker, it was around 30 million. But your charming unconcern for their inability to eat is noted.

I also note that when considerably less than one-third of the economy crashed due to Reaganomics, most people took it seriously.

The farm crash of ‘22 was a big contributor — though obviously not the only one — to the industrial crash of ‘29. If you guys would study the contemporary documents of Coolidge prosperity, you’d notice that even at the time, the crisis of overproduction was much on people’s minds.

Hmmmm. Where have we seen a crisis of overproduction occur simultaneously with a several-years’-long runup in economics indices, followed by a rapid fall? Must think, think, think.

Oh, yeah. Just now.

The reason no thoughtful person would trust the Mises group is that they are wedded to a theoretical notion of how humans behave, individually and in groups, on economic matters, which has never been observed to operate that way in real life. RtO, on the other hand, often references testimony about how people did behave, for example, here.

Annoying Old Guy Friday, 27 August 2010 at 14:40

Where have we seen a crisis of overproduction occur simultaneously with a several-years’-long runup in economics indices, followed by a rapid fall? Must think, think, think.

Oh, yeah. Just now.

I didn’t. I saw a bubble inflated by government fiat money through the Fed and its intervention in the housing market, an intervention so bad that even its major backers are saying “never again”.

Bret Saturday, 28 August 2010 at 00:15

Harry Eagar wrote: “But your charming unconcern for their inability to eat is noted.

I’m not even sure that you’re referring to me, but it doesn’t look to me like anyone wrote anything like that. What are you referring to?

Harry Eagar Saturday, 28 August 2010 at 13:47

18 million empty housing units (per Bloomberg) isn’t a crisis of overproduction? If it was a result of national policies, why aren’t they more or less evenly distributed among the states?

Besides, I wasn’t referring only to the US. There’s Spain. I’m pretty sure Fannie Mae didn’t influence Spain.

And China. Bloomberg now reports an oversupply there of 200,000,000 units. The indices in China have not yet turned down, but if Bloomberg is right, they will, big time.

We can disagree about what caused the facts, but the facts themselves remain to be dealt with: If there are 18 million unoccuptied housing units, or if there were 30 million rural people without enough to eat.

Annoying Old Guy Sunday, 29 August 2010 at 08:32

18 million empty housing units (per Bloomberg) isn’t a crisis of overproduction?

No, because that’s not a crisis. It means that the lower economic classes (the people whose welfare seems to be your primary concern) can now far more easily afford housing.

If it was a result of national policies, why aren’t they more or less evenly distributed among the states?

Because states have policies, economic conditions, and culture that vary? We have a national policy on offshore drilling and the effects of that aren’t evenly distributed.

I’m pretty sure Fannie Mae didn’t influence Spain.

I wouldn’t be too sure of that, with the global security markets. Spain meanwhile was pursuing other bubble creating policies (e.g., their “Green” technology initiative). China has been pursuing the same basic policies as the FMs so it’s not surprising they are getting similar results.

If there are 18 million unoccuptied housing units, or if there were 30 million rural people without enough to eat.

How are these in any way similar? We could have every person in the USA living in a Al Gore class mansion and still have 18 million unoccupied housing units. That would seem to be closer, since you labeled those unoccupied units as a crisis of overproduction — not houses from which people had been evicted. You should try to keep your Narrative consistent at least through a single comment or it looks a bit silly.

Harry Eagar Sunday, 29 August 2010 at 13:44

Yeah, but we don’t have everybody living in a Gore mansion. Nor do we have 50,000,000 unhoused people — the number it would take, at American density rates, to fill 18,000,000 empties.

So it is overproduction, and, I would have thought, something you would be concerned about, being of the school that believes that unregulated markets most efficiently allocate capital.

As for housing becoming more affordable, that’s a ratio between housing prices and income. If income is going down even faster than housing — which it is for the lower orders — then they don’t benefit. I note, for the record, that the Reaganomics policy to drive American wage rates to Asiatic levels is near success: Call centers can now hire American workers for only a 15% premium over Indians.

