Eugene White on Bank Regulations

So this post isn't really about Eugene White, though his paper on bank regulations sounds extremely interesting.  This post is more about our friend Russ Roberts at Econ Talk. As usual, I'd like to say that I have a great deal of respect for Russ, and unlike many economists and jerks (I'm looking at you Freakonomics) he is always willing to listen to opposing view points, and he very rarely goes on pejorative or mocking jaunts about those with whom his beliefs clash.

However, he proposed a very interesting rationale, which you've probably heard, about the reason for the Financial Crisis.  Namely that it was the moral hazard that created the risk.  That regulation, and regulations creating the FDIC in particular and requiring capital limits, etc., that spurred the banks to take risks with money that they might not have done had the market been allowed full freedom.

These matters are , of course, very complicated, and we both are guilty of oversimplifying to make a point.  However, I think Robert's worldview in this is very much compromised by his stance on overall social policy.

1)  First of all, it is always convienent to argue about what might have been, I know, I've done it myself.  But without evidence, such arguments are at best, merely speculative.  It is simply impossible to know what moral hazard may have done before the fact.

Quickly, let's redefine moral hazard:  Moral hazard is the theory that by insuring banks against their risks, and "bailing them out" when they become insolvent, you inure them to future risk and exacerbate the problem.  And further, that this cycle is self perpetuating, relying on the government as a backstop to all financial risk.

2) Academics and business types tend to forget something critical.  A government has a moral obligation to protect its people.  FDIC insurance, as allowed for the individual, is to insure them against destitition.  There is no risk posed by Moral Hazard that isn't worth it for that reason alone.  Academics and business types, love to talk about how failure is necessary for the system to work. I disagree. Quite simply, total loss is not required for a system to learn.  Fear alone is a learning tool, enough to galvanize and secure. Total loss on the otherhand, does little else but disenfranchise.  And a people that is disenfranchised are a people that can quickly resort to violence, and the sorts of moral exigencies that are a clear result of fear and violence.

3) As to the moral hazard of the banks.  Love him or hate'im, when Paulsen let Lehman fail, he destroyed moral hazard for the banks.  People forget about that.  Most of Lehman forget about that.  Most of the former Lehman Brothers employees are now at Barclay's, other banks, or in private equity and hedge funds.  I'd guess that there isn't a single one that isn't employed now, saving some of the support staff.  So its easy to forget just how scary that time was.  There is no moral hazard, there is no blanket policy of forgiveness.  If the system can withstand it, the regulators will always discharge what they cannot sustain.

4) Regarding banking institutions taking on high risk because they believe the government will bail them out.  I see two flaws.  First of all, prior to 2008 there was a fairly limited pool of evidence that such a thing would occur.  Though the government did help out in the SnL crisis, the monies used to bail out the system came in large part from other banks.  Lehman, was not a contributing member to that bail out, so there was some justice (and refutation of moral hazard) in its not being saved. Second of all, academics and business people (and I should stress that I mean economists and financiers largely) tend to forget that economic crisis are based largely on the collective actions of human beings.  And that human beings have a poor perception of long-term risk and long-term gain, and at worst, are completely irrational.

And it is for that reason that I hold to the hypothesis that the financial crisis was caused by a mixture of:
--Underfunded regulators
--Understaffed regulators
--Complicit regulators
--Lack of Proper Regulation
--Short Term Gain over possible risks by bankers
--Greed (unwillingness to wind down when it became transparently clear that a meltdown would occur)
--Poor record keeping
--Intentional racial targeting (again for short-term gain)
--Inappropriate compensation for bankers
--Lies and obfuscation intended to keep the investing public in the dark as long as possible

Econtalk: David Owen's Conundrum

So I took a two year hiatus from Econtalk.  But I'm back.  There's a lot at Econtalk that I think is pure milarky--not the data or the econ terms.  It's the editorializing that they do between the two.

Anyway.  I'm back.  For the podcast, go here.  And for David Owen's book, Conundrum, go here.

There wasn't much in this podcast that was news to me.  Maybe its because I live in New York City, maybe its because all of my friends are scientists, I don't know.  But there were a few things that bothered me.

