Yes, but at least it would be illegal and those people would go to jail.
The idea is that missing information (like cons) can be dangerous to the economy. With complex computer systems and cross trading tricks we have today, dangerous things like ponzi schemes can exist outside the mind of a single individual. People often have no idea about the complex systems they are working on. If you break up a ponzi scheme across dozens or even hundreds of people across the economy, hidden behind nobel prize level math, it can do huge damage without any particular individual masterminding it.
And thus it needs to be illegal, but it can only be outlawed with convoluted laws used to outwit the equally convoluted schemes that it is build on. It does not help that people always try to find loopholes to get rich quick and how they work is often poorly known.
Its an arms race of creating pathologies and fixing them, and the economy is often filled with hacks as a result. Perhaps an elegant structure exists to solve them, but that is often too slow to deal with the here and now as it is often only found after it is doing damage. ------------- Markets may correct towards equilibrium, but we are in disequilibrium times. We are in exponential times of insane growth and change in everything, something that history have never seen and whose optimal solution defy analysis. Pretty much no one really knows anything and waiting for knowledge to spread everywhere is often too slow compared to a hack by someone with power and a bit more information. Personally, every time I see an ad, I remind myself that we are so far from equilibrium. Every ad is a piece of information waiting to spread across the economy and humanity is nowhere near catching up.
From this point of view, the free market is just as much a hack as most other things. When people don't know what is for sale nor do they know what can they sell on the first order, higher level knowledge is just a silly assertion.
Perhaps after the modern era, economists would find a extension to economic structure that can elegantly solve all the problems it has encountered (working economic concepts like insurance, banking, hedging, and such are all invented) without bandaid, but I don't see it as now unless someone show me some killer apps. (well, fishery rationalization impressed me, but thats small compared to everything else)
Classical economists are those crazy people that claims to have proven a solution exists without showing the details of how it works.....well its nice markets with massively modified property rights concepts may solve huge array of problems, but no details on the details of who or what or where would exchanges of everything take place (its left to the invisible hand that takes time to come up with innovations).
Until the microeconomists can do enough to link its space with the macro, i'm not trusting the libertarian project.
So the question is, who should control the money supply? Lets see the choices:
1. Metals: Supply of metals is not stable, and finding gold maybe the ruin of economy as the 100% inflation per year Spanish experience shows. (or why Britain became powerful while Spain lost position) On the other hand, not having enough metals during economy growth result in deflation, which result in a unnaturally high interest rate, resulting in too much savings, and too little spending as deposits just pile up. It also means more people digging for gold, which is a waste.
2. Companies (Everyone): If the fed does a bad job of printing money, what would happen if everyone is handed the presses to print money. Whats likely to happen is that people would probably have heavy skepticism in private money and would just use foreign government issued money. If some private currency gets widely used by whatever reason, a quick betrayal of trust can make massive money with even less controls than the fed.
3. Neo-barter concept: It is just too clumsy to work fast enough to be competitive. Money is a wonderful thing that makes economics tractable.
This really is the question, most fundamentally.
I disagree about metals - this isn't the enlightenment age anymore. There is a LOT of gold out of the ground now and the amount mined and readily available in the ground is small compared to the total supply. The ability of producers to manipulate prices is realistically quite low, contrary to the past when bullion was much more scarce and gold was everywhere to be found in the ground. Sure, gold mining is not the most productive of activities, but certainly one could say the same for bureaucracy. In fact, I think Keynes did, albeit making the argument the other way around.
Companies - it's not a bad idea. Commercial paper is a big market at present anyway. It's not like a significant amount of trade doesn't happen via private instruments as we speak. The breakdown in the commercial paper market right now has been largely tied to bad MBS and CDS instruments on commercial books rather than fundamental problems with commercial paper itself.
Neo-barter - this isn't as clumsy as you make it sound. As much as I consider Keynes a nemesis, I think his Bancor idea was brilliant and could realistically form the foundation of a fair international money. Basket of perishable and non-perishable commodities - a sensible idea, and there's no reason you couldn't use it on the high-street with a card, chip, and pin like we do now.