Annoying Old Guy Sunday, 29 August 2010 at 14:13

Nor do we have 50,000,000 unhoused people — the number it would take, at American density rates, to fill 18,000,000 empties.

OK, so why do you think that’s equivalent to “30 million rural people without enough to eat”?

So it is overproduction

Yes. I never wrote it wasn’t. I am happy that a statement you made, that no one disputed, has turned out to be correct.

something you would be concerned about, being of the school that believes that unregulated markets most efficiently allocate capital.

Perhaps I am concerned about it. On what basis would you presume I wasn’t?

As a side note, I would like to point out once again a critical analytical failure of yours, which you fall in to over and over again.

Let us consider some property P. We can use the values from 0 to 1 to represent how “P” something is, 0 being not at all, and 1 being totally / perfectly P. If we take P to be “efficiently allocates capital”, and P(FM) and P(G) to be the capital allocation efficiency of free market economies and government manipulated economies respectively, then my view which you state correct is that P(FM) > P(G). Your error is taking this statement as equivalent to P(FM) = 1. You then disprove the latter as if that also disproves P(FM) > P(G). In this particular case, that there was a misallocation of capital would prove that free markets are not perfectly efficient, but hardly proves that the free markets are not more efficient than government manipulated ones.

Beyond that, of course, is that the housing boom was fueled by the FMs, which makes the capital allocation much more a function of government policy than free markets. It has failed spectacularly, which many free market types predicted from the start and follows directly from its general principles.

As for housing becoming more affordable, that’s a ratio between housing prices and income. If income is going down even faster than housing — which it is for the lower orders — then they don’t benefit.

Then would not the crisis be in the falling wages, not the overproduction? Again, you wrote the problem was overproduction, not falling wages.

Reaganomics policy to drive American wage rates to Asiatic levels is near success

And you call the Tea Party types conspiratorial.

Call centers can now hire American workers for only a 15% premium over Indians.

And there’s no possibility that is a result of increasing wages in India. Taking it the other way, though, apparently all those increases in the minimum wage were of no use.

AVeryRoughRoadAhead Monday, 30 August 2010 at 09:31

The overproduction of twenty million housing units lead directly to the ongoing collapse of the American housing industry, which accounts, directly and indirectly, for 15% of American GDP, and tens of millions of jobs.

Had there been no housing bubble, unemployment would have been significantly higher from ‘01 on, but also we wouldn’t be experiencing a depression now. As a society, I don’t think that the high was worth the withdrawal.

Further, the real harm wasn’t in the vast misallocation of resources that the housing mania caused; it’s in the venomous and potentially lethal misallocation of debt that occurred. The fight over who has to eat the trillions of dollars in bad debt has Brobdingnagian implications in both domestic political and foreign policy, and under the outlying scenarios, could lead to the collapse of American civil authority, a world-wide military conflict, or both.

That fact that virtually NOTHING has been done to fix the underlying issue of unpayable debt in America, (and in virtually every other advanced nation), despite trillions spent and pledged over the past few years, is why that, despite the negative events and trends that have occurred in America, Europe and Japan, the really rough road is still ahead.

AVeryRoughRoadAhead Monday, 30 August 2010 at 10:49

On the basic competency of CEOs, banking executives and other elites:

Banks’ Self-Dealing Super-Charged Financial Crisis by Jake Bernstein and Jesse Eisinger - ProPublica

Faced with disappearing investor demand, bankers could have wound down the lucrative business and moved on. That’s the way a market is supposed to work. Demand disappears; supply follows. But bankers were making lots of money. And they had amassed warehouses full of [collateralized debt obligations] and other mortgage-based assets whose value was going down.

Rather than stop, bankers at Merrill, Citi, UBS and elsewhere kept making CDOs. The question was: Who would buy them? The top 80 percent, the less risky layers or so-called “super senior,” were held by the banks themselves. The beauty of owning that supposedly safe top portion was that it required hardly any money be held in reserve.

