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Unread 4 Jul 2009, 17:00   #1
dda
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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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Unread 4 Jul 2009, 17:39   #2
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Re: Is Bigger Government Better

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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Unread 4 Jul 2009, 17:43   #3
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Re: Is Bigger Government Better

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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.
Sadly, one will almost inevitably lead to the other, I fear.
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Unread 4 Jul 2009, 21:43   #4
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Re: Is Bigger Government Better

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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Last edited by Alessio; 4 Jul 2009 at 22:19.
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Unread 5 Jul 2009, 19:02   #5
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Re: Is Bigger Government Better

Quote:
Originally Posted by Alessio View Post

With all good intentions local authorities keep subsidizing projects that they perceive as constructive.
There is an old saying, "The road to hell is paved with good intentions.

Quote:
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.
The problem with this is that more often comes at the expense of quality. The additional problem in the U. S. is that less than 7% of the population is not covered or eligible to be covered by existing programs. Those who are not covered still have free access to the emergency rooms and hospitals where they receive the same care as any other citizen.

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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Last edited by dda; 5 Jul 2009 at 19:34.
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Unread 5 Jul 2009, 19:52   #6
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Re: Is Bigger Government Better

: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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Unread 5 Jul 2009, 21:00   #7
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Re: Is Bigger Government Better

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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Unread 5 Jul 2009, 21:03   #8
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Re: Is Bigger Government Better

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Originally Posted by dda View Post
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.
You have noticed that you haven't provided any evidence for your crazy claims?

right?
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Unread 6 Jul 2009, 00:38   #9
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Re: Is Bigger Government Better

There was a good xkcd on this recently.
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Unread 7 Jul 2009, 10:50   #10
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Re: Is Bigger Government Better

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The problem with this is that more often comes at the expense of quality.
This might apply to most fields and some loss in efficiency can always be expected, but I think the medical field can cope with it pretty well, as European health care isn't exactly lacking in quality. I'm not exactly sure why this is the case though. Perhaps because the medical field has a quite clear direction which the professionals should work towards, curing the patiënt. And private corporations supply the means to do exactly that. When it comes to education it's also very possible to simply ask the workfield which things should be taught to the students. Schools themselves don't really need a lot of innovation to keep providing quality services. In both cases the actual innovations are done by private organisations.

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:
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.
Well, if the problem doesn't lie with the students but with the schools themselves, as you say, then public schools could just exchange expertise with private schools.
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Last edited by Alessio; 7 Jul 2009 at 20:22.
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Unread 7 Jul 2009, 21:22   #11
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Re: Is Bigger Government Better

This topic reminds me of this Reagan speech.
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Unread 8 Jul 2009, 00:48   #12
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Re: Is Bigger Government Better

Quote:
Originally Posted by Yahwe View Post
You have noticed that you haven't provided any evidence for your crazy claims?

right?
Evidence and G. D. seems to be an odd concept. However, if you would deliniate which "crazy" claims you wish evidence on, I will attempt to obilge this obsessive need of yours.
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Unread 8 Jul 2009, 17:24   #13
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Re: Is Bigger Government Better

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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Unread 8 Jul 2009, 17:35   #14
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Re: Is Bigger Government Better

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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Unread 8 Jul 2009, 23:29   #15
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Re: Is Bigger Government Better

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Originally Posted by Alessio View Post
Because they often lack responsibility/accountability
Really? why? I don't quite understand this point. Why are they less responsible or accountable than private firms? Surely a structure and a culture for this could be put in place?

Quote:
a proper long-term motivation to keep them from slacking off
Why is this any less true with employees in a private company? There are still promotions etc and while there may be fewer redundancies etc this is more a problem with the culture than anything inherent to public companies.