The final problem is administration. How to manage any non-commodity system with sufficient disinterest to preclude corruption of the monetary unit by any particular group. Metals and commodities are probably the only things like this - alchemists have still not managed to conjure gold from nothing and as useless as one may see gold mining to be, it's a small price to pay for a money that can never, in any conceivable way, be corrupted.
On April 20 2009 04:40 silynxer wrote: jgad there is simply no way you can come only with formal correct deductions to the undisputable fact that no government involvement would be the best policy. And that is even if your axioms are in every situation correct (which I doubt they are). Please enlighten me how you can be so sure otherwise don't talk about these things as if they have been proven.
A few thousand pages of reading to keep you busy. I refer you specifically to chapter 12 of the latter and the full Power and Market addendum, especially sections on binary and triangular intervention. They have been proven. I'm open to counterargument if you're willing to present them.
lol derivations. citing austrian works to support austrian conclusions is a proud tradition apparently. why not take the methodenstreit out for its trout.
Yes, but at least it would be illegal and those people would go to jail.
The idea is that missing information (like cons) can be dangerous to the economy. With complex computer systems and cross trading tricks we have today, dangerous things like ponzi schemes can exist outside the mind of a single individual. People often have no idea about the complex systems they are working on. If you break up a ponzi scheme across dozens or even hundreds of people across the economy, hidden behind nobel prize level math, it can do huge damage without any particular individual masterminding it.
And thus it needs to be illegal, but it can only be outlawed with convoluted laws used to outwit the equally convoluted schemes that it is build on. It does not help that people always try to find loopholes to get rich quick and how they work is often poorly known.
Its an arms race of creating pathologies and fixing them, and the economy is often filled with hacks as a result. Perhaps an elegant structure exists to solve them, but that is often too slow to deal with the here and now as it is often only found after it is doing damage. ------------- Markets may correct towards equilibrium, but we are in disequilibrium times. We are in exponential times of insane growth and change in everything, something that history have never seen and whose optimal solution defy analysis. Pretty much no one really knows anything and waiting for knowledge to spread everywhere is often too slow compared to a hack by someone with power and a bit more information. Personally, every time I see an ad, I remind myself that we are so far from equilibrium. Every ad is a piece of information waiting to spread across the economy and humanity is nowhere near catching up.
From this point of view, the free market is just as much a hack as most other things. When people don't know what is for sale nor do they know what can they sell on the first order, higher level knowledge is just a silly assertion.
Perhaps after the modern era, economists would find a extension to economic structure that can elegantly solve all the problems it has encountered (working economic concepts like insurance, banking, hedging, and such are all invented) without bandaid, but I don't see it as now unless someone show me some killer apps. (well, fishery rationalization impressed me, but thats small compared to everything else)
Classical economists are those crazy people that claims to have proven a solution exists without showing the details of how it works.....well its nice markets with massively modified property rights concepts may solve huge array of problems, but no details on the details of who or what or where would exchanges of everything take place (its left to the invisible hand that takes time to come up with innovations).
Until the microeconomists can do enough to link its space with the macro, i'm not trusting the libertarian project.
We're talking about totally different things - one is criminals who would seek to circumvent the law to their own advantage (what you are talking about) and the other is the way that legit individuals operate under the law (what I'm talking about). Ponzi schemes are bad, but to base your entire economy on one is ludicrous. I agree that diligence is needed to keep cheats from cheating, but that's beside the point of deciding how the legitimate economy should run. Does it not make sense to rid the legitimate system from the same sources of corruption as those you would put someone in prison for? Should not Greenspan go to the same cell as Madoff? Should we not recognise the same fraudulent elements?