That left 20 percent, which the banks did not want to keep because it was riskier and required them to set aside reserves to cover any losses. Banks often sold the bottom, riskiest part to hedge funds. That left the middle layer, known on Wall Street as the “mezzanine,” which was sold to new CDOs whose top 80 percent was ultimately owned by … the banks. “As we got further into 2006, the mezzanine was going into other CDOs,” says Credit Suisse’s O’Driscoll.

This was the daisy chain. On paper, the risky stuff was gone, held by new independent CDOs. In reality, however, the banks were buying their own otherwise unsellable assets. How could something so seemingly short-sighted have happened? It’s one of the great mysteries of the crash. Banks have fleets of risk managers to defend against just such reckless behavior. Top executives have maintained that while they suspected that the housing market was cooling, they never imagined the crash. For those doing the deals, the payoff was immediate. The dangers seemed abstract and remote.

Harry Eagar Monday, 30 August 2010 at 22:30

The ProPublica report was not a bad effort to reach a radio audience that could be assumed to know as much about debt as a $100 million investment banker; namely, nothing. But it didn’t reveal anything that Lewis hadn’t said in ‘The Big Short’ in January.

Lewis never had to mention the CRA and barely mentioned Fannie Mae and Freddie Mac, because the errors occurred in the completely unregulated (to the extent that no government agency was actually aware they even existed) credit swap markets.

The defenders of free markets can huff and puff all they want — and they will — but if ‘many free market types predicted (it) from the start’ why did they put so much of their clients’ money (and even sometimes their own) into this poisonous stuff?

I predicted it, too, and often told my real estate adviser — in fact, every time she brought me her latest horror story — that I could make a lot of money if I could figure out how to short it. I wasn’t smart enough to figure it out, but some people were.

Annoying Old Guy Monday, 30 August 2010 at 23:06

because the errors occurred in the completely unregulated (to the extent that no government agency was actually aware they even existed) credit swap markets.

So if the government prints $100T and then inflation occurs in the “completely unregulated” markets, it’s purely a problem in the private sector? And the idea that credit swap markets are “completely unregulated” is delusional at best.

‘many free market types predicted (it) from the start’ why did they put so much of their clients’ money (and even sometimes their own) into this poisonous stuff?

On what basis are you claiming that the people who predicted it and the people who made the bad investments are the same people? Or even that the bankers who did that are free marketeers? You are also making the mistake I just pointed out to you about relative vs. absolute measures. “Many” is not “all”.

AVeryRoughRoadAhead Tuesday, 31 August 2010 at 11:33

And the idea that credit swap markets are “completely unregulated” is delusional at best.

What’s delusional, (and dangerous), is any conviction that credit swap markets are effectively regulated.

They’re not.

That’s what makes the $615 trillion global derivatives market (PDF) so scary - if credit swaps and other derivatives were effectively regulated, then every contract would have collateral backing it; but they’re not, so they don’t. That will matter when the markets unwind, even just a bit. Well-capitalized firms will pay on their losing bets, then seek to collect on their winning bets, but in some cases those contracts will turn out to have been made with speculators without the wherewithal to pay.

If there are enough fraudulent speculators participating in the system, then the well-capitalized operators will be bankrupted by losses that they thought that they were insured against. Anecdotal evidence from the 2008 panic strongly suggests that there are well more than enough naked players to cause a catastrophic, cascading failure of the entire global derivatives market, should it be stressed even somewhat - as it is very likely to be within the next three years.

The failure of the U.S. Congress to deal with that yet, is one of the principal reasons why we have not yet begun to suffer. 20% U6 unemployment and a 10% mortgage-default rate seem harsh and scourging, relative to the favorable winds and fair skies of 1996 - 2006, but unfortunately we’re still on the “halcyon” side of the ledger, with bitter medicine yet to come…

Bret Tuesday, 31 August 2010 at 12:17

Rough wrote: “The failure of the U.S. Congress to deal with that yet…

I doubt they have the wherewithal to deal with that.