First of all, the conceit of the book is simple.  There are unintended consequences to even the best efforts at conservation and efficiency.  Russ Roberts is a professor, and he deals with a lot of students, who maybe aren't that sophisticated.  So it can be forgiven that he holds up Owen's work as an example of how making fuel efficient cars, and seeking renewable forms of energy can have harmful consequences to the environment that they strive to protect.

However, I know better.  And all of my friends know better.  Again, with the caveat that my friends are scientists and politicians...

And the rub is this, we know there are unintended consequences.  The move to ethenol has euthanized the entire fishing population of the Mississipi River.  We know this stuff.  Windmills kill migratory bird populations and have harmful effects on bat colonies.  New popularity of natural sugars like honey have virtually made the honeybee extinct.  We got it.  More fuel efficient cars make people more inclined to drive more and make up the difference.  Well, duh.

But you've missed the point if you think that's a reason to stop trying, to stop innovating, and to stop efforts at conserving.  Russ Roberts makes the point in his podcast, towards the end, where he's saying, (paraphrased) "it doesn't matter if everyone in the world picked up their garbage and drove less, it still wouldn't be enough to fix the problem."  I hear that in Republican think all the time.  "Sure, you can tax the rich all you want, but its still not going to plug the whole in the deficit."

Well, you've all missed the point.  Every.  Little.  Bit.  Counts.  And if the one hundred water bottles that I didn't drink last year aren't in a landfill right now, or in the middle of the atlantic ocean, then that's a big deal.  And that's something to be proud of.  As I've quoted in the past, "The work goes on, the cause endures, the hope still lives, and the dream shall never die."  The work goes on.

Owen's larger point of course, is that it's consumption that drives the consumer binging that so plagues the landfills.  And sure, he's right.  But there's a fix to that too.  Education.  The reason for education isn't just to fill the seats at factories, or law offices across the country.  It's to engender good morals, good tastes, good scientific knowledge and reasoning skills, and to realize that great pleasure can be derived from very modest means.

One last point.  Owens spends quite a bit of time talking about how New York is the greenest city in America.  Yup.  We knew that.  Russ Roberts snarkily said (paraphrased) "and its not because of the raised conciousness," and Owens replies, "no, it's because of the subway system!"  Again, thanks for the snark buddy, but we knew that too.

I have a fantasy where in the future, most humans dwell in megapolises with flying, multi-level, public transit systems.  And outside of those gigantic geodesic domes?  Supporting farmsteads and factories, using recycled air, and funneling waste products into pits that recycle and reuse 100% of it, piping the materials back into those same farms and factories.  And even further, just at the horizon and extending hundreds of miles to the next megapolis?  Untouched wildlife, rainforest and desert, ice capped mountains, and oceans teaming with life.

Of course, wait, I've just given grounds to Russ Robert's real fear.  The tyranny of the left.  He's mentioned this in a few podcasts since I've been back, this oblique fear (paraphrased) "yeah, I guess we could live in a sort of tyranny, where environmentalists have all sorts of regulations.  I think they would (dramatic pause) do other things too. (insert: like rape all your babies)"  Yeah.  Cause there have been so many of us.  I mean, I guess they might cite Stalin, but Stalin was a political opportunist and a butcher, not an idealogue or even a polemist.  And it would be really atrocious if people like George Zimmerman wouldn't be allowed to procure guns, and join vigilante groups, in states that enforce rules like "stand your ground."  Seriously Russ, at worst, I think you're looking at less games like Doom 3-D and Grand Theft Auto 18.  Maybe more female empowered pornography.

After this diatribe, Russ then makes a very reasonable point:  Well, maybe we should get used to the idea that we are a consumerist society and try to come up with ways to cope with that.  Uh.  Wait.  Seriously.  Seriously?  WHAT THE HELL DO YOU THINK WE'VE BEEN TALKING ABOUT?!