On April 20 2009 06:03 SWPIGWANG wrote: The people have spoken, and they've chosen big government. (despite assertions that they can not or should not)
Then why bother having a debate? Just submit to the tyrranty of the majority, I suppose. By this logic there is nothing wrong with genocide or apartheid or CCTV cameras placed in every living room by the state - as long as the majority choose it, then it is as it should be. The Palestinians really are criminals and the Tibetan monks are getting what they deserve from China. The people have spoken, and thus it should be. This is silliness.
Submit, indeed, that is what a "rational" selfish person would do. When faced with a effectively immovable force there is no point in fighting it as if one's sense of accomplishment depends on it. The logical solution is to work with it and extract the best deal out of the mess. What this is for me, is a hobby no different from figuring out a new m&m timing.
Submit, indeed, as one can not impose freedom on those that refuse. Tyranny of freedom is perhaps the most silly idea possible. The solution to the desire for tyranny is just tyranny as other attempts are just unstable and self destructive.
Only a moralist and collectivist that is outraged by the behavior of everyone else. I guess the biggest irony of Randian objectivists is that they are really some of the biggest moralists around, motivated by their own sense of justice as opposed to self interest. They are so outraged because other people dare furthering their self interests in ways they don't approve! (like poor voting to rob the rich) Other people just think different set of strategies are fair game and too bad if you don't play the game.
Perhaps, the difference between randians and facists is that randians believes one should rob someone bad at economics, while facists believe one should rob someone bad at military strength. Survivalist competition but merely with different domain for the rules..... ---------------------- If one ask me what morality ought to be, they should be possible choices that is possible in reality. The rest is just fantasy. If you ask me on the morality of Palestianians, I wouldn't be able to give an answer since I don't know what can be done.
Fundamentally, my morality lies on in my own behavior and my own values, not anyone else's. The only relevant question for myself is whether my own behavior is moral, as others should not be evaluated by this criteria. That is the only solution that I can come up with while both respecting reality and the non-uniformity of moral beliefs.
This is the best thread i've read on TL in some time. I don't have much to add because I admit its all a littil over my head but I must say GJ to everyone. I am learning alot, and I am also happy to see no one has stooped to personal attacks of any kind.
On April 20 2009 06:54 Diomedes wrote: Just because there was bad government incentive doesn't mean the banks don't bear responsibility.
You bring up Manson and murder which is so strange. It's the banks that went bankrupth and this is only because of their own actions. The government didn't force them to do anything. Just because there were incentives for this behavior doesn't mean it was forced upon them. Banks were all to eager because they all thought they were going to make a lot of money.
Then the banks failed and the government had to bail them out with tax money.
Only reason banks even work is because people trust them because of the role of the government. The government has a regulating task. And clearly regulation failed.
I have never seen anyone say it was all caused by this CRE. Never. It was the banks taking too much risk on loans they shouldn't even have handed out in the first place to americans who were loaning too much for a second house and all kinds of crazy stuff. And then they sold and resold all kinds of complex financial products to each other based on these loans. All this happened while Greenspan was deregulating to make stuff easier for the banks to do their thing. The banks were all too glad with what the government did. When Greenspan adjusts interests it's often almost at the request of Wall Street.
The whole Manson analogy, it's like saying his parents are murderers because the murder was an effect of his bad childhood. This is an exact perfect analogy since you hold the government accountable for something the banks did. But at the same time you are against regulations and you don't believe the governemnt should have stepped in and stopped them while it happened.
Bullshit, the government was going to penalize the banks heavily if they didn't make loans to lower class persons. Your entire argument is based upon over-stated misconceptions and dismissive arguments that you've stated over and over again.
You could at least get the name of the Community Reinvestment Act right, and maybe read up on http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Relation_to_2008_financial_crisis before you can respond. While this point is still in contention among economists at this point (mostly due to a lack of empirical evidence pointing either way), I think that your counterpoints are pointless if you don't know what the fuck you're talking about to begin with.
And your Manson analogy is misquoting me. First of all, know who Charles Manson is (your entire analogy is flawed here) second of all, it's a terrible analogy, because I hold the government accountable for pressuring the banks to do something bad.