Quote:
and they don't operate in a competitive environment.
Why would this actually matter? Why would competition actually make you any more efficient if your only goal was maximum efficiency/service in the first place? All competition accomplishes is the driving down of profits per customer in an attempt to gain more customers but in a system where you don't seek profit it's needless.
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Unread 9 Jul 2009, 19:42   #16
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Re: Is Bigger Government Better

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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Unread 9 Jul 2009, 20:38   #17
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Re: Is Bigger Government Better

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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Unread 9 Jul 2009, 21:35   #18
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Re: Is Bigger Government Better

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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Unread 9 Jul 2009, 22:00   #19
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Re: Is Bigger Government Better

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Originally Posted by dda View Post
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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Unread 10 Jul 2009, 08:14   #20
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Re: Is Bigger Government Better

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Really? why? I don't quite understand this point. Why are they less responsible or accountable than private firms?
Because it's not their own money they are playing with and more often then not they do not have to please anyone to get it. In the private sector people have to invest themselves and are financially accountable when they steer their organisation into the wrong direction. And since commercial organisations usually exist to maximize profits for it's owner it would go against it's very nature to not take financial responsibility.

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Surely a structure and a culture for this could be put in place?
Most likely. That's also one of the reasons why we have a democracy. That's why we hold elections on several layers. So we can hold top officials of all departments of the government accountable in hope they take proper responsibility and send the shitheads away.

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.
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Why is this any less true with employees in a private company? There are still promotions etc and while there may be fewer redundancies etc this is more a problem with the culture than anything inherent to public companies.
Oh, I don't know. Have you seen any government officials getting sacked lately? Teachers? Soldiers? Anyone? No?

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.
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Why would this actually matter? Why would competition actually make you any more efficient if your only goal was maximum efficiency/service in the first place? All competition accomplishes is the driving down of profits per customer in an attempt to gain more customers but in a system where you don't seek profit it's needless.
Because private organizations have to attempt to be either better, cheaper or more appealing to the consumer then their competition. This can be done by running for efficiently, innovating and what not. If they want to maximize their profits they have no choise but to actually try to move their organisation forward. Compare this with organizations in the public sector and you have your answer.

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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Unread 15 Jul 2009, 12:55   #21
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Re: Is Bigger Government Better

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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.
Question is, if the flaws of your local educational system are because the government ran part cannot function well, or because you're just doing it awfully wrong. Finland's been consistently top ten in the World Economic Forum's competitiveness reports for a decade or moreso, and our GDP growth rates have been good. Yet we don't technically even have a privately owned school system; it's mostly public. Sure you can now argue that this is not relevant, because in your situation you can compare public and private solutions, and find that the private runs better: surely this is simply a proof of failure, not impossibility: on the grand scale, the success rates of people going to public or private schools is rather isignificant a question when we can simply look at the economy at large and measure it's success.

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Because it's not their own money they are playing with and more often then not they do not have to please anyone to get it. In the private sector people have to invest themselves and are financially accountable when they steer their organisation into the wrong direction
The client/agent problem is (as you below sort of imply) not restricted to the government sector. Arguably, the private sector is responsible for inflicting large devastation on the economy too. Because they're not accountable. Too big to fall, who owns General Motors? Who owns 60% of RBS? And who owns 40% of Lloyds? The "accountable private sector who are playing with their own money"? No. Certainly, we can put the blame on the government sector for not hitting out guns blazing on Lehman Brothers or Glittnir, since hindsight is so soothing, but I'm sure at this point someone'd cried for free markets, because, well "they're playing with their own money, and they're only accountable for it alone".

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:
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.
The question is, which parts of the world we want ran inefficient yet safe, and which parts we're willing to leave for the hands of George Soros & co. (hello 1992 pound sterling). There is no quarantee that the board of directors of a stock company would actually have a priority intrest or incentive in ensuring the company is doing good economic profits. Board bonuses, stock values, and such may be more interesting to a modern PLC than actual profit: and nowhere does it state that a booming stock that profits the owners the best (ie. the stockholders) goes hand by hand with safe, solvent economic profits.

Quote:
If they want to maximize their profits they have no choise but to actually try to move their organisation forward
And this is exactly the problem: while public sector may lack the incentive to enhance infrastructure, the private may as well. Who cares about long run economics profits when you can gamble short run? Who cares about solvent loans when you know there's a lender of last resort (I'm provoking someone to tell me it's inherently wrong there's a LOLR to begin with)? Who cares about economic profits when you can go Enron or bust?

