Is Bigger Government Better
On American Independence Day, I watch my country in a mixture of bemusement and alarm. The country was founded on the principle that government needed to be controlled so that it didn't oppress the governed. We set up a government which not only enumerated certain principals but did so in a way to attempt to restrict government and its intrusion into the liberty of the citizenry. Governmental power was specifically restricted by the Bill of Rights. The central government was further restricted by investing the various states with all power not enumerated as belonging to the provence of the central government. That not being enough they then split the power into three separate bodies (executive, legislative and judicial).
However, since that framework was set up, there has been a slow but steady creep toward lager and less restricted power on the part of the central authority. This trend has accelerated over time and is now, in my opinion, reaching escape velocity. The question is, "Will the individual be well served by the increasing intrusion of the government into the lives of the governed however well intentioned. ?" Also, even if one thinks that the current government will wield it's power in a beneficial way, aren't we running a risk that at some point a malevolent person or group may seize that power and inflict it in a most unfortunate way? I am particularly concerned that young people seem unconcerned with the continued accumulation of power in the hands of charismatic leaders. |
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It depends on the goverment type, the restrictions imposed on that goverment (and how those restrictions are enforced) and also on how many people they govern.
A bigger goverment with more control isnt necessarily a bad thing; it depends which area's they want more control in. Such as having a bigger goverment and more taxes, to provide a national health service is a superbly benefical thing. However, having more control to invade your privacy is not. |
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The problem of a big government doesn't lie with the leaders itself. The problem lies with with government officials, who are just regular people who do not have any insightful vision on the policy they are carrying out. If these people are allowed to intervene in people's lives then - with all good intentions - they just won't stop doing that. It will become their daily business to make up new bullshit at the cost of your freedom to keep themselves busy.
In the Netherlands this has become a major problem in my eyes, where local authorities try to steer everything they can to improve our way of life. Most regulations can actually be seen as an improvement in itself, but bit by bit our freedom to do something wrongly is just being taken away, resulting in very little freedom, as you can only do what your neighbour, who happends to be a goverment official, thinks is right. Also in other areas officials tend to do more then suitable: With all good intentions local authorities keep subsidizing projects that they perceive as constructive. Most likely they subsidize projects that are unprofitable for a reason, but hey, the official likes it. The government official just subsidize it because it's his job. It's not his concern how this affects the taxburden or how many projects are currently running. He has proberbly even forgotten why the people gave him his right to subsidize certain projects in the first place. Of course the resulting giant taxburden has to be distributed fairly. Everytime more money is needed they invent a new fair progressive tax to spare the less fortunate. Personally I have nothing against progressive taxes, however, when they keep inventing new progressive taxes the burden for people with a normal wage can become so high that they can actually end up having less purchasing power then people with lower wages. I'm not even kidding. I've worked with handicapped people and I have actually helped some calculate how many hours they should work for the most profitable results. The same thing applies to rules they make up affecting other parts of our lives or businesses aswell of course. If the authorities have the freedom to do as they please, then they will do as they please. So for the abovementioned reasons it's better to keep the government as constrained as possible, to keep the idiots from influencing every detail of your life and casually taking everything too far. This does not necessarily has to mean you can't have a big government, but it has to be well defined. When considering which responsibilities should be given to the government you have to keep in mind that the government is per definition less inventive then the private market. For quality of services you do not have to look at the government. Noone is responsible for the products they deliver or the production proces and that reflects in the costs. And just like a normal business they sometimes invent new products that noone wants, but as they have an infinite budget this doesn't lead to the market financially punishing the people responsible for their stupidity. The only thing in which the government excels is increasing the accessibility of services. Unlike the government, the free market aims at profit maximization and can't always allow products to be accessable, If you want accessable healthcare and/or education then a big government is the way to go. Accessability at the cost of efficiency. If accessibility isn't your aim, then the private market is the way to go. |
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Even in education, students from equal backgrounds who go to privately owned schools tend to have much greater success in school and in college than those in government run schools. Much of this is attributable to the constraints placed on individual schools by government regulations. This, despite the HIGHER per student amount spent on government schools. |
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:cough:
I know you don't like Obama but pretending he has basically destroyed your country in a matter of months is a tad silly. |
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The question involves the proper role of government. While I think that Obama is in the process of ruining the country, aided and abetted by congress and the Supreme Court in many instances. My worry is not so much that Obama will ruin the country, my worry is that the aggregation of increasing power in the central government which allows the government to insert itself more and more into what were individual prerogatives will continue unabated. Once a certain level of control over people, their lives and even their thought processes, then it is only a matter of time til someone decides to abuse that power, possibly with horrible results, is just a matter of time.