The government itself did the same bad things that you claim the banks did. It's like Hurricane Katrina-sure, maybe they weren't responsible for causing the hurricane, but their actions/lack of actions caused massive amounts of damage and distress.
On April 20 2009 06:03 SWPIGWANG wrote: The people have spoken, and they've chosen big government. (despite assertions that they can not or should not)
Then why bother having a debate? Just submit to the tyrranty of the majority, I suppose. By this logic there is nothing wrong with genocide or apartheid or CCTV cameras placed in every living room by the state - as long as the majority choose it, then it is as it should be. The Palestinians really are criminals and the Tibetan monks are getting what they deserve from China. The people have spoken, and thus it should be. This is silliness.
Submit, indeed, that is what a "rational" selfish person would do. When faced with a effectively immovable force there is no point in fighting it as if one's sense of accomplishment depends on it. The logical solution is to work with it and extract the best deal out of the mess. What this is for me, is a hobby no different from figuring out a new m&m timing.
Submit, indeed, as one can not impose freedom on those that refuse. Tyranny of freedom is perhaps the most silly idea possible. The solution to the desire for tyranny is just tyranny as other attempts are just unstable and self destructive.
Only a moralist and collectivist that is outraged by the behavior of everyone else. I guess the biggest irony of Randian objectivists is that they are really some of the biggest moralists around, motivated by their own sense of justice as opposed to self interest. They are so outraged because other people dare furthering their self interests in ways they don't approve! (like poor voting to rob the rich) Other people just think different set of strategies are fair game and too bad if you don't play the game.
Perhaps, the difference between randians and facists is that randians believes one should rob someone bad at economics, while facists believe one should rob someone bad at military strength. Survivalist competition but merely with different domain for the rules..... ---------------------- If one ask me what morality ought to be, they should be possible choices that is possible in reality. The rest is just fantasy. If you ask me on the morality of Palestianians, I wouldn't be able to give an answer since I don't know what can be done.
Fundamentally, my morality lies on in my own behavior and my own values, not anyone else's. The only relevant question for myself is whether my own behavior is moral, as others should not be evaluated by this criteria. That is the only solution that I can come up with while both respecting reality and the non-uniformity of moral beliefs.
Well, this is really a fundamental misconception - the notion that free-market supporters, like the Austrian School, predicate their theories on the primacy of self-interest. This simply isn't the case. In fact, Austrian economics is useful in evaluating any system, interventionist or not, based on the principles of human action and self-interest. That's not to say that self-interest is somehow an end in and of itself, or a means deified, it's merely a tool - a way to understand and predict outcomes of complex systems. The rules of free markets, as espoused by austro-libertarians, are those rules which, given human action, are the most equitable. At the base of policy recommendations is not the notion of self-interest, but things like property rights and individual liberty. The notion that the most productive system which satisfies the most material and immaterial desires of all people is one where we enforce property rights and prohibit acts of fraud, coercion, and violence - because humans are self-interested, not to make it so.
We're talking about totally different things - one is criminals who would seek to circumvent the law to their own advantage (what you are talking about) and the other is the way that legit individuals operate under the law (what I'm talking about).
Legit elements can create ponzi schemes, while illegal folks can do things that do not harm (and may benefit) the economy.
The idea is to stamp out dangerous ideas and structure in the economy, and as I said, in the modern world of complexity, "legit" elements can do dangerous things and thats why a lot of regulation exists to the dismay of free market folks. In any case, damage is often done in complicated ways and often the counter is just as convoluted.
Should not Greenspan go to the same cell as Madoff?
Well, it is too late to create a post-hoc law to punish him for his mistakes. If there is a government/legal structure (which can include punishment) that can do things like preventing excessive liquidity (but still provide in case of serious deflation) than it should be considered.
