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Unread 6 Aug 2009, 10:41   #43
Tietäjä
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Re: Is Bigger Government Better

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:
Originally Posted by Robert Lucas
Could the $600 billion in new reserves be called a bailout? In a sense, yes: The Fed is lending on terms that private banks are not willing to offer.
He admits that it's essentially a bailout.

Quote:
Originally Posted by Robert Lucas
There are many ways to stimulate spending, and many of these methods are now under serious consideration. How could it be otherwise? But monetary policy as Mr. Bernanke implements it has been the most helpful counter-recession action taken to date, in my opinion, and it will continue to have many advantages in future months. It is fast and flexible. There is no other way that so much cash could have been put into the system as fast as this $600 billion was, and if necessary it can be taken out just as quickly. The cash comes in the form of loans. It entails no new government enterprises, no government equity positions in private enterprises, no price fixing or other controls on the operation of individual businesses, and no government role in the allocation of capital across different activities. These seem to me important virtues.
Then he continues to praise Bernanke's implementation of this $600 billion as "most helpful counter-recession action taken up to date", entailing "important virtues", and being "fast and flexible". I find it hard to believe that Robert Lucas is in principle against bailing out, or in principle against government intervention, when he's so full of praise for Bernanke, the lead fed wizard. Naming Robert Lucas to back up your cause on the subject "bail outs are a mistake and should have never been done" is, under this article written December 23rd 2008 not a really great way to proceed.

Quote:
Originally Posted by Robert Lucas
We don't care about the quality of the assets the Fed acquires in doing this
I can see Ben go "WTB: Some about-to-sink sub-prime loan packages chopped into bits and pieces in order to disguise their real risk, also WTB: some likely-to-fail derivatives". (on the background, Robert's doing golfclap). Yes, I know what I'm doing: this is different. This is fed. This is monetary policy. It's not "government", and it's wrong to say "taxpayers have to pay it". Because fed is, well, fed. Independent and all.

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:
Originally Posted by Paul Krugman
But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago...

So whatever bad incentives the implicit federal guarantee creates have been offset by the fact that Fannie and Freddie were and are tightly regulated with regard to the risks they can take. You could say that the Fannie-Freddie experience shows that regulation works...

And let’s be clear: Fannie and Freddie can’t be allowed to fail. With the collapse of subprime lending, they’re now more central than ever to the housing market, and the economy as a whole.
It's just Krugman though. Take it with a grain of salt, and twist Robert Lucas into whatever you want, too. Oh, and, also, the fact that I'm quoting Lucas for you doesn't mean that I'd agree with his or Bernanke's solutions, I simply did it because you named Lucas as a person that supports your arguments. The fact that someone suggests a bailout plan where Mr. Paulson becomes near divine and does the descisions mostly based on his digestion and is not to be held responsible in any way of his choices doesn't mean that all bailout plans are inherently bad just because this particular one is somewhat retarded.

Last edited by Tietäjä; 6 Aug 2009 at 11:24.
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