Would you have been sanguine with seeing George Bush and/or Dick Chaney with even more power than they had? Unless one is willing to grant this kind of power to their worst case scenario of a leader, then they should be opposing it. However, many Americans would rather play Wii than pay attention. Sad really. Really sad. |
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right? |
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There was a good xkcd on this recently.
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But when we talk about making health care accessable then we proberbly can't really make a one on one comparison between Europe and the United States anyway, as I can see some problems unique to the US when implementing universal health care. We have constrained the salaries of medical specialists, while the salaries and costs are soaring in the United States. The Universal Health Care will proberbly operate under the current conditions of the private market and vastly increase the demand, which might become a costly practise. Also, in western Europe the gap between rich and poor is relatively small compared to the United States. And the most poor area's (eastern Europe) do not have universal health care or have a seperate universal health care system from ours. So it's likely that you will have to carry the weight of a lot of poor people. I am very curious about how it will all work out if Obama implements it. Quote:
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This topic reminds me of this Reagan speech.
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Why are public institutions less efficient when they lack the waste of paying dividends to shareholders?
Why? Or maybe they aren't. |
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Because they often lack responsibility/accountability, a proper long-term motivation to keep them from slacking off and they don't operate in a competitive environment.
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Because government enterprises do not have to show a profit, they can, and usually do, have a competitive advantage over private companies. Government can subsidize their own enterprises and, should they desire to, can make it entirely impossible to compete with the government run intety. If nothing else, government controlled enterprises do not have to pay taxes, rather a large advantage right there.
Also, paying dividends to share holders, at least in the U. S., is largely to large retirement funds, thus providing the retirement funds for many groups, including, but not limited to, most government retirement plans. Private profits drive the prosperity which allows government to function in a meaningful fashion. |
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What you are now discussing is the myth of the competently run public sector
It is a myth primarily because the private sector is disgracefully incompetent. Unbelievably incompetent and really quite mind blowing once you look at it in detail. The real issue you see is that for some utterly bizare reason the public sector is worse So in reality all you need do is raise public sector incompetence to the level of private sector incompetence - job done. But as all every politician ever tries to do is to instead raise the public sector to a utopian (and as yet unseen, anywhere) level of competence, what really happens is nothing. |
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The true myth is that government really gives a shit. It doesn't for the most part.
The government is just another business. A business which wishes to grow and prosper. A business whose employees are, for the most part, interestedd in their own little lives and, while not averse to actually do their jobs, see the securing of their jobs much more important than actually accomplishing anything. A business whose board of directors (elected officials) for the most part don't have a cllue what they really want to accomplish beyond staying in power or increasing their own power. In other words, about the same as every other business. The difference is that governments have many advantages in power over a company. They have a monopoly. They can control or eliminate any competition in any field they decide to dominate. They can print their own money. They can throw people in jail who don't play by the rules they set, though, frequently, those rules do not apply to them. They can take your money or your property under a variety of pretexts which are unavailable to other businesses. If so inclined, they can kill you or send you out to kill others to clear the way for their business aims. It is not a level playing field. It is their playing field. Always has been, always will be. Or, perhaps, as a life-long public employee, I should say it is OUR playing field and always will be. |
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But somehow pressing a button every four years doesn't appear to do the trick. For some reason politicians usually take it easy on the people below them. And people do not want to hold our politicians accountable for the messes within their departments and the organizations they are financing, that have no democratic structure in place. Quote:
That only happends when politicians cut down on expences. And politicians do not exactly let the (ir)responsibility of government funded organizations affect their policy. So it appears they simply do not have the need for a strict organisation. When you have an organisation that operates on the same scale as the government, with almost every branche having very little need to take responsibility, you can expect a lot of slacking and very little innovation and efficiency. Culture might affect how people operate to a certain extend, but the lack of (financial) stimulation is the actual problem. And the artificial alternative, democracy, is lacking. It might be a plus that the public sector isn't driven by greed, unlike the private sector, but the downside is that they aren't properly driven by anything else either. Quote:
Organizations that attempt to maximize profits do have their own flaws of course. As I said before they can for example chose to only provide services to a certain market segment. Commercial organizations might not be suitable to sentence impartially in disputed matters either. And on markets with a monopolistic character you might prefer a non-profit organization as well. The role of the public sector should be solving issues at points where the market fails, if necessary. Preferably without interfering with the actual or other markets. But when you are just seeking innovations and efficiency then you shouldn't look at the public sector. Those are apparently the points at which the public sector falls behind. |
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The hedge fund game, the investment banks, et cetera: the agents weren't playing with their own money, and despite the downfall of some of their corps (Lehman bla bla), the agents are going to walk out with. Money. The clients are going to walk out with. No money. Another example of how things can go dreadfully wrong on the private sector due to incentive mechanics would be Enron. Which you kind of summarize fairly well here. Quote:
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Just some quick notes:
1) Its fairly obvious that some companies are better run than others. Toyota is well run, GM is not (this might change ofc). 2) Its also fairly obvious that some governments are better run than others. The Norwegian state is fairly smoothly running compared to the Mexican for instance. 3) This can also be said about different parts of the government. Here in Norway our schools are not run very well. But compared to our ministry of defence, they at least seem to work. 4) The US population seems to be favouring spending money "defence" and supporting madmen and dictators, instead of a public health care system like one has in most european states. Even the Iran-Contras scandal and that likes seems not to have stopped this support. Instead they have a very costly private health-insurance system that costs more than the much better and nationwide systems in Europe. |
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Some parts of the public sector are run well some bad. The argument that someone fails and someone succeeds can be turned against and or both sectors, and thus really serves no role.
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Surely, you can blame supervision for not intervening on subprime, but, had they done that, someone'd definitely yelled: omg communists intervening on our legit banking business. Truth said, the whole subprime crisis and the credit crunch is a follow-up of a private shadow banking sector failure, caused by poor analyzing of risk, combined with gullible consumers. |
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And if, by some unholy miracle, GM is ever profitable again, I won't be getting any dividend checks. :( Quote:
In capitalism, bankruptcy is not a bug, it's a feature. Poorly run companies should go out of business. Subsidizing incompetence does little to reduce or eliminate it; if anything, it only serves to increase it. Quote:
I don't accept that premise. |
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... and of course America, being poorly run, virtually bankrupt, and the cause of global economic chaos ought also be allowed to fail. Just quietly disband, leave your things in the corner, we're happy to take back control. xx |
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Must was a bit of a poor choice of words, admitted. "May have to" is more like it. TBFT, especially on the financial sector, is a bit of a problem. Of course, private sector failures aren't necessarily bailed out, and they should, as you point out, not always be bailed out. But the fact that a bail-out feature is there inherently creates a moral hazard. The banking system is a good example of where, the government, has historically paid the price for private sector failure. Quote:
How crippling do you think letting the half the financial system go down in a blast would have been? How long do you think it'd take for the market to regain confidence in the system again, when, the system is technically an essential part of resource allocation between corporations? This is, considering that it wasn't only the shadow banking responsible for the subprime packages and toxic waste funds, but a good part of the "actual" banks as well? How happy do you think those few hundred thousand UK and Netherlands clients of certain Icelandic banks would've been if, umm, their savings in these banks had simply defaulted? I'm not sure if you're actually saying that, the government should, never, bail anything out, but if you are, then I'm keen to hear how you think the financial market would actually work. If you aren't, then I'm sure we can agree that sometimes things must be bailed out mostly due to private sector failure, and the remains are not paid by the stock holders. Quote:
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The example you gave doesn't even really apply to the private market in general, as it is quite rare that organisations are actually bailed out by the central government. Even in a small country like the Netherlands (with 16 million people) on average 28 private organisations went bankrupt each day before the current financial crisis. 9349 organisations in 2004 and 9200 organisations in 2005. And we let those organisations go bankrupt for a very good reason: they aren't profitable. Bankruptcy can actually be seen as one of the major features of the private market. It's a way to weed out the poor organisations and motivating organisations to improve. The general rule is that in the private sector poor organisations lose their market share, become obsolete and get replaces by better adjusted organisations. A rare occurrence in the public sector, where poor results can often be ignored, thus, as said before, making a proper distinction between both sectors is very important. |