I think one huge is issue is how to prevent politicians from building a bubble to boost numbers to make themselves look good. The strong incentive to "spend now and let the next guy deal with it" is probably the biggest issue in politics today, and it can only be solved with a overhaul on how government works. You can't fix the economic system if you don't fix this as any "solution" would be bust by the next administration and lapse in the media attention cycle.
If there is a solution to this problem, than lets hear it, than we can figure out if there is a way to implement it. That would be far more productive than saying that people don't act the way one wants when they have no reason to....
Caller, Im talking about the loans that caused the crisis. The source you site contains only empirical data that it wasn't loans forced by CRA that caused the crisis.
You are talking about CRA. Im talking about the crisis. You are the one that tries to connect them.
You started the Manson analogy. Not me. Don't blame me for your bad analogies. You can hold the government accountable for bad governance. But not for going broke. Especially not because of CRA. At least not according to what those wiki pages say.
On April 20 2009 07:41 SWPIGWANG wrote: Well, it is too late to create a post-hoc law to punish him for his mistakes. If there is a government/legal structure (which can include punishment) that can do things like preventing excessive liquidity (but still provide in case of serious deflation) than it should be considered.
I think one huge is issue is how to prevent politicians from building a bubble to boost numbers to make themselves look good. The strong incentive to "spend now and let the next guy deal with it" is probably the biggest issue in politics today, and it can only be solved with a overhaul on how government works. You can't fix the economic system if you don't fix this as any "solution" would be bust by the next administration and lapse in the media attention cycle.
If there is a solution to this problem, than lets hear it, than we can figure out if there is a way to implement it. That would be far more productive than saying that people don't act the way one wants when they have no reason to....
The solution is to take away the monopoly on the money supply. I agree that post-hoc punishment is absurd, but I think we need to at least learn from the mistake. Deflation isn't a bad thing anyway - why do you need to do anything about it? It's only bad if you're in debt, which means it's bad for the government because they're always in debt these days. The current banking system takes away the threat of deflation, which is a natural source of fear and uncertainty (read: controller of greed) in a free market. The only way to hedge against deflation is to have savings - those appreciate in a deflationary period, so the buffer you need to ward it off is the very thing you would naturally hold as a hedge against it. Take that away and where's the incentive to hold savings? I mean, one only has to look at the credit to GDP ratio over the past hundred years to see the source of the problem : + Show Spoiler +
If you don't have a central bureaucracy churning out that debt then you avoid the problem entirely. Bubbles will still develop in isolated sectors of the economy - that's an impossible problem to solve - but now we're staring down the barrel of a bond bubble - an across the board, whole economy bubble - where the lender of last resort is insolvent because they've got no assets to back themselves but a printing press - a printing press that, unlike anything in the private sector, prints legal tender. I mean... checkmate, man. Zimbabwe school of economics, here we come.
The notion that the most productive system which satisfies the most material and immaterial desires
One needs to recognize that this is only a assumption but not a fundamental pillar of truth. People may desire anything from a material free Amish existence to endless conspicuous consumption depending on culture programming and some other things. And this result in the madness where anything is good if people are happy in it and believe it is good.....and breaks economic theories behind utility.
Instead of the Austrian school, I suggest you read up on social choice theory and the voting paradox on a more expanded examination on human wants and how it result in intractable problems. I personally find that any claims of "optimality" suspect after learning it.
edit:
The solution is to take away....
Look, imagine yourself as a politician with your own self interest to take care of. Now why would you do what you suggested? (ideologically driven madness aside)
The question is how to make the government function that politicians would stop things like massive debt. Saying that "god, those crazy politicians need to stop borrowing" just don't cut it.
Also, deflation hurts all liability holders, which may hurt legit business that borrows for productive purposes on top of everything. Both inflation and deflation have "unfair" redistribution effects that can damage the economy.
The notion that the most productive system which satisfies the most material and immaterial desires
One needs to recognize that this is only a assumption but not a fundamental pillar of truth. People may desire anything from a material free Amish existence to endless conspicuous consumption depending on culture programming and some other things. And this result in the madness where anything is good if people are happy in it and believe it is good.....and breaks economic theories behind utility.