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The government is just another business. A business which wishes to grow and prosper.
I'm sure Lloyds was a ****ing bad piece of business to invest in.
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Unread 25 Jul 2009, 15:57   #22
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Re: Is Bigger Government Better

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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Unread 28 Jul 2009, 13:03   #23
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Re: Is Bigger Government Better

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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Unread 29 Jul 2009, 01:02   #24
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Re: Is Bigger Government Better

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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.
But the consequences differ in both sectors.
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Unread 29 Jul 2009, 07:30   #25
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Re: Is Bigger Government Better

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Originally Posted by Alessio View Post
But the consequences differ in both sectors.
Not necessarily. This is more a vague "usually consequences differ", than a rule. The easy example would go along the lines of, if government is inefficient, it costs excess money to the tax payers. If a company is inefficient, it costs excess money to it's stockholders. Alternatively, is a company is inefficient, the government must bail it out (the list of banks paid US bailout funds includes Citigroup, Merrill Lynch, Bank of America, Goldman Sachs, UBS, Barclays, Societe Generale, Deutsche Bank, and so so; additionally, a while back Bear & Sterns was essentially bailed out complete, General Motors was paid out for). In the case of bail outs, the funds are brought from the tax payers, and it's essentially the same for a citizen whether he pays his taxes to fund public sector failures or private sector failures.

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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Unread 29 Jul 2009, 19:38   #26
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Exclamation Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
Not necessarily. This is more a vague "usually consequences differ", than a rule. The easy example would go along the lines of, if government is inefficient, it costs excess money to the tax payers. If a company is inefficient, it costs excess money to it's stockholders.
The difference though is that stockholders are such mainly by choice (with some possibility of a profit to offset the risk they're taking) whereas taxpayers are not. As a stockholder, if I think GM is unsound or I don't like how it's being run, then I can sell my stock. As a taxpayer, if I don't like how the government is running GM, well, I still have to pay for it anyway.

And if, by some unholy miracle, GM is ever profitable again, I won't be getting any dividend checks.
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Alternatively, is a company is inefficient, the government must bail it out
No, it need not. Many companies aren't bailed out.

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:
In the case of bail outs, the funds are brought from the tax payers, and it's essentially the same for a citizen whether he pays his taxes to fund public sector failures or private sector failures.
But private sector failures aren't necessarily bailed out. It's only the same if you accept the premise of crony capitalism, where some companies are not allowed to fail.

I don't accept that premise.
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Unread 29 Jul 2009, 21:34   #27
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Re: Is Bigger Government Better

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The difference though is that stockholders are such mainly by choice (with some possibility of a profit to offset the risk they're taking) whereas taxpayers are not. As a stockholder, if I think GM is unsound or I don't like how it's being run, then I can sell my stock. As a taxpayer, if I don't like how the government is running GM, well, I still have to pay for it anyway.

And if, by some unholy miracle, GM is ever profitable again, I won't be getting any dividend checks.
No, it need not. Many companies aren't bailed out.

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.
But private sector failures aren't necessarily bailed out. It's only the same if you accept the premise of crony capitalism, where some companies are not allowed to fail.

I don't accept that premise.
You are quite right...

... 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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Unread 30 Jul 2009, 00:05   #28
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Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
(the list of banks paid US bailout funds includes Citigroup, Merrill Lynch, Bank of America, Goldman Sachs, UBS, Barclays, Societe Generale, Deutsche Bank, and so so; additionally, a while back Bear & Sterns was essentially bailed out complete, General Motors was paid out for).
It's worth remembering that not all the banks which took funds even wanted to take them. A number of them, such as Goldman Sachs, didn't really need anything and only took part under pressure from the US Treasury.
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Unread 30 Jul 2009, 09:37   #29
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Re: Is Bigger Government Better

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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.
But private sector failures aren't necessarily bailed out. It's only the same if you accept the premise of crony capitalism, where some companies are not allowed to fail.[/quote]

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:
I don't accept that premise.
I was actually considering putting out a more complex reply involving a discussion of why the lender of last resort needs to be there, and why the bail outs are necessary to keep confidence especially on the financial sector despite it creating moral hazard, but I've come to second thoughts. If your point is, that companies that fail should never be bailed out I'm simply better off asking you a question.

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.