Russ, no one wants to take away your lexis and force you to eat grass fed, locally raised beef.  We're all taking a stab at making things better, we're all working on it in our own way, at our own pace.  Maybe that's not enough to save the world, but its a better start than some people can even conceive of. I saw on a talk show the other day, and a woman proudly attested to the fact that she only drinks bottled water.  Said she goes through four cases of it a month.  Are there really people like that anymore?  I thought that was a hangover of the nineties!  That's what we're talking about Russ.  Helping that girl to realize the damage that she herself has caused, and hoping that she takes positive action, that really won't cost her a hell of a lot, will save her time, money, and will save us a whole lot of trash.

The podcast was crappy.  And I blame that on Russ Roberts.  He wasted a lot of time on these political sort of specious arguments and not enough on the details I usually tune in for.  I would have loved to hear more about how locavore isn't always efficient or desirable.  On the webpage they cite an article called "The Locavore's Dilemma: Why Pineapples Should Not Be Grown in North Dakota." That makes sense and confirms a whole lot of things I've thought about before.  But a read of the first 500 words of that article shows already that it isn't an article about economics, as much as it is a crybaby libertarian griping about the media.  Seriously, not a single number until about 1200 words in, and then--the number isn't even a statistic, it's a hypothetical.

Let me explain it to you again Libertarians.  You may hate us and find us annoying, think we're a freakin' broken record, repeating the same thing over again, but---we're not forcing you to do anything.  And to the extent that we can influence policy--that's called Democracy.  That's how the process works, and given the number of corporate dollars in it, its amazing we get anything accomplished at all.

Even the most extreme locavores I know, recognize that there are certain things that they want to eat that the local economy just doesn't produce.  They either skip it altogether, improvise with something else, or, wait for it...make an exception!  Just because you think in black and white, doesn't mean that we have to.  As to reforming the economy to make the improbable to the impossible happen where it oughtn't, that's not what locavorism is about.

Finally, Roberts absurdly states, that even if global warming is true (which he doesn't believe, his exact words are "I'm agnostic to the science") we should be spending our time and dollars on thinking of ways not to prevent it, but to deal with it as it progresses.  Again.

Wow, the resource bucket must be pretty shallow if we can't work on both problems at once.  Way to use your gray matter there Russ.

Novelist Mark Helprin on Econtalk

So, yet again, a comment on a months old Econtalk. This time with guest Mark Helprin. The subject is copyright and as usual both the guest and Russ Roberts have some very interesting things to say. To sum up quickly, Helprin wrote a book on copyright in America. Basically, Helprin wanted to extend copyright protection by at least another decade, maybe two. Apparently, this is a hotly disputed subject. His introduction is sort of funny, because he acknowleges that he chose to write about copyright in part because he didn't think anyone would find it controvercial. Instead, he uncovered a hotbed of neoliberalism that wanted to socialize creativity. To be fair, I certainly don't receive any hatemail, so I can't comment on Mr. Helprin's reaction to some very heated responses he received.

On the whole, I don't really have an opinion on the subject. I personally benefit from a release of copyright's because I listen to audiobooks. I read A Tale of Two Cities that way. Now Dickens, clearly is long dead, and his copyright expiration is not at issue here: Helprin fully believes that the public has a right to intellectual material. However, he makes an able case. If you're an industrialist or a business owner, you leave your assets to your offspring when you die. That's all you have. A copyright is an asset, so why isn't it protected the same way?

At anyrate, I don't take issue with that. But as usual in Econtalk, the palaver shifts toward cultural issues, and borh Helprin (who wrote speeches for Bob Dole, and Roberts are RightingRightatics.) Here are a couple issues:

1. One Worldism. Both Russ and Mark, (excuse me for addressing them so informally but I really feel as if I know them,) are complaining about people that want a world with "one government." Maybe I'm sheltered, but never in my Ravingest Leftaticist moments have I ever dreamed of such a condition. What does that even mean? Which is of course, what Helprin and Roberts point out, it would be madness, and tantamount to tyranny. But my issue is that by creating this sort of glossed-over tar-and-feathering of a group to which I belong. I'm an idealist, and I do think that social government programs are important, and that more government money ought to be devoted to them than less. But here they are, these two guys are rambling on like a bunch of old men playing dominoes on the stoop and muttering about "these kids today." This one government business is a gross mischaracterization of the American left. I mean, it's not even an intellectual argument, but as someone who reads a lot of liberal literature, on --gasp--the internets--I've never seen anything like it! Not even on Daily Kos!