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China is not well run. China is not rich. It seems to be a popular urban myth to pretend that China is either of these things. I am not entirely sure why (although I can guess) If you would like to use an example of a rich; and by your extension well run, country then you ought to take a look at Lybia. But if you did you would probably bump in to all sorts of other issues which would confuse you and take away that sense of safety (which you so clearly need) from having 'certainty'. |
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There's, even so, some reason to discuss the "US bankrupcy" and some reason to also acknowledge that it's not a situation unheard of and never before resolved without going Robert Mugabe on it. US, as the "source of this problem", will probably find accomplices from Iceland and United Kingdom, who are, too, quite endebted and running a "healthy financial sector". Just to make it clear, I don't find you all that bright either. Just my share of ad hominem. |
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(I understand that it is easier to write long rambling prose which does not make sense than just say it out right so I will forgive you the length of your apology) |
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The first question to ask is: how does one determine the likely outcome of not bailing out a company or an industry? Which "experts" do you believe? The Wall Street bankers insisted they--and hence the entire financial system--were teetering on the brink of apocalyptic meltdown, but didn't they have an incentive to overstate the problem? (I can think of about 700 billion incentives, actually) What about the government regulators? People like Henry Paulson (Treasury Secretary under Bush) who spearheaded the bailout. These regulators have no bias, right? But wait, most of the regulators come from the industries they regulate (Paulson was formerly the CEO of Goldman Sachs) and many regulators return to their industries when they leave government service. Are the regulators really impartial or are they virtual insiders themselves--recommending favorable deals for their former companies and cronies? And what of the politicians who ultimately vote on these measures? Many of those in Congress responsible for oversight of the banking industry, and for sponsoring the banking bailout legislation are themselves recipients of campaign contributions from Wall Street firms (or other favorable arrangements, like special below-market-rate mortgages or relatives employed by these firms). Did they support the bailout because it was the best solution, or were they simply 'paying back' their benefactors? This is the problem with bailouts in general. Even if you can convince yourself that the first bailout is absolutely necessary and proper (and I'm not sure how you would do that), what about the tenth bailout? The twenty-fifth? And yes, more bailouts are inevitable: look how quickly and seamlessly the bailout for the financial industry was expanded to include the car companies. With billions of dollars being handed out, how can we be sure the system is immune from corruption, and even if it is how long can it remain that way? Better to not start down that path in the first place because it seems to me that it must--sooner or later--end badly. Given all the cheerleading by vested interests in the industry and in government, it's not surprising that many people believe the bailout was essential; but nonetheless, many independent experts (primarily economists in academia) were opposed to it. Some were opposed to specific details of the bailout (the almost total lack of accountability, oversight and transparency, for example) but some were opposed on more general principle. The second question to ask is: what are we getting for our money? There is no guarantee that the banks or even the whole "financial system" has been 'saved'. Wall Street may be back for more money next year, or the banks may go under anyway, or the meltdown that so many people were worried about may come to pass regardless. We may find we've spent our last reserves trying to prevent what was, perhaps, inevitable (except that we will then be hundreds of billions of dollars poorer to deal with the fallout). In fact, there's no guarantee that the bailout isn't going to make things worse overall. Keep in the mind that virtually all the "experts" who crafted the bailout and/or swore it was essential are the very same "experts" who either (a) caused this problem in the first place and/or (b) saw it coming and did nothing, or (c) never saw it coming at all. I'm reminded of the Hoover administration, which during the early years of the Great Depression, poured taxpayers’ money into influential Wall Street banks (via the Reconstruction Finance Corporation) in an effort to save them from bankruptcy. Most of the banks went bankrupt anyway; the bailouts only bought them a few years (and possibly made their inevitable failures worse by creating a false sense of security which lured many investors back). Quote:
But I'm curious: Why would savers in the Netherlands and the UK deposit their money in Icelandic banks (as opposed to their local banks)? I suspect it was because the Icelandic banks were paying a higher interest rate. Why were they paying a higher interest rate? Probably because they were making riskier loans (the first rule of investing is that higher returns generally involve higher risk) and I guess we can assume that the Icelandic banks weren't paying any money to insure deposits. Basically, it looks to me like these savers got a little greedy. They saw a better interest rate and didn't know (or didn't care) what that might have implied towards the risk of their deposit. It's unfortunate they lost their money, but why should the taxpayers foot the bill for what was, ultimately, someone else's mistake? Quote:
Markets, financial or otherwise, have the ability to sort themselves out. By definition, that's what a market does. Prices rise or fall, and eventually the market clears. Of course, when you leave it up to the market, sometimes powerful interests can get hurt. Sometimes, these interests take their case to the government, along with fantastic claims why they should be exempted from the effects of their respective markets (through bailouts or other special legislation). That they should make these claims is not very surprising; that these claims should be believed, is. |
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"powerful interests" ... "fantastic claims" ... "the boogie man will eat your children if you don't vote extreme right wing" ... Do you convince anyone? |
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Only two questions. First, you imply that financial markets worked well before bailout mechanics and government interventions. Do you think say 1907 was a signal of this well-functioning healthy financial sector (back then, there was no regulatory system in place, let alone a federal reserve). Second, could you direct me to a few of these academics (preferably ones with some creditentials) that argue that bailouts of Freddie Mac and Fannie May were mistakes, or argue that they should have never happened? |
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What would your answer be? |
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I like how Tactitus speaks of "powerful interests". "Powerful interests" rarely ever get hurt in any end-of-the-line fashion. Because they're powerful. The ones who get hurt are the ones who aren't powerful. This is why people accept bailouts. Because they believe that sooner or later they end up jobless and on a bread line wondering what the **** they did wrong and it's easier to pay an extra 1% of your income in tax and avoid that. |
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There's a grain of truth into ending up jobless if say GM wasn't bailed out, and obviously, herein lies the irony, the debt used to obtain GM will be serviced by the very same people whose jobs seizing it saved. This is becoming an eerie copy of Zeitgeist now. But you could argue that, a person can be happier employed and servicing a debt that is essentially used to employ him (for a more in-depth and "GMM" type analysis of this, along with data, see Richard Layard's "Happiness: lessons from a new science). Whether this is a matrix illusion and desireable or not is a different story then. Oh' be, John Stuart Mill. |
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The question isn't whether markets always work well or are always free of corruption (because they don't and aren't) but whether the alternative is better. Is government any better at sorting out market failures than the market is? Or in somehow preventing those failures in the first place? In my opinion and experience, I'd have to say no. Quote:
I don't know if you consider a professorship of economics as an acceptable credential, but their names and institutions are listed and you can decide for yourself. Quote:
6.5 million Americans have lost their jobs since last September (and more to follow). These are people who did not and will not get a bailout. Paying additional money for "bailout insurance" might be a reasonable option as long as you believe your employer will be bailed out when needed; but as more and more people don't get bailed out then it doesn't look nearly so attractive. |
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This would lead me to believe that the people whose names appear on the list are against the specific bail out plan presented by the above mentioned government institutions. This does not mean that they'd be against bail outs per principle, or that they'd think that simply not bailing out would be a better option, or that the bail out plan could not be improved through modifications or follow-up actions. I'll ask again, and I'll try be more specific: could you please point me out an economist with creditentials that will specifically state that the bail outs should have never happened, and bail outs should never happen, because they are "wrong" (because markets clear as per efficient markets model). It's worth mentioning that nobelists like Krugman and Shiller would follow the list to argue that the bail out plan was poor. Yet, they'd probably not argue that it was worse than doing nothing, or, that the whole of the financial sector should be left for free markets to reign. I doubt any sensible economist nowadays would so trust some pristine efficient market model. Quote:
In fact, in this aspect, I'll quote your own citation. Please, read this part carefully. "We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan" I'll ask again, in case you misunderstood. I'm not supporting the Paulson plan vis a vis. But I'm a fan of certain bail outs. I'll quote myself. Quote:
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In a further attempt to elaborate why your citation is not a valid argument to back up your claims I've researched a bit of it for you. I picked up the name Robert Lucas from the list, mostly due to his background as a famous macroeconomics/public sector focused economist (Lucas Critique), and also for the fact that he carries some special weight as a nobel laureate. Last but not least, his opinion is easy to track.