The question is why don’t the “well-capitalized operators” only make “bets” with others with adequate capital and collateral? To expect the government to do that for them is futile in my opinion. Part of the problem is that the government pretends to do it, but doesn’t actually succeed (I guess that’s the ineffectively regulated part). If the government stayed out of it, the “well-capitalized operators” would (or at least might) know that they need to be more careful.

Harry Eagar Tuesday, 31 August 2010 at 15:13

Greenspan said oversight wasn’t needed because people with money would exercise counterparty surveillance against each other. He was wrong.

Can a mere government step in and provide the self-preservational ingredient that free-market theory incorrectly assumes exists? Doubtful. If not government, then who? No idea.

The best government can aim for is to create some sort of circuit-breakers that help insult the innocent from the furies of the market: the insight of the New Deal and Glass-Steagall. That worked well.

Since the shorts had to go out and invent the customers for their bets against the mortgage bonds, obviously that market was not regulated. It wasn’t even known, except to a few people — perhaps numbered in the dozens.

’ the “well-capitalized operators” would (or at least might) know that they need to be more careful.’

In theory, they already knew that (see Greenspan). In practice, they were incapable of acting in their own interests. Rubin (a Democrat, erp) admitted it. He said the market was poisonous but that as a big bank, he couldn’t not participate. How crazy is that? It’s

Harry Eagar Tuesday, 31 August 2010 at 18:21

I forgot to mention. I was talking with a friend who owns two banks over the weekend. He wrote 0 — zero, none, nil, not any — subprime loans, and today he coining money.

But though he is an exception, a CEO who knows what he is doing, even he is not completely insulated from the furies of the market. He is having a hard time finding lenders for his other businesses.

Annoying Old Guy Wednesday, 01 September 2010 at 08:49

What’s delusional, (and dangerous), is any conviction that credit swap markets are effectively regulated.

That’s a different argument. As Bret points out, ineffective regulation can easily be worse than none, as it creates the impression of order without providing it. The libertarian view sees that as one of the risks of regulation, decreasing its expected value, whereas the regulators cannot even conceive of regulation being a net negative. It’s a big blind spot in their risk analysis. But to answer Bret’s question

The question is why don’t the “well-capitalized operators” only make “bets” with others with adequate capital and collateral?

I would say “moral hazard”. Many of those operators expect (and frequently do so correctly) that their political connections will see their losses made good on the back of the taxpayers (Goldman-Sachs, for instance). It’s another risk of regulation that the regulators fail to consider.

Can a mere government step in and provide the self-preservational ingredient that free-market theory incorrectly assumes exists? Doubtful. If not government, then who? No idea.

Nobody. That’s like asking who will step in and stop the hurricanes. It is simply a hazard of reality that we can at best ameliorate.

As for your banker friend, he is simply demonstrating the evolution of the market in action. And of course, he is a nice counter example to your implicitly universal term “bankers” who failed to engage in any self protection.

P.S. As for Glass-Steagall, I would happily support its re-imposition if all other aspects of the New Deal were abandoned. Deal?

Harry Eagar Wednesday, 01 September 2010 at 15:26

Nope, no deal.

If you are going to take the position that the market gets to do whatever it wants, and that its mythical risk/reward system must be accepted no matter what, without any protections or recourse to those who are horribly damaged by it, even if they do not even pretend to participate in the pretend risk/reward tradeoff, then you will indeed get those pitchforks that you scolded Obama for mentioning.

And it isn’t simply a hazard of reality. Its an artificial construction that could have been built differently. And it is based on delusions about human behavior.

It will be a while before my banker friend “evolves” to take over from Citigroup, and in the meantime he’s as much at the mercy of the half-dozen big banks that dominate finance as I am. If they are stupid — and they are — then effectively the system is stupid.