2. Helprin spends a lot of time talking about how creativity is a solitary adventure. Whole parts of his speech here could have come straight out of the fountain head: "What you feel in the presence of a thing you admire is just one word – ‘Yes.’ The affirmation, the acceptance, the sign of admittance. And that ‘yes’ is more than an answer to one thing, it’s a kind of ‘Amen’ to life, to the earth that holds this thing, to the thought that created it, to yourself for being able to see it. But the ability to say ‘Yes’ or ‘No’ is the essence of all ownership. It’s your ownership of your own ego. Your soul, if you wish. Your soul has a single basic function – the act of valuing. ‘Yes’ or ‘No,’ ‘I wish’ or ‘I do not wish.’ You can’t say ‘Yes’ without saying ‘I.’ There’s no affirmation without the one who affirms. In this sense, everything to which you grant your love is yours." (Ayn Rand-The Fountainhead). I liked the Fountainhead--again, gasp--and I'm still a liberal. I liked it because it gave me the courage to speak my mind. As a teenager, trying to fit in and be liked, I would purposely let other people express their opinion before I expressed mine, then mold whatever I said to fit. Shameful, I know. And the Fountainhead was critical to my becoming the man I am today, anonymously writing my thoughts on a blog that no one reads. (that was a cynical joke)

I'm a big believer that creativity is an individual pursuit--but not always. And that's where I think Helprin is all wet. He thinks that all the greatest works came from one mind. Personally I think that's naive. Russ and Mark mention Shakespeare quite a bit in this discussion, but of course, Shakespeare was the most hackneyed and plagiarized writer of the English language. Not that I don't give mad props to Shakespeare, but the fact of the matter we know very little about him actually, and what we do know actually points to the opposite--his plays were workshopped by his theatre company--the very definition of collective writing. One of the best plays I've ever seen was my friend's performance here in NYC of Kafka's "Trial of K." The group adapted it to the stage, and did a brilliant job of it. But by now, I'm running shy of the point--Helprin would probably agree to all of that. My point is actually much subtler. Think of the most solipsistic work you can think of--let's say Catcher in the Rye. Sallinger protects his intellectual property like a mama bear protecting it's cubs. Is Catcher in the Rye really the work of one man? Helprin makes the point that when he started at the New Yorker, the editors wouldn't change a comma without the permission of the author. But then again, talk about creative barriers--just submitting your work to a magazine presumes that you're willing to change your vision if the portal of dissemination requires it. To suggest otherwise is ludicrous. And the second you've changed your vision to meet the demands of the portal--the sanctity of indivualism has been compromised. The only truly individual writers are the ones who can publish without permission. Take this blog. No one tells me what I can't write! (Oh please oh god, please someone tell me something!) Fact is--Helprin's been a somebody for a long time--somebody's have a lot more freedom to publish than nobody's. Helprin acknowleges this, but still manages this conceit about individuality.

3. Back on this common good theme that Helprin sets up as being naive. He says that the proponents of rolling back copyright law because writing is actually a collective really just aren't as creative as him. They're jealous, because they can't create the way he can, and so they have to hack apart other's work to make something of themselves. Of course, I'm paraphrasing, and Helprin says it in a very diffident gentlemanly manner. But that's what it comes down to. I don't think I even need to comment on that.


It's 1:38 am. I'm still at work, and I'm exhausted. I'm not editing this till tomorrow. Enjoy it in it's spastic, incorrect juicyness.

General Motors on Econtalk

So I'm months behind on my Econtalk podcasts. Also, sometimes it's hard to stomach the things my friend Russ says. For example, he invited a Wired writer to comment on his time working at Wal-Mart. The writer went to Wal-Mart to debunk a claim made by another reporter about working at Wal-Mart. Full disclosure: I have read neither the article on which the podcast was based, nor the article which sparked the responsive article. Also, Wal-Mart isn't one of my issues. I think it's part of a larger problem of a petroleum based economy, whereby large supply chains can distribute goods at cheaper cost, but at an ultimate cost to the environment and community.