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Originally Posted by Yahwe
... and of course America, being poorly run, virtually bankrupt, and the cause of global economic chaos ought also be allowed to fail.
UK is virtually bankrupt. China isn't. We can probably concede that China is one of the best ran (economically speaking) countries in the world: the former communist China, the country where there was massive propaganda outlets to essentially force people to save. Whereas the west was consuming. Private sector success has made China rich?

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Originally Posted by JBG
It's worth remembering that not all the banks which took funds even wanted to take them. A number of them, such as Goldman Sachs, didn't really need anything and only took part under pressure from the US Treasury.
Sure. And some of the banks would've gone insolvent without these funds. The problem generally is, that an poorly run bank going default can cause a chain reaction which ends up with healthy banks being victims of an assault too, which is part of the reason why the EU, the UK, and the US have all been keen on defending the banks. Case 1929-1933 is good for this.

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Unread 30 Jul 2009, 10:05   #30
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Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
Not necessarily. This is more a vague "usually consequences differ", than a rule. The easy example would go along the lines of, if government is inefficient, it costs excess money to the tax payers. If a company is inefficient, it costs excess money to it's stockholders. Alternatively, is a company is inefficient, the government must bail it out (the list of banks paid US bailout funds includes Citigroup, Merrill Lynch, Bank of America, Goldman Sachs, UBS, Barclays, Societe Generale, Deutsche Bank, and so so; additionally, a while back Bear & Sterns was essentially bailed out complete, General Motors was paid out for). In the case of bail outs, the funds are brought from the tax payers, and it's essentially the same for a citizen whether he pays his taxes to fund public sector failures or private sector failures.

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.
The recent bailouts of some of our banks are a rather unique and politically driven market intervention, partially made necessary by the government itself. Due to the character of banking organisations they are bound to have a sizable web of investors and creditors with interest in each other, making it appealing for political parties to intervene. Some the quirks of the private sector are unappealing, and depending on the character of certain organisations public interventions should be allowed. Unfortunatly, in the case you mentioned, intervention or placing banks entirely in the public sector can't take away some of the major character flaws of banks, as the web of interest and our dependancy on them will remain. But, as I said earlier, taking the quirks out of the private sector should be the very role of the government (and thus the public sector).
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Originally Posted by Alessio View Post
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.
The public sector can't serve any other purpose then assisting the private market when they fail to provide proper services, as the public market has it's own share of unique character flaws, as I explained before. Each sector has it's own advantages and disadvantages making it necessary to make a proper destinction and finding a suitable combination of both. But denying disadvantages specific to the public market is a bit silly.

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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Unread 30 Jul 2009, 10:14   #31
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Re: Is Bigger Government Better

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Originally Posted by Alessio View Post
Unfortunatly, in the case you mentioned, intervention or placing banks entirely in the public sector can't take away some of the major character flaws of banks, as the web of interest and our dependancy on them will remain. But, as I said earlier, taking the quirks out of the private sector should be the very role of the government (and thus the public sector).
The whole system, Goldman Sachs first in line, needs a good kick in the nuts and a revision. And indeed, I agree on the role of the government; to prevent such private sector misincentive and failure from happening: it seems inherent for Wall Street to fail like this, mostly because it's been deemed profitably to systematically mislead people into paying for nuclear waste because "it's surely going to rise in value until 3098", and for some reason people keep believing this.


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The public sector can't serve any other purpose then assisting the private market when they fail to provide proper services, as the public market has it's own share of unique character flaws, as I explained before.
The public sector must also provide for certain services the private sector is unwilling or unable to technically provide. These include Police, Justice System, Military, and so forth. I for one wouldn't find it hugely amusing if Goldman Sachs bought the Supreme Court and made the descisions there.

Quote:
Each sector has it's own advantages and disadvanteges making it necessary to make a proper destinction and finding a suitable combination of both. But denying disadvantages specific to the public market is a bit silly.
Definately. So's denying the disadvantages specific to the private market. So's denying disadvantages in general.

Quote:
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.
This really depends on the scope: injecting capital is a fairly common and a stealthy way of rehabilitatings, and is done fairly often by the government. This time, it's just being done more visibly.