Annoying Old Guy Wednesday, 01 September 2010 at 15:46

If you are going to take the position that the market gets to do whatever it wants

I don’t, which makes the rest of your comment moot, although I will note that you are once again creating a falsely monolithic anthropomorphication which makes your comment concerning “delusions of human behavior” an amusing indicator of your lack of self awareness, since you consistently talk about the “market” rather than the actual people involved.

AVeryRoughRoadAhead Thursday, 02 September 2010 at 10:19

[Talking] about the “market” rather than the actual people involved [creates] a falsely monolithic anthropomorphication which makes your comment concerning “delusions of human behavior” [irrelevant].

I strongly disagree. While the “market” is comprised of individuals making individual decisions, those decisions don’t take place in a vacuum. Information about others’ decisions, and decisions made wholely or in part by predicting and attempting to front-run others’ decisions, alter the parameters in which those individual decisions are made. There is mutual feedback between the market and individuals, and it absolutely does make sense to consider the aggregate decisions that compose the market as being different and separate from the individuals making the decisions, just as we differentiate between organizations such as the Treasury Dept. or IBM, and the individuals who work there.

Therefore, the structure of the market matters a great deal.

While deals can be made that run counter to, or simply different from, standard market policies and practices, such deals inherently cost more, due to the extra scrutiny and structural work which needs to be done. In a sense, every such deal re-invents the wheel. An example of such would be the difference between having your attorneys write a franchise agreement or a custom lease, vs simply having them review a standard franchise agreement or lease. Having done all four, I can attest that the former cost 10X the latter.

Thus, the path of least resistance is always to adhere to the existing market structure. Again, as “an artificial construction that could have been built differently”, market structures and policies affect outcomes very significantly.

Consider the difference between presidential and parliamentary systems of election in advanced nations. Despite both systems resting on the same type of democratic voting by individuals who are theoretically free to vote for whomever they wish, the difference in market structure creates markedly different styles of governance and politics.

Harry Eagar Thursday, 02 September 2010 at 15:51

Well, yeah, but I am more concerned about the risk/reward axis, which can ONLY impact individuals.

If Howie Hubler loses $9 billion of other people;’s money for them and is rewarded with $50 million, then in what sense does the market “work”?

Put it another way: Who has contributed more to the economy, the semiliterate who gets $9 an hour to change oil down at Jiffy-Lube, or the top 10 bankers? Clearly, it’s the Jiffy-Lube guy. At least with him, you ask for the oil to be changed, it is changed, and you get back a car that runs.

With the bankers, basically, the reverse of that.

The market must exist somehow because it is rewarding Howie Hubler. It is difficult to imagine that Howie Hubler’s individual investors would have rewarded him so well for destroying their money.

Annoying Old Guy Thursday, 02 September 2010 at 16:54

AVRRA;

I read your comment but did not grasp the basis for your disagreement. For instance, the structure of the market does matter a great deal, but I fail to see what that has to do with anthropomorphizing it. Yes, it does make sense to consider the market as an emergent entity that is distinct from its components, but that’s not at all the sense that Eagar uses it in the “let it do whatever it wants to do”. My complaint is not the anthropomorphizing, but forgetting that’s just a cognitive tool, not reality.

If Howie Hubler loses $9 billion of other people;’s money for them and is rewarded with $50 million, then in what sense does the market “work”?

If Harold Raines runs Fannie Mae in to the ground, fomenting a global economic crisis, and is rewarded with $30 million and new jobs, in what sense does the government “work”?

I ask you this again and again despite that you refuse to acknowledge the question, but why does a failure like your example demonstrate the market doesn’t work, but examples like mine never indict governments?

Who has contributed more to the economy, the semiliterate who gets $9 an hour to change oil down at Jiffy-Lube, or the top 10 bankers? Clearly, it’s the Jiffy-Lube guy.

OK, fine, I agree. So … what?

The market must exist somehow because it is rewarding Howie Hubler.

