General economics discussion

[milohimself]

Paul voted against the repeal of glass steagall, if I'm not mistaken

 

[milohimself]

Ron Paul (a true free marketeer) saw government failure all around him and predicted the 2008 housing market failure in 2003. I just can't buy into anything claiming it was a free market failure. It was caused by government failure. BTW, Paul's warnings fell on deaf ears (obviously). That doesn't prevent his ideas from being labeled kooky.

[youtube]http://www.youtube.com/watch?v=ojgBODMioLo[/youtube]

The problem was started by housing and propagated by banking, even adam smith recognized early that banking markets don't behave like other markets and needed certain sets of regulation. That caveat to classical liberal free market philosophy lasted for hundreds of years and got lost along the way.

 

[milohimself]

The housing bust would still have happened, but the results would have been far less drastic had certain firewalls been in place.

 

[n_huffhines]

Paul voted against the repeal of glass steagall, if I'm not mistaken

Yes.

Basically, as long as the Federal Reserve is the lender of last resort and there are guarantees from FDIC, the risks and losses will be transferred to the taxpayer. Ron Paul doesn't like that last part.

 

[milohimself]

Yes.

Basically, as long as the Federal Reserve is the lender of last resort and there are guarantees from FDIC, the risks and losses will be transferred to the taxpayer. Ron Paul doesn't like that last part.

There may be something to that last part, but my point is that given the current structure, deregulation proved to be a significant problem. There is a difference between saying deregulation is the problem and "deregulation was a large problem given the circumstance." That often gets lost on part of either the person saying it or the person listening to it.

 

[n_huffhines]

The problem was started by housing and propagated by banking, even adam smith recognized early that banking markets don't behave like other markets and needed certain sets of regulation. That caveat to classical liberal free market philosophy lasted for hundreds of years and got lost along the way.

We are a far cry from simple regulation. Guaranteeing loans with taxpayer money is not a regulatory practice.

And if we are really worried about regulation, then WTF does the Federal Reserve have the freedom and privacy it enjoys?

 

[n_huffhines]

Link?

And infant mortality and life expectancy have to do with so much more than medicine.

We most definitely do lead in things like diabetes, obesity and resultant cardiovascular disease and such.

Here are the actual quotes from Woods:

"Americans who don't die in homicides or car accidents have a longer life expectancy than people in any other western country."

"The United States counts every baby who shows any signs of life as having been born alive...in France and Belgium, for example, a baby born at less than 26 weeks is registered as dead. In Switzerland, a baby has to be at least 30 centimeters long to be classified as living."

And for good measure, an anecdote from former Google engineer Vijay Boyapati when he wanted to have a small epidermoid cyst removed from his back.:

The first practice I visited was a dermatologist's office, which deals primarily with insured customers and can afford to charge exorbitant rates. I explained to the assistant on my first consulting visit that I didn't have health insurance — I choose not to — and asked how much the procedure would cost if I paid cash. She quoted me $700 for a riskless procedure that takes about 15 to 20 minutes to perform, and would not in this instance be performed by the dermatologist, but by the assistant herself. As I explained to the students in the public-health-policy class, the fact that there are very basic procedures that cost the equivalent of $2,100 an hour is a glaring sign that the market's normal price mechanism has been broken.

On the recommendation of a friend, I decided to visit another medical practice, Country Doctor, which deals mostly with lower-income patients who do not have health insurance. Because its customers pay out of pocket, Country Doctor has a much stronger incentive to charge prices that its customers are willing to pay up front. When I had the procedure to remove the cyst done at Country Doctor, it was performed by an actual doctor, and it cost less than $50.

 

[volinbham]

Rather than more regulation or deregulation - the discussion should be about appropriate regulation.

Likewise, you cannot have a serious discussion of market failure solutions without a serious discussion of government failure.

 

[NEO]

I have no probelm with universal healthcare as long as everyone who can work gets a f'n job or goes to jail.

 

[Pepe_Silvia]

I have no probelm with universal healthcare as long as everyone who can work gets a f'n job or goes to jail.

Jailing the unemployed?

As if we don't already have a prison overcrowding problem.

 

[05_never_again]

I have no probelm with universal healthcare as long as everyone who can work gets a f'n job or goes to jail.

You have no problem being forced to pay for other people's healthcare at gunpoint? Interesting.

Speaking of The Communist Manifesto, I have always found this the most interesting (and scary) part of it...the 10 "short-term" demands.

1. Abolition of property in land and application of all rents of land to public purposes.

2. A heavy progressive or graduated income tax.

3. Abolition of all right of inheritance.

4. Confiscation of the property of all emigrants and rebels.

5. Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.