Quote:
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.
I'll ask you the same question: would you have let Wall Street implode? Would you have let the Icelandic banking sector as a whole implode?
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Unread 30 Jul 2009, 19:17   #32
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Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post

UK is virtually bankrupt. China isn't. We can probably concede that China is one of the best ran (economically speaking) countries in the world: the former communist China, the country where there was massive propaganda outlets to essentially force people to save. Whereas the west was consuming. Private sector success has made China rich?
I don't think that you are very bright but on the off chance that you are bright and that you have simply written something stupid (by which I mean something stupid in addition to missing the meaning of what I posted) I think it is necessary to point out one very important thing:

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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Unread 31 Jul 2009, 09:39   #33
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Re: Is Bigger Government Better

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Originally Posted by Yahwe View Post
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)
The reason why these urban myths float around is that, as a spearhead of it a lot, China has a huge amount of T-bills and UK debts. That said, UK and US owe enormous amounts of money to China: hardly anyone's going to argue that China's actually well run due to hoarding a stock of Ts that's most likely going to inflate out because they've held onto a fixed exchange rate during years. I'm glad you actually took the notation that an accounting decifit or surplus equals a well run and a rich nation seriously. China has ran a surplus for quite a while, and, has more or less funded a certain consumerfest/financial playground.

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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Unread 31 Jul 2009, 22:55   #34
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Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
The reason why these urban myths float around is that, as a spearhead of it a lot, China has a huge amount of T-bills and UK debts. That said, UK and US owe enormous amounts of money to China: hardly anyone's going to argue that China's actually well run due to hoarding a stock of Ts that's most likely going to inflate out because they've held onto a fixed exchange rate during years. I'm glad you actually took the notation that an accounting decifit or surplus equals a well run and a rich nation seriously. China has ran a surplus for quite a while, and, has more or less funded a certain consumerfest/financial playground.

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.
Thank you for agreeing with me.

(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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Unread 3 Aug 2009, 08:45   #35
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Exclamation Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
I was actually considering putting out a more complex reply involving a discussion of why the lender of last resort needs to be there, and why the bail outs are necessary to keep confidence especially on the financial sector despite it creating moral hazard, but I've come to second thoughts. If your point is, that companies that fail should never be bailed out I'm simply better off asking you a question.

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?
Much damage happened anyway, or happened even before the bail out; but nobody really knows what would have happened (or for that matter, what may yet happen).

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:
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?
Probably not very happy, but then the taxpayers who will get stuck paying for someone else's poor choice in banks aren't going to be very happy either. How is it that the happiness of the first group trumps that of the second?

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:
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.
How did financial markets work before governments started bailing them out?

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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Unread 3 Aug 2009, 19:02   #36
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Re: Is Bigger Government Better

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Originally Posted by Tactitus View Post
How did financial markets work before governments started bailing them out?

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.
Another gem.

"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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Unread 4 Aug 2009, 14:35   #37
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Re: Is Bigger Government Better

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Originally Posted by Tactitus View Post
that the first bailout is absolutely necessary and proper (and I'm not sure how you would do that)
I'm aware of my giant self-revision. It's a result of acknowledging that your views on markets clearing perfect and invisible hand taking care of it all, and private sector fundamentally being corruption-free and regulation being source of it's flaws is impenetrable.

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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Unread 5 Aug 2009, 00:31   #38
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Re: Is Bigger Government Better

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Do you convince anyone?
An interesting question.

What would your answer be?
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Unread 5 Aug 2009, 01:04   #39
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Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
Sure. And some of the banks would've gone insolvent without these funds. The problem generally is, that an poorly run bank going default can cause a chain reaction which ends up with healthy banks being victims of an assault too, which is part of the reason why the EU, the UK, and the US have all been keen on defending the banks. Case 1929-1933 is good for this.
Sure but implying all these companies are inefficient or otherwise incompetent is just untrue. Which was my point.


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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Unread 5 Aug 2009, 10:48   #40
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Re: Is Bigger Government Better

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Sure but implying all these companies are inefficient or otherwise incompetent is just untrue. Which was my point.
Fair. Efficiency of healthy financial sector (as per Summers 2000) is a good question which can't be trivially answered by saying GS is competent and efficient either, though. A few years back Bernanke was listing financial innovations that have made the world so much better a place. Derivatives, sub-prime mortages, and credit cards made the list. How many of these would still remain? Credit cards yes? Derivatives maybe? Sub-prime, not? The best effort GS made was not buying into poop they, along with the others, were trading with. Props for that.