Anyway, my example is getting longwinded. I take issue with the podcast because it doesn't address the central problem of low wage workers. It's extremely difficult to get by at 30,000 a year. Nothing in the podcast even addressed this point, though the article on which it was based seemed to have been based on that supposition. Moreover, this guy at Wired, he worked at Wal-Mart for one week, than quit to write the article. One week?! One week?! That is the basis for this lengthy defense of Wal-Mart? I'm no enemy to the company, but clearly, this was not an indepth study. And it did not in anyway address the needs and lifestyles of low-wage workers! This is my problem with Econtalk. Very interesting stuff, but often incredibly myopic. (I know, I used the word in my last post , but it's just so goood!)

Anyway, this week was GM.

So we've all heard about how lousy GM's business model was, and how the corporate ideology was ancient and top-down. But they don't ever really talk about GM's legal troubles. So what follows was an email I sent to the gf, reproduced here with some edits.

So they're talking about franchising, and this was important because of what happened to GM over the summer. You recall how there were too many dealerships open to maintain profitability--and you could point them out! Two or three to a town sometimes, even across the street from one another. So there are very interesting franchising laws. Most franchise laws are state, or local law, and so they're made to protect the franchisee. So GM can't close a dealership that bears it's name (or any of it's brandnames) because they don't own the store, and it's illegal in 27 states to do so. So you might say, well, why can't they just cut the product line? Well, written into the franchise contract is a caveat that states, "the line must produce x amount each year."

On top of that, the franchisor also has to pay to advertise for that product. 10 or 20 years ago GM tried to close some of those duplicative dealerships, but they couldn't because of the contract provisions and statelaw. Russ Roberts then asked about the term on the franchise, and the answer, unbelievably, was that in most contracts, the franchisee is the only one who can void the contract unless the franchisor can show cause. Now the next question, I'm not sure I believe. Why does the franchisee have such stringent protections?

Because of the house of representatives. (I know you know this, but the house of reps is the people's house. And so it's mostly local money.) He then went on to make another point slightly off topic--the auto industry only has a few market participants. He even went so far as to call it a cartel (which I would agree with, but which is unusual to hear from a Chicago school economist--in my experience) and stated that cartel's are sluggish and don't respond to market pressure quickly--because they can make profits at much lower rates of demand than can participants in a perfectly free market.

Another facet of the business is this: If the dealers haven't been making any money for the last few years, or lets say that their flow of sales has dwindled to a bare trickle, they can attempt to make up the difference through extremely competitive sharklike tactics with their neighbors and their clients. Then the manufacturer goes into a feedback loop where they keep hearing about how lousy the sales service is--but by then it's too late, because they've already gotten a name for themselves through the shoddy dealings of the dealerships.

And of course, all this is the government's fault. That's what Russ would like to infer. Meaning the protections on the industry at large--and I think he's right to some extent. But that's where the myth of the free market comes to play. No industry is unregulated. The people have protections, and so do the companies. Does this create market inefficiencies? Damn straight--and that requires reform.

To some extent I think laws are cyclical. After a period of intense regulation, I think it's perfectly acceptable to repeal some of those laws. This allows a period of profit clearing, as well as a chance for market innovation. However, when the reigns get pulled out of the government's hands, the horse must be stopped before it runs the carriage off a cliff.

Quick Bits at Econtalk, Plus a little Sotomayor action

So this post will relate to a couple of different podcasts at Econtalk.

1) The second installment of Smith's Theory of Moral Sentiments discussion was pretty interesting. Smith made a point of suggesting that happy and successful individuals make a point of modulating what they expect from others. Specifically, expecting too much from others can limit and even hamper your relationship with others. I find that to be very true. One of the reasons I'm such a charming person is that I expect nothing from anyone!

2) As a compliment to that, there was another thought that I felt intriguing. Namely and I'm paraphrasing, "love yourself only so much as you love your neighbor." This is sort of a follow-up point to the earlier one. The point being that self-love comes in many forms. And a need/desire for attention can be such a form of self-love. And if you wouldn't take such attention/needs/desires from your neighbor, you damn well better not being demanding it yourself.