6. Centralisation of the means of communication and transport in the hands of the State.

7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.

8. Equal liability of all to labour. Establishment of industrial armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equitable distribution of the population over the country.

10. Free education for all children in public schools. Abolition of children's factory labour in its present form and combination of education with industrial production.

Some of what sound somewhat familiar?

 

[CSpindizzy]

The education one I will argue all day. The design of public schools was to create a dependent class to the state. It was to disconnect children from family and from religion. The state would control their education - what skills they learned and what information they were exposed to. Our school system was modeled after the Prussian school system - a system designed to indoctrinate children and mold a loyalty to the state and to create better soldiers. Marx being from the area saw how powerful this was to create the society he desired. Horace Mann was a founding father of this system in this country. We see what it has created now. We have a stagnant class of students with lower standards than many nations in the world who are taught entitlement. Marx would definitely be proud of the "accomplishments" of our education system and say they are ripe for moving to the next step.

 

[milohimself]

Looks good. I'd be interested to hear his take on pollution, and his theory on "rational irrationality" but when he talks about stock market bubbles, and healthcare, etc. my brain will probably just shut off. We don't have anything remotely close to a free market with regard to those industries. Government was paying for 50% of health care even before Obama took office.

I am totally sick of people pointing to croney capitalism (only made possible through government regulation) and claiming the free market doesn't work. This is what government gives you when you let them "fix" market failures....more corporate welfare:

Just getting back to you on this. Cassidy essentially fights fire with fire for much of this book. The whole point is to look at the Chicago school, and to a larger extent Hayek's 'perfect machine' the functioning of both requiring a few things to work as intended, such as rational behavior, accurate pricing, adequate competition, etc. and to a very large extent uses theory to demonstrate the myriad ways in which those can be frequently or entirely unachievable.

Granted, real-world examples must become of use at some point. The demonstration of how herd behavior leads to speculative bubbles, resulting in things like resource misallocation and inaccurate pricing, and at no point does government come into the equation. The Chicago school argues that speculators serve the role of enforcing adequate pricing at all times; if a stock is undervalued, there will be a rush to buy it until it achieves its adequate value, and contrarily, if something is perceived to be overvalued, then it will be quickly corrected by selling.

What happens in reality is that as speculative bubbles arise, you essentially have sophisticates and boobs. The sophisticates will ride the wave of more and more boobs buying in on the advice of Jim Cramer or whoever, then they try and get off at just the right time. Sociology comes in to play, particularly crowd behavior, i.e. if you're in a room with 20 people and 19 of them say 2+2=5, then there's a good chance you'll agree with them (oversimplification but demonstrates the point). This happens for a variety of reasons.

There's a bunch more to it, particularly the section on game theory I mentioned earlier, but plenty of examples of how nothing but entire systems of people and solely people making rational decisions at the individual level can result in overall poor outcomes, i.e. naturally inefficient markets and allocation of resources.

 

[milohimself]

The education one I will argue all day. The design of public schools was to create a dependent class to the state. It was to disconnect children from family and from religion. The state would control their education - what skills they learned and what information they were exposed to. Our school system was modeled after the Prussian school system - a system designed to indoctrinate children and mold a loyalty to the state and to create better soldiers. Marx being from the area saw how powerful this was to create the society he desired. Horace Mann was a founding father of this system in this country. We see what it has created now. We have a stagnant class of students with lower standards than many nations in the world who are taught entitlement. Marx would definitely be proud of the "accomplishments" of our education system and say they are ripe for moving to the next step.

Whoa dude, got your tin foil helmet on? This current education system we have, which came to be many generations after the time of Marx, up until forty years ago was a shining beacon for the rest of the world. I can name you any one of thousands of American individualist mavericks that are a product of American public education, went to public primary school, public secondary school and attended a public university.

There is a world of difference between the gsvol-esque Marxist paranoia in that post and the reality that our education system has been stagnant for forty years and produced many-a po' folk. Indoctrination, my ass.

 

[NEO]

You have no problem being forced to pay for other people's healthcare at gunpoint? Interesting.

Speaking of The Communist Manifesto, I have always found this the most interesting (and scary) part of it...the 10 "short-term" demands.



Some of what sound somewhat familiar?

didn't realize it was gun point.

I fall under a very, very small segment of the population in my beliefs though that places me at odds with almost all parties. I believe anyone who gets up, works 40 hours, and does everything they can to survive should be given basic rights like health care. But I also believe people who do not want to work need to be thrown to wolves and allowed to starve. There is no reason that someone making 250K should be treated any different on a human level than someone working 50 hours a week and making 25,000.