Quote:
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.

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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Unread 6 Aug 2009, 08:27   #41
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Exclamation Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
I'm aware of my giant self-revision. It's a result of acknowledging that your views on markets clearing perfect and invisible hand taking care of it all, and private sector fundamentally being corruption-free and regulation being source of it's flaws is impenetrable.

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).
I didn't say they always worked well, I just said they always worked (in the sense that, sooner or later, they always sorted themselves out). There have been recessions for as long as there have been markets.

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.
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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?
I was mostly referring to this letter signed by over 200 economists in various universities around the country and sent to Congress in September 2008 in opposition to the bailout then under consideration. It got a bit of attention here in the U.S. but maybe not elsewhere.

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.
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Originally Posted by JonnyBGood
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.
I suspect many people may have believed that last year but I think a lot fewer people believe it now that they've seen where the TARP and 'stimulus' monies have gone. 90% of the TARP funds went to bail out the banks and the car companies (read: the United Auto Workers Union). If they don't think that banks + UAW spells "powerful interests" then I've got two car companies and a bridge in Brooklyn I'd like to sell them.

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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Unread 6 Aug 2009, 09:05   #42
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Re: Is Bigger Government Better

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Originally Posted by Tactitus View Post
I was mostly referring to this letter signed by over 200 economists in various universities around the country and sent to Congress in September 2008 in opposition to the bailout then under consideration. It got a bit of attention here in the U.S. but maybe not elsewhere.
"It does not reflect all signatories views on subesquent plans or modifications of the bill"

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:
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.
I do. Your citation does not support your case for above reasons. What I'm arguing is, that in the case, bail outs were necessary. I'd even be tempted to support Krugman's case for temporary takeovers could be necessary. The way I see it, you are arguing that markets alone should be left to handle the financial sector unsupervised, and that markets such as that would clear. And that govenrment intervention on markets causes more adverse reactions. This is what I'd like to hear argued.

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:
that argue that bailouts of Freddie Mac and Fannie May were mistakes, or argue that they should have never happened?
The source you cite is a critisism towards the propsed plan by the senate. It in fact underpins, that it does not state that no action is needed: in fact, it specifically states, that bold action is needed. C'mon. Mostly refering to a source that in fact backs up the need for action to ensure the functionality of the financial system in an attempt to argue against the need for such action is a bit of a numb point, especially as citing to it does not really answer the question I presented to you in any way.
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Unread 6 Aug 2009, 10:41   #43
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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.

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Unread 7 Aug 2009, 09:44   #44
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Exclamation Re: Is Bigger Government Better

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Originally Posted by Tietäjä View Post
"It does not reflect all signatories views on subesquent plans or modifications of the bill"
Yes, I made it very clear that the letter was in reference to the plan then under consideration. As I said initially, some economists were opposed to specific details of the bailout and some were opposed on more general principles. You've asked for an example of the later, which is reasonable, and I provide that below.
Quote:
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.
That's interesting, because of the three "fatal pitfalls" listed in the letter, two of them (#1 and #3) would appear to be valid objections to almost any bailout plan. Of course, people sign petitions for different reasons; but I wonder why you think the letter included pitfalls #1 and #3 if everyone who signed it was really only concerned about pitfall #2?
Quote:
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.
Well OK; I typed 'libertarian economist' into my search engine and started cross-checking the names against those on the letter I cited. The first match I found was Jeffrey Miron from Harvard. I found this article he wrote for CNN. In it, he argues unequivocally against the bailout. I don't see any way to read his comments as to suggest he was holding out for a better bailout.
Quote:
I doubt any sensible economist nowadays would so trust some pristine efficient market model.
I hope you're not trying to beg the question.
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Unread 7 Aug 2009, 13:05   #45
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Re: Is Bigger Government Better

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Originally Posted by Tactitus View Post
Yes, I made it very clear that the letter was in reference to the plan then under consideration. As I said initially, some economists were opposed to specific details of the bailout and some were opposed on more general principles. You've asked for an example of the later, which is reasonable, and I provide that below.
Great. I'm itching. Why you'd proceed to provide me with a list of names half of which are against your very own argument puzzles me, though. Mostly to waste my time before even producing anyone with an argument to actually support your claim?