3) Ok this Econtalk post was from a news article interview that Russ Roberts did and posted with the reporter's permission. So I've discussed this before: Roberts, and his ilk, believe that "markets don't lie in the long run." Meaning that prices, as they inflate, or deflate, over time reflect true value. My comment to that is two fold. Fold the first. Who decides the barometer for time? We're human beings, with a typical lifespan of sixty-seventy odd years. So historical value is relative. And the New York Stock Exchange will only be 200 years old in 2015, so even that amount of time isn't that long. But then again. We measure generational time in decades right? And immediately after a decade has passed, it's over the hill. So my decade, the decade where I came of age, was the nineties. I'm an old man now!

I'm getting far afield. Here's the point: True value is a false certainty. Value only has meaning relative to a specific time period. So saying that the market reflects true value overtime really isn't saying much. So why do I have a problem with the statement? Because it was used to justify the fact that the government should do nothing in regards to the current economic crisis. Which leads to fold the second.

4) Time matters! Again, this assertion by economists that the market will balance itself out is fairly heartless. As a RavingLeftatic I must protest! How many lives and livelihoods will be ruined! Now, maybe I'm being alarmist. And that's a fair criticism, but news organizations are already beginning to report that people are beginning to stop looking for work. What about those who were fired from middle class jobs who have to take service jobs to make ends meet? You don't recover from that. Not easily. The stigma of taking a paycut lasts a long time and is very difficult to beat. What about war? Not us per se, but as unemployment in Europe, Russia and China begin to rise, violence will rise too. Lives are affected by economic downturns. And that is why it is not sufficient to simply say, hands off, let the magic market do its work. The government can't do that. No one, not even nobel laureate economists know for sure how the market works. It could take two decades to recover. You. Just. Can't. Wait.

5) Ok. What else. Something came up in the same podcast, but it's my own thought. I talked in my last post about how Don Beaudreaux mentioned "The giant" as an actor in economics, namely the governor. Well, I'd like to advance that notion a bit. The giant is not actually a giant, but a giant squid. Tentacles everywhere, oftentimes acting completely independent from one another. Moreover, state governments are lesser squids, with their own separate tentacles acting everywhere. So Boudreaux's analysis is a bit lopsided. It's so much a giant knocking a fragile mechanism around a football field. It's a giant squid interlaced with every gear and rod in the machine itself! See how economics is like fantasy?

6) Sotomayor. The Reverse Racist. First of all. What an idiotic term. Seriously. Second, she's not, and the evidence provided for this unbelievable allegation is completely specious. It's a total lameass Republican talking point, and Newt has lost his touch if this was the best he could come up with. Oh good, I really need to appeal to the white supremist base of my party. Sheesh. What's worse about it is that anytime that narcisist opens his mouth, it gets recorded. Hopefully this little idiocy will flame out long before the battle begins.

Klein on the Theory of Moral Sentiments-Econtalk

So over at Econtalk they are doing a book reading of Adam Smith's "Theory of Moral Sentiment." And they touched on a couple of related subjects that I didn't buy/understand/agree. Ok. So naturally, social welfare came up. In the context of moral sentiment, and I am not talking about Smith's theory, because I wouldn't say that I know enough about it to comment one way or the other, but the idea came up that social welfare programs destory the morality of giving. Meaning, when you have no choice to give, when a certain portion of your income is given to the needy, it destroys the morality of the people who are giving. It breeds anger and resentment, and divorces the giver from the givee. It is an interesting point, and I agree with the last statement in full. However, I think that Smith, and the folk at Econtalk are missing an important point. Who gives a crap about the morality of giving. You want people to care, but is it really necessary? I mean a Kantian perspective would certainly indicate just the opposite. In fact, by one reading, you could say that social welfare is a Kantian device. Granted there's no choice in the matter, but those who give who do not want to are indeed making the MOST moral choice. As opposed to those who want to give, and receive a feeling of well-being and happiness from the giving--indeed a selfish feeling no matter the sacrifice. The fact is, needy people are in need of help--not morality. And even the guys at Econtalk were forced to concede that there was no way social welfare would be able to drum up anywhere near the amount that it has were they forced to rely on donations.