This text written by Robert Lucas dates after the last update on your paper. The source link is here. He is discussing the fed's 600 billion dollar actions, under the name "Ben Bernanke is the best stimulus right now". Quote:
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Let's be honest here. Read the article, and come back and claim to me that the person you named to support your argument, Robert Lucas, is saying that the bail outs were a bad thing, and that it shouldn't have been done. I'm prepared to find more professors that are putting their word out for actions and against free markets. Clearing up: treasury bailout bad, fed bailout good? Supports your argument, how? I'll start with another nobel laureate, Paul Krugman, mostly because he's also a very prominent (and loud) figure speaking on the current situation. It, link here, also provides some background on May and Mac you can feed your free market flamebait on. Yes, I know: "Mac & May failed because of their background, which is inherently detrimental". Quote:
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This is the part where we enter a discussion that'll never end: one economist (here, Princeton professor, nobel laureate Paul Krugman) will argue to you that FM/FM didn't actually participate in excess risk taking; another will argue that they did exactly that (here, Harvard senior lecturer Jeffrey Miron). This is part of the academic nature: different views argue with each other. The problem with claiming that Freddie Mac and Fannie May took excessive risk is that the loans refered to as toxic waste wouldn't have qualified for Mac's or May's portfolio - because their portfolios, unlike such of say Citibank, had strict requirements (this is the Krugman argument; Miron seems to think diagonally opposite: which is right and wrong comes down to a question of perspective). The argument as such is never going to end - but most definitely, if you look at equity-asset rates, and portfolios from early 2000s onwards, you'd probably agree that if anything, FM/FM ran considerably less risk than the investment banks did (hence, Bearn, Lehman, et cetera)? Why did the investment banks run such a high risk to cause several of them to collapse? They weren't government regulated - in fact, they had very little to do with the act mentioned by Miron. Unlike conventional banks, they weren't "encouraged" to spread their portfolio anywhere. Yet, only a few of them (f.ex GS, as Johnny mentioned) have emerged alive. While Miron can build a case on what was wrong with the act as per regulated banks, it's hard for these. Why do these Wall Street institutions seem to have participated in systematic high short term term profit high long term risk investing? Does their spillover play a role more significant than FM/FM, or, even amplifying the problems of FM/FM, as suggested by Krugman? I'm not completely familiar with all the installations of the CRA, but I'm fairly sure it didn't force anyone to go subprime - which is essentially what Miron agrees should've never have happened. Why did so many investment "banks" participate in high risk activity, such as subprime mortgage securitization? Because of the high short term profits that would reward their CEOs with high bonuses they'd keep whether the company would sink or not? Because of their responsible long term business plans? Quote:
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Could you please elaborate why the mentioned #1 and #3 should be valid objections to almost any bailout plan? I can't quite grasp it. Seems that Robert Lucas can't either. He seems to think that the Bernanke route is really good. Maybe Mr. Miron can? To be fair, unparalleled prosperity can also equal unparalleled national debt. (I'm not sure where you got the implication that I'd say people were only concerned over #2; I don't also believe that all bailout plans by default need to have adverse long term effects, but I'd really like to hear why you think so; in fact I just linked you a piece where one of the persons you cited as to back up your claims elaborates why he thinks a bailout plan would have positive long term effects, here I'm refering to the Robert Lucas part). Of course, people are concerned of #1 and #3 too. #3 is very ambiguous (ironically) to begin with, and seems to mostly be specific to this very plan: I can't see why every possible bail out plan would have adverse effects to the innovative markets which came up with securizitation of subprime mortgages. Krugman's especially concerned about #1 in what he spits out: this is one of the prime reasons he thinks temporary nationalization (ie. ownership over subsidy) would be a better idea, although he does also argue that this would function to remove some of the "heads I win tails you lose" incentive for the owners. |
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On the other hand, Jeffrey Miron's CNN article seems to imply that he thinks the market should be left to itself: I'd be curious what he thinks the "we agree with the need for bold action to ensure that the financial system continues to function" (which Miron signed) mentioned in your original link to support your cause of "all bailouts are evil" would include? Bold inaction? Bold abolishing of all financial market regulation?
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(apologies for reply to such an early post, I'm still progressing through the thread). |
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