The market exists because people do. But I wonder why I shouldn’t consider you a communist, since you object to markets in principle, as exemplified by this comment. After all, things like your example will happen as long as there are people and markets, so the only solution is to completely eliminate markets. I suppose, though, you’re going to claim no broker lost vast sums of client money while Glass-Stegall was around.

Harry Eagar Friday, 03 September 2010 at 17:10

i am opposed only to unsupervised markets. I am a meliorist.

If an entrepreneur makes more profit by dumping poison in the river, the market — whatever the hell that is — will reward him more munificently than it will the entrepreneur who wastes (from a market perspective) assets in sequestering his poison. Skol!

Annoying Old Guy Friday, 03 September 2010 at 23:13

And what form would this “supervision” have had to take in order to prevent your example of how the markets failed?

If an entrepreneur makes more profit by dumping poison in the river, the market — whatever the hell that is — will reward him more munificently than it will the entrepreneur who wastes (from a market perspective) assets in sequestering his poison.

Depends on the structure of the market, as AVRRA pointed out. Just to complete the picture, I am stunned that you didn’t point out the environmental records of the Soviet Block, which stopped all those poison spewing entrepreneurs. Or perhaps the track record of our own Department of Defense or the Army Corp of Engineers … sterling examples all, right? No market rewarded them.

But can you really know, since apparently you don’t know what a “market” is?

P.S. Yet another evasion on the standards of failure for market vs. government yet again. If you can’t or don’t dare answer a question about the essence of your position, you might want to rethink that position.

P.P.S. Still waiting for an explanation of the point of the Jiffy Lube guys vs. bankers.

Harry Eagar Monday, 06 September 2010 at 14:13

There could be several points, but the obvious one is that claims that merit is rewarded is without merit.

I kinda liked the form the supervision took during the New Deal. Or fire codes. I bet you don’t carry a knotted rope with you when you travel. Travelers around Illinois used to do that.

It was regulation did that.

As for environmental problems in command economies — or even, dare one think it, in the market-oriented parts of China now — I invite you to drive through Ducktown, Tennessee, some day. It doesn’t look as bad as it used to, since regulators began trying to undo the damage done by acid rain from the copper smelters. It used to look like Mars.

Annoying Old Guy Monday, 06 September 2010 at 15:09

the obvious one is that claims that merit is rewarded is without merit.

Rather depends on your definition of “merit”, doesn’t it? Basically, you don’t like a free market because it doesn’t reward people based on your personal definition of “merit”. And people call me egocentric.

I kinda liked the form the supervision took during the New Deal. Or fire codes.

Neither of which would have prevented your example. Unless your claiming no financial fraud occurred during the New Deal.

I invite you to drive through Ducktown, Tennessee, some day

You’re committing that same absolute vs. relative error again. It is your contention that free markets are worse at environmental preservation than alternatives. Demonstrating the imperfection of a free market proves nothing in that regard. You are, however, an truly prime example of not being able to talk about the forest for the trees.

Harry Eagar Tuesday, 07 September 2010 at 14:11

Well, do you carry a knotted rope?

The problem with Ducktown is that the system rewarded the mine operator for destroying the property of other people. The irrelevance is whether some other system either rewarded or failed to discourage similar damage. The failure of market forces is manifest.

I am amused that you want to have a special definition of merit. For corporations, we have a limited range of possible definitions, one of which is stock price. The list of meritless corporation executives who were nevertheless rewarded is a long one.

It’s a crap shoot. The system as it exists is incapable of recognizing merit. Might as well throw darts at a board.

Annoying Old Guy Tuesday, 07 September 2010 at 15:39

Well, do you carry a knotted rope?

Usually, yes.

The irrelevance is whether some other system either rewarded or failed to discourage similar damage

If your point is to rant about Evil Capitalists, then you are correct, it doesn’t matter. May I presume that is what you are doing? If one were actually discussing policy, then the costs and benefits of alternative policies would be of great concern. Thanks for clarifying your position.