I also think that they lumped social security into that category, which is just plain wrong. FDR established Social Security as a personal retirement program for the entire country. When you're on it, you're getting your own money back. There is no charity there, no morality. Just smart planning. The economist would say that people like me should suffer for my lack of ability to plan my own retirement, and that programs like SS make people less likely to plan for their retirement. I think that this is unsupported by any data. The day to dayers, the people who are in the lowest brackets would never be able to make a retirement plan. But I think the majority of people are concerned, and do indeed work towards one. Another interesting point for me is this idea of disassociation from your neighbor. Though I think that this has happened, to blame this on social welfare programs is, I think, a bit unjustified. Disassociation from your neighbor is, I think directly related to the dissolution of the family. Nuclear families living in two-three bedroom homes.

My final issue was a statement that suggested that government wealth redistribution plans were a form of tyranny. Even though I think I can appreciate the sentiment, I find it to be somewhat ludicrous. The scales of wealth in this country have far tilted to the right. Even now in Obamaland. That needs to be realigned. Seriously, it is in EVERYONE's best interest. You saw the mob fury of the fall and winter of 2008. Better to legislate than burn. So you can't take anyone's money, but you can readjust the tax code, you can enable small business owners, you can get education out the people who are trying to make the jump between classes.

A few things, Arlen Spector, Econtalk

So I was stunned to hear that Arlen Spector was changing parties. I mean, Arlen, pardon if I refer to him in the familiar sense, has always been a moderate, and has always caved to the more rigorous party domination of the Republicans. So considering the disarray of the Republican party at the moment, the fights for dominance, the extremist influence, it should come as a matter of course that long time dissidents are defecting. I'd like to see Chuck Hagel and Charles Grassley make the jump too. How crazy would that be? Hagel votes with the Dems half the time anyway--to be fair I haven't looked at his voting record--that's my memory of some of the more important votes of the last term. It makes me wonder if there will be a few more defections. Honestly, I think this is the death knell for the extremists in the party. As they watch themselves get more and more relegated to the outskirts, some bright bulb will eventually manage to rein them in a bit more center. I don't know how Arlen will vote, really, I'm familiar with his work on the judiciary committee, and though he was wishywashy, he was never a chest thumping, bravado spewing Republathug. Regardless, I wonder if Rahm, the Machine, Emmanual had anything to do with it. He's got bigger fish to fry now, it's true, but this was part of his old job for sure.

Econ Talk. Man this program pisses me off sometimes. I know I'm no economist, and am not doing as well as I'd like to in Accounting, but the policies and the history that they espouse seem totally wrong. So I guess traditional economists are now viewing themselves as Libertarians. I have to give the party props, they and the greens manage to keep themselves alive in a two party system through sheer effort of will. But the Libertarians have this idea that freedom is a virtue so indelible that to stymie it in anyway spells the doom of society at large. To the good folk at Econtalk, the economy melt down of 2008 occurred not because of a lack of regulation but because of a plethora of bad regulation. Well, how different is that from me saying it wasn't bad regulation, it was de-regulation. We're talking about the same acts, the same bills afterall--the repeal of Glass-Steagal, SOX and the PSLRA. It's all a question of perspective, and from my perspective, the idea that perfect freedom creates perfect society is an idiot's paradise. The freedom to let the bigger fish eat the little fish, and vice versa still ends with a whole lot of fish getting eaten. Maybe that's nature, and maybe that has to happen to some extent. But the purpose, to me, of liberalism is to provide a social safety net. Because it's kind, because it's the right thing to do. And if that brings the whole society a few notches, so what? What is the bar? What are we being measured by? Our success? How would you even measure that, in terms of money? Not only would that be inaccurate, it would be dishonest. No. I think we are measured by our humanity. By the capacity within all of us to sacrifice some good for our common man. And that comes with a recognition that none of us are perfect. My GF hates that I don't volunteer or donate my time to anyone. She's right, she's a better person than I am. But, I'd like to think that at least my heart's in the right place.