Quote:
Well OK; I typed 'libertarian economist' into my search engine and started cross-checking the names against those on the letter I cited. The first match I found was Jeffrey Miron from Harvard. I found this article he wrote for CNN. In it, he argues unequivocally against the bailout. I don't see any way to read his comments as to suggest he was holding out for a better bailout.
So essentially, it took you halfway into the alphabets to find first of these to actually publicly claim that bailouts are inherently evil.

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:
Originally Posted by Miron
The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place.
This one I completely agree with: I disagree though, that the reason subprime happened was a government act. Actually, it was relaxation of regulatory laws that allowed banks to enter such activity, which would in case speak for more regulation needed to prevent people from entering such. Securizitation definately did not help: did this happen due to a government act too? Certainly, I agree with Miron that in the case where a government regulation is causing adverse market reaction the regulation needs to be readressed: I disagree though, that the subprime was simply a cause of this instead of reckless private sector behavior. This is why I think the regulatory government (not only in US, but also say, in Iceland) should've taken a heavier hand restricting the amount of subprimes you're okay to pass. The fact that, if I remember correct, the share of subprime borrowers of total borrowers exceeded 50% at a point would imply that this risk taking wasn't probably "just due to a housing act".

Quote:
That's interesting, because of the three "fatal pitfalls" listed in the letter, two of them (#1 and #3) would appear to be valid objections to almost any bailout plan. Of course, people sign petitions for different reasons; but I wonder why you think the letter included pitfalls #1 and #3 if everyone who signed it was really only concerned about pitfall #2?
I do think simply citing that the league of PhDs that have signed a letter that objects a very particular case of a bailout plan to support a case of "bailouts are always bad" is really, really bad form, and why you want to grasp back into this mudhole you dug for yourself beats me.

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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Unread 7 Aug 2009, 13:15   #46
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Re: Is Bigger Government Better

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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Unread 7 Aug 2009, 13:42   #47
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Re: Is Bigger Government Better

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Originally Posted by Tactitus View Post
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.
Yeah, I said "sooner or later". As in "by giving these assholes big truckloads of cash the economy will become less volatile and you're less likely to get laid off". Not "this money is going to be used to bail out Mom and Pop's Home Depot Store in Bum****, Arkansas". People just want to believe that there are actions that can be taken that can prevent the current recession turning into a decade long 40% unemployment catastrophe. It's not like by not bailing out anything a bunch of bankers and brokers or whatever are actually going to end up destitute and everyone else can be like "serves them right" and just get on with their lives. It's not even like by doing this we'd teach society or the financial sector or some other vague entity the 'errors of their ways'. No, the whole country will just end up looking something like this instead.
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Unread 7 Aug 2009, 15:00   #48
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Re: Is Bigger Government Better

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Originally Posted by JonnyBGood View Post
this instead.
Believe is a nice word. The Onion (yes, Shindler-Akerlof-Animal-Spirits) put it along the lines "every American deserves a false sense of security". Liquidity trap is really what the likes of Lucas and Krugman are fussed about; a lot of people find a liquidity trap a relatively uncomfortable a state. Libertarians call it "slow adaptation".
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Unread 8 Aug 2009, 19:25   #49
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Re: Is Bigger Government Better

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Originally Posted by JonnyBGood View Post
No, the whole country will just end up looking something like this instead.
the celtic pussycat got colic
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Unread 19 Sep 2009, 12:27   #50
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Re: Is Bigger Government Better

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Originally Posted by dda View Post
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.
This might be the case in the US (as I am not familiar with their education system), but I would have thought that this kind of result could be explained through some form of adverse selection - parents who are most motivated for their children to have the best education would be more likely to prioritise their disposable income into school fees. Thus, these students when they get home have parents who would be more likely to be interested in their child's academic progress (given the financial investment), and beat them with a stick if they're playing PA instead of doing their homework.

(apologies for reply to such an early post, I'm still progressing through the thread).
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