Instead of the Austrian school, I suggest you read up on social choice theory and the voting paradox on a more expanded examination on human wants and how it result in intractable problems. I personally find that any claims of "optimality" suspect after learning it.
No, it doesn't break the theory at all. In fact, cases like the total asceticism you describe are explicitly cited as non-caveats in all the Austrian texts. There is no problem with a monk wanting only a basic subsistence existence such that his labour time can be exchanged for a life sitting on the mountan and waiting for enlightenment. That's what he wants, and in a free market he can have it - that is if you don't allow anyone to invade his land and kick him out - if you respect his property rights. That is if you don't burden him with property taxes and other administrative fees that force him to work to pay for them, etc. Austrian economics is the only economic theory I'm aware of that is flexible enough to admit the full spectrum of human desires. I think you have misconceptions about what it is and what it isn't.
Social choice theory and the voting paradox are only problems if you insist that people need, for whatever reason, to make any sort of collective decision or take any collective action. I agree, in that context, that it is a paradox. Optimality is not something you vote on, and obviously it's something that you never achieve. If we suddenly satisfied everyone's wants then people would stop acting - they wouldn't do anything because we would have everything we wanted. In fact, even the fallacy of the "evenly rotating economy" is noted by Rothbard as a fallacy - that there is ever an equilibrium "final state". It's not really a valid counterargument to libertarian policy.
Look, imagine yourself as a politician with your own self interest to take care of. Now why would you do what you suggested? (ideologically driven madness aside)
The question is how to make the government function that politicians would stop things like massive debt. Saying that "god, those crazy politicians need to stop borrowing" just don't cut it.
Also, deflation hurts all liability holders, which may hurt legit business that borrows for productive purposes on top of everything. Both inflation and deflation have "unfair" redistribution effects that can damage the economy.
Well, you hit it on the head. Government needs to be a disinterested party and there are obvious challenges to that. How do you make a meta-government to make laws that the government follows? The only real solution is to shrink the scope of governments - to reduce the things over which they have jurisdiction. Top-level government should only enforce very fundamental rules - details, if any, should be the scope of lower levels of regional governments.
As for inflation/deflation - there's one key difference. You hedge against deflation by saving - being responsible and conservative. You hedge against inflation by borrowing - by being reckless and irresponsible. Obviously being too risky gets you into trouble and being too conservative means you stifle your potential. A real economy would have risks of both, and so there would be incentive to balance risk and safety intelligently and appropriate to the real conditions of the world around you. The problem with the perpetually inflating system at present is that the economic indicators that people are using to base their decisions on do not reflect reality - an artificially low interest rate does not reflect the reality of the real distribution of goods, production, savings, investment, etc. It makes it difficult, if not impossible, to make effective assesments of the economic environment and it frustrates efforts to make economic decisions in tune with the real economic environment in favour of making economic decisions in tune with the artificial indicators dictated from a central authority.
It's like being an architect and being told you have ten thousand bricks to design a house with. You could work for three years on a design and be four thousand bricks into construction when you realise that, in fact, you didn't have ten thousand bricks, but you have four thousand instead.
You probably would not have designed the house you did - you would have made a more conservative design based on actually having four thousand bricks and not the more elaborate design you made on the assumption that you had ten thousand. Not only do you not have six thousand bricks you thought you had, you also wasted three years of work on a project with no hopes of ever being completed - you have to tear it down and start again. Malinvestment.
A phony interest rate does the same thing. It makes people make bad economic decisions because the indicators they have to base their decisions on are not reflecting the real economy - they're reflecting the messianic vision of some hack behind the desk at the Fed. It's damaging.
EPT![[image loading]](http://www.daily-bourse.fr/images/analyses/2009/01/22/total-credit-debt-percentage-gdp.jpg)