Econtalk and Stimulus

This post will be a hodgepodge. As usual, being so far behind the times, I recently discovered the wonder of podcasts. When looking for a podcast on accounting, I discovered the George Mason University's podcast "Econtalk." The first cast was pretty interesting, with some neat concepts. But the second podcast really stuck in my craw. First off, the guy who hosts the show, was educated at University of Chicago. For those of you not in the know--this is a very conservative economic philosophy. Their bias--which the host admits most frankly--is against government intervention in the free market. Fairly standard stuff. From his point of view, I would be dubbed an interventionist. I don't care for the term, I think the implied meaning doesn't really capture what I believe at all. Liberal economists (or faux economist students--like myself) don't really think of their vision as an intervention into a formal entity "The Market Mechanism" but as part of an entirely different mechanism, that requires public action in the form of rules, regulation, including private and public auditing and ratings entities.

What's worth writing about this you lunatic? You say free market principles have been prevalent for the last century? Well, sure. But for the first time in sixty years the prevailing winds are blowing my way. People actually want more regulation. And the good folk of Econtalk (they really do seem like nice guys too) are horrified by this. According to them, the essential cause of the current downfall was that the market wasn't really free. That regulation was in fact the cause of the crisis. To most of us, this seems ludicrous. But I can sort of understand their point, if only from the level that most socialists have long defended their beliefs, namely "No government or society larger than a village has ever practiced true socialism, so therfore you can't disprove it's legitimacy." Insert free-market capitalism and you've essentially made the same argument. There are always rules and regulation on the exchange of goods. I mean, there wouldn't be a market if someone didn't guarantee a free market space to begin with. Maybe I don't understand the theory. And I'll admit, I certainly haven't read any of their works.

They did raise an interesting point. They are, of course, opposed to the stimulus. On a couple of levels. For one thing, the market mechanism for dealing with failure is harsh. Nul-survival, if you can't make the grade, you go bankrupt, and the market dealt you the hand you deserve. On another level, they don't like the bank bailout for similar reasons, but also for the idea of moral hazard. On a more complex level though, they dislike the intervention in the market mechanism because from their standpoint it reduces market efficiency. Prolongs the pain. They say things like, bank failure isn't that bad. I find this reprehensible. In a healthy system that would be true. But Hank Paulsen's stand against Lehman nearly unhinged the system. If they'd let AIG go under, the banking system would have been effectively demolished. The auto industry would have tanked the next day. There literally would have been riots. Complete panic. I believe that they think that very unlikely. But for what reason? They also oppose the stimulus because they find the public works proposals, what they label as Keynsian economics, to be demonstrably proven false. They say that the last sixty years of economics have roundly disproved the idea that public works programs stimulate the economy. That's wrong for two reasons. 1) The Chicago school of economics has been THE school of economic thought for the last sixty years. No wonder there aren't too many studies that prove they are wrong. 2) There hasn't been a significant public works project other than The Big Dig (a total disaster), in the last sixty years. How could they have even done a study? And the last big public works programs were wildly successful, namely the New Deal, (and no I'm not disregarding The War.)

Here's what got me. They qualified their disdain for the public works programs by saying that they were not opposed to the idea of the programs and development. They were opposed to them being labeled as a stimulus. !!! !!! Only academics could give a damn. They were upset by the fact that the bill was perhaps a misnomer! Positivists are people who adhere to logic and law regardless of the emprical outcomes of their choices. People like this stun me. I like a good logical argument, and you'll see me make a lot of them. But sometimes, and this is what seperates the positivists from their counterparts, sometimes the rule doesn't fit. And where it doesn't fit, adjustments must be made.

However, I find myself agreeing with them. For different reasons. Calling it a Stimulus bill was a hat tip to George Bush. Fuck him. And his party. Enough nicey nice. And that was a mistake. Calling it a stimulus, and keeping Geithner and Bernanke (I like Bernanke, but he's part of the old system, with which I believe we need a clean break,) only served to prolong Bush era policies. The market is demanding something else. Which is why it hasn't calmed the markets at all, but instead only exacerbated the situation. You want to bail out the banks? Fine, call it what it is. The works projects should have been a different bill anyway. My other half thinks that they packaged them together as a way to get them through Congress. Maybe she's right. I don't know. As a matter of policy, I really think the Dems could have pulled it off. But not without a rhetorical flair and daring that they have not been able to carry off for sometime. Harry Reid must go.