I am amused that you want to have a special definition of merit.

I don’t. My point is that every single person is going to have a special, personal definition of merit. A green radical, for instance, would not use stock price as the metric for the merit of a corporation, but its environmental impact. Of course, your original point was about people and now we’ve switched to corporations. It is an improvement that you provided enough context for me to notice, rather than purely implicitly.

It’s a crap shoot. The system as it exists is incapable of recognizing merit. Might as well throw darts at a board.

Not at all. If you can’t tell the difference between today and a few centuries back for the quality of life of even the poorest, then nothing I write will make any difference.

Bret Tuesday, 07 September 2010 at 18:05

Harry Eagar wrote: “It’s a crap shoot. The system as it exists is incapable of recognizing merit.

Now that the government is becoming more and more involved, it’s worse than a crap shoot. The government looters recognize the merit quite clearly and take it for themselves.

Annoying Guy Who is Not Old, but Instead Middle-aged Tuesday, 07 September 2010 at 19:58
Well, do you carry a knotted rope?
Usually, yes.

Is that a knotted rope, for escaping from buildings, or a knotted cord, for garroting nondissidents?

AVeryRoughRoadAhead Tuesday, 07 September 2010 at 20:03

The government looters recognize the merit quite clearly and take it for themselves.

Is that not a failure of the voters?

Power and money always attract the ambitious and the unscrupulous. In a democratic system, one of the jobs of the citizen is to suppress the vermin.

Annoying Old Guy Tuesday, 07 September 2010 at 20:47

OK, I put up with a lot of abuse here, but that hurt. In any case, it’s just a rope. I carry a rope because it comes in handy when attaching things to the car (like, Christmas trees). Or restraining overly rambunctious children.

Plus, I have to agree with AVRRA — while Old Media has contributed greatly to the looters, ultimately it is the voters who have the responsibility. The increasing disrespect for both politicians and Old Media seems to be a response. We’ll see if it’s enough.

erp Tuesday, 07 September 2010 at 21:26

An informed citizenry is what we’re missing.

Bret Wednesday, 08 September 2010 at 08:03

Rough asks: “Is that not a failure of the voters?

Sure. The system guarantees the voters’ failure because the cost for each individual voter to do due diligence to ensure only the scrupulous (or at least the adequately scrupulous) ended up in government is prohibitive. In other words, we’re each individually better off allowing the system to fail.

This effect was described by Mancur Olson in The Rise and Decline of Nations.

erp Wednesday, 08 September 2010 at 10:19

Bret, we’re already paying that prohibitive cost into the trillions of dollars. It’s called the failed public school system and the taxpayer funded public university systems.

Harry Eagar Wednesday, 08 September 2010 at 13:36

I agree that modern people are better off than they used to be. I do not agree that markets, as such, get most of the credit, since the improvements happened where markets did not operate very well and didn’t happen where they did.

When the English were, in the words of Henry Green, eating ditch frogs, Muslims had an international free market and were rich.

I don’t know how people can simultaneously believe America has the most innovative workers and a lousy public education system.

Annoying Old Guy Wednesday, 08 September 2010 at 22:22

BQ. It’s a crap shoot. The system as it exists is incapable of recognizing merit. Might as well throw darts at a board.

My reading of history is basically the opposite. Markets work well, until the regulators and looters get in to the act, which then stifles markets and growth (see Sweden). I’m not the only one — see here. Or this guy who writes

When the English were, in the words of Henry Green, eating ditch frogs, Muslims had an international free market and were rich.

as a paean to free markets.

Hey Skipper is late to the party Thursday, 09 September 2010 at 15:27
Greenspan said oversight wasn’t needed because people with money would exercise counterparty surveillance against each other. He was wrong.

Was he?

Sure, there were shortfalls in CPS, but what were their sources? Rating agencies that constituted a government granted cartel. Quangos (the FFMs) that surreptitiously bundled high risk and low risk paper and sold it as the latter.