On a side note, Obamacare is not that option and is a joke and while my theory is one I believe in due to the idiots we have running this country it would never be handled properly.

 

[NEO]

Whoa dude, got your tin foil helmet on? This current education system we have, which came to be many generations after the time of Marx, up until forty years ago was a shining beacon for the rest of the world. I can name you any one of thousands of American individualist mavericks that are a product of American public education, went to public primary school, public secondary school and attended a public university.There is a world of difference between the gsvol-esque Marxist paranoia in that post and the reality that our education system has been stagnant for forty years and produced many-a po' folk. Indoctrination, my ass.

whoa milo, are you really stating the schools made the mavericks?

Public schools are a joke.

 

[milohimself]

whoa milo, are you really stating the schools made the mavericks?

Our public schools are a joke.

Yes and fyp

 

[KiffinKiller]

did I read somewhere in here that we lead in life expectancy when you exclude homicide? made me lol.

 

[n_huffhines]

Just getting back to you on this. Cassidy essentially fights fire with fire for much of this book. The whole point is to look at the Chicago school, and to a larger extent Hayek's 'perfect machine' the functioning of both requiring a few things to work as intended, such as rational behavior, accurate pricing, adequate competition, etc. and to a very large extent uses theory to demonstrate the myriad ways in which those can be frequently or entirely unachievable.

Granted, real-world examples must become of use at some point. The demonstration of how herd behavior leads to speculative bubbles, resulting in things like resource misallocation and inaccurate pricing, and at no point does government come into the equation. The Chicago school argues that speculators serve the role of enforcing adequate pricing at all times; if a stock is undervalued, there will be a rush to buy it until it achieves its adequate value, and contrarily, if something is perceived to be overvalued, then it will be quickly corrected by selling.

What happens in reality is that as speculative bubbles arise, you essentially have sophisticates and boobs. The sophisticates will ride the wave of more and more boobs buying in on the advice of Jim Cramer or whoever, then they try and get off at just the right time. Sociology comes in to play, particularly crowd behavior, i.e. if you're in a room with 20 people and 19 of them say 2+2=5, then there's a good chance you'll agree with them (oversimplification but demonstrates the point). This happens for a variety of reasons.

There's a bunch more to it, particularly the section on game theory I mentioned earlier, but plenty of examples of how nothing but entire systems of people and solely people making rational decisions at the individual level can result in overall poor outcomes, i.e. naturally inefficient markets and allocation of resources.

I don't disagree with that. The Austrians main point is that government intervention makes the speculative bubbles worse. Of course there were bubbles in the 19th century before the Federal Reserve, which was commissioned in part to avoid the booms and the busts and keep things steady. Today we may have longer steady periods of boom, but the busts are way worse than they ever were without the Federal Reserve.

 

[CSpindizzy]

Whoa dude, got your tin foil helmet on? This current education system we have, which came to be many generations after the time of Marx, up until forty years ago was a shining beacon for the rest of the world. I can name you any one of thousands of American individualist mavericks that are a product of American public education, went to public primary school, public secondary school and attended a public university.

There is a world of difference between the gsvol-esque Marxist paranoia in that post and the reality that our education system has been stagnant for forty years and produced many-a po' folk. Indoctrination, my ass.

Many generations after Marx? The system design came over around the time of the Civil War due to visits to Europe by Horace Mann. He went to Prussia to study their system around the same time Marx was penning his papers. Both of these men marveled at the education system set up there as a 'public' system established by government. Read Mann's writings. Take a fundamentals in education class in college. Mann's ideas are praised and anyone in the education establishment especially at the NEA will say our system is based on his ideas and the Prussian system. The system of 40 years ago? The Prussian model -same model in effect today.

As for mavericks, what is your point? There were mavericks in the Soviet Union, Nazi Germany, Iran now, Venezuela now. Any system out there will have mavericks. A maverick does not discredit a system or deny it exists.

Let's put it this way. You just say it's stagnant. Tell me this. What happens when you try to reform that stagnant system? Who challenges it? Those who actually run the system. Look at WI and what the governor did there. Look at the grip the NEA has on education. Any attempt to actually change the system or make it locally controlled (taking it away from the federal government or unions) is met with stiff resistance.