As a point of history, the Quangos disprove your assertion: paper was bundled precisely to foil CPS; otherwise, what was the point?

Put it another way: Who has contributed more to the economy, the semiliterate who gets $9 an hour to change oil down at Jiffy-Lube, or the top 10 bankers?

Over what period?

Instead of restricting that question to the last several years, which you did over at RtO, why not take a slightly longer view; say, the last 10 years, or since the end of G-S?

There could be several points, but the obvious one is that claims that merit is rewarded is without merit.

An assertion that is without merit.

Particularly coming from a Darwinist.

Does the market always reward merit? Obviously not. But that is the wrong question to ask. Rather, the proper question is this: Does the market reward merit more often than the alternatives?

I happen to work in an industry that continually demonstrates, at every instant, in every detail, that the market rewards merit. And one of the most egregious examples of utter lack of improvement, despite glaring need, (the Notices to Airmen (NOTAMs) system) is right in the government’s hands.

Or take something far simpler: bicycles. Produced in the nearly complete absence of government regulation, they are subject to the rigors of the market. Now, compare a contemporary bike at any price point to its equivalent of ten years ago. What, other than merit, accounts for the changes?

Look at merit (in a positive or negative sense) as directly analogous to mutation. The market is a dynamically self organizing system that — just like evolution — works far better than any top down organization could.

——

IMHO, there is a role for government (when sufficiently transparent and responsive to the electorate) as a counterparty to business, in certain classes of problems. For example, where there are difficult to price goods that are in tension with easy to price goods. Industrial hog farms produce much lower price pork than their free-range equivalents, but — without regulation — will degrade the difficult to value price of clean water and stenchless air.

It is difficult (for me, anyway) to imagine a market that does not allow defectors to drive out the conscientious, in the same way that arguments for pacifism always fail on their own terms.

But aside from regulations that punish defectors then allow the market to operate freely on a level field, then the government simply gets in the way.

AVeryRoughRoadAhead Friday, 10 September 2010 at 00:30
Who has contributed more to the economy, [ Goober Pyle ] or the top 10 bankers?
Over what period?

Paul Volcker says that over the past 25 years it’s been the Goobers, not the Gordon Gekkos, who’ve done the most for society and the economy.

Hey Skipper Friday, 10 September 2010 at 18:34

Imagine a world without leverage.

Harry Eagar Saturday, 11 September 2010 at 20:53

Imagining a world without leverage is like imagining a world without hog farms. It’s the dose that makes the poison.

As I see it, the problem with markets today is that everybody is forced to play at the riskiest level. There was a time, not so long ago, when risk-shy entities (like S&Ls) were granted (by government fiat) the ability to raise money for the purpose of allowing ordinary people to borrow to buy houses — a thing that had not happened before the New Deal.

Was that inefficient? The Reaganites thought so, with sad results. Some people are what my father, borrowing a notion from the Roman Catholic theologians, called ‘invincibly ignorant.’ Hey, deregulating S&Ls worked so well, why don’t we apply it to all banks? What could possibly go wrong?

Nothing, according to them, which is why it would be a mercy to force even the most risk-averse (for very good reasons) Americans to place their savings into a financial market that was designed to fail (see RtO for the concept for design for failure).

Luckily, unsophisticated people were more wary than their hotshot superiors and said no. But the way things were structured, there were no safe banks, no safe investments, it was all a bucket shop. That I take it, is what Rubin was fumbling to say when he said he bank could not avoid playing in the mortgage market even though every sentient human being understood it was heading for a crash.

RtO has been over this. People thought, individually, as good Smithians, that they were smart and even if the situation soured, they would have saved themselves; without realizing that it was the system, not the individual, that mattered.

When the flood gets high enough, it sweeps away the prudent householder who built on the hill as well as the speculator who built on the mudflat. That’s what happened. ta As for your answer to my question about counterparty surveillance, read Janet Tavakoli.

Post a comment