Call it tinfoil hat all you want Milo. It is reality. I never said this was Marx's actual ideal system of education he wanted to implement. I said this system is what he wanted to propel the ideas he espoused. A state controlled system, which is what we have now, is what gives the means for watering down abilities and knowledge. As I said, you claim it is stagnant as the blame. This is what those who control the system actually want. This is why any means of vouchers is shot down, school choice is shot down, homeschooling is shot down, charter schools is shot down, localized control is shot down. Attempts by the GOP to kill the Department of Education? This was a promise of the GOP Congress in '94. Done? Nope. Instead we got NCLB which gives even more federal control.

 

[n_huffhines]

Here's a great regulatory failure example (MF Global). Government can't do anything right. Trusting them with regulatory policy is just asking for failure in that regard in addition to croney capitalism as a byproduct. They talk about it at 3' mark.

[youtube]http://www.youtube.com/watch?v=5TjT2OJgbUc&feature=plcp&context=C3f6653eUDOEgsToPDskKHiNIOsNz5AosduXCC5bFi[/youtube]

 

[milohimself]

Cassidy's take on Alan Greenspan's role in the sub-prime crisis:

Critics such as Taylor and Fisher have singled out Greenspan's overly loose monetary stance; others have focused on his support for deregulation. But it was the twinning of the two policies that was to prove so disastrous. In a modern economy with a large financial sector, the combination of cheap money and lax oversight, if maintained for years on end, is sure to lead to trouble. But this was something that Greenspan, trapped in the world of utopian economics, never accepted. "In many respects, the apparent stability of our global trade and financial system is a reaffirmation of the simple, time-tested principle promulgated by Adam Smith in 1776," he wrote shortly before the sub-prime crisis began.

"People must be free to act in their self-interest, unencumbered by external shocks or economic policy. The inevitable mistakes and euphoria of participants in the global marketplace and the inefficiencies spawned by those missteps produce economic imbalances, large and small. yet even in crises, economies seem inevitably to right themselves (though the process sometimes take considerable time)." - Alan Greenspan

This ode to the invisible hand failed to mention that what usually enables modern economies to "right themselves" is prompt government action. Greenspan wasn't presiding over a free market nirvana; he was chairman of a central bank that been set up, in 1913, specifically to deal with a series of glaring market failures that the great Banker's Panic of 1907 had revealed. Following the failure of the Knickerbocker Trust Company, the rest of the banking system almost collapsed. The elderly J.P. Morgan and other senior Wall Street Figures agreed to support the establishment of a public lender of last-resort that would be able to supply funds to troubled financial firms when no private institution would do it.

For almost two decades, Greenspan had headed an institution that was designed to save financial capitalism from itself. For him to claim that the market economy is innately stable wasn't merely contentious; it was an absurdity. If he had seriously believed what he wrote, he would surely have followed the lead of his fellow Randians and argued for the abolition of the Fed and the reestablishment of the principle that struggling financial institutions should be allowed to fail. That he never did. Instead, he helped make it easier for financiers to take on extra leverage and risk while pursuing a monetary policy that often seemed designed to protect them from their mistakes.

The combination of a Fed that can print money, deposit insurance, and a Congress that can authorize bailouts provides an extensive safety net for big financial firms. In sch an environment, pursuing a policy of easy money plus deregulation doesn't amount to free market economics; it is a form of crony capitalism. The gains of financial innovation and speculation are privatized, with the bulk of them going to a small group of wealthy people who sit at the apex of the system. Much of the losses are socialized. Such a policy framework isn't merely inequitable; it is also destabilizing. Once the Fed abdicates its responsibility of preventing excessive risk-taking, rational irrationality will eventually ensure that the system moves toward what Minsky referred to as Ponzi finance. By June 2003, this process was well advanced. In the two and a half years that remained before Greenspan's retirement, it would become irreversible.

 

[n_huffhines]

Nice. Greenspan is totally a gold standard guy, but his career got in the way. Super funny that the Federal Reserve chair deep in his heart didn't believe in the system.

 

[volinbham]

Cassidy's take on Alan Greenspan's role in the sub-prime crisis:

Seems his argument is a bit circular - what is needed to right free market economies is government intervention but then arguing we weren't a free market to begin with because of the market distorting role of government in the form of a central bank. So in effect we have a regulated market requiring more regulations in part because of the effects of the prior regulation.

As I said earlier, it's really not possible to understand the proper role of government intervention by only looking at why markets fail. You also have to understand why governments fail.

Take the stimulus - it is based on policy of jump starting demand. However, due to inherent foibles of government it did not work as theory tells us. The same behavioral economics that questions rational economic behavior also rules in government action.

 

[milohimself]

Probably not in clear context from the rest of the chapter; He wasn't advocating for a government intervention or saying it was what worked, he was just stating that's how the majority of modern economies have operated.