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On October 06 2008 17:52 ahrara_ wrote:
I will respond to Choros tomorrow, but Europe has been having its own problems with bank failures. A key problem has been that the kind of coordinated bailout is difficult over there because there's no organization that has the appropriate jurisdiction.
edit:
1.) guaranteeing bank deposits is completely different from guaranteeing firms? the reason this escalating competition is happening is because otherwise it would drive deposits to places that have pumped up their deposit insurance. the deposit insurance is really meaningless because in every case of total bank failure, the central bank in the states and in europe has offered to cover every cent of every deposit.
2.) 73% as MUCH exposure as banks, not 73% more. -_-'''
sorry, its 2am here, I should just stop before I'm not coherent any more
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Ok, just remembered I dont have class tomorrow morning so let's see what we can do with Choros' post:
1.) I think you are confused about the meaning of public sector? The examples you cite are examples of public investment in the private sector, which is indeed a great way to encourage growth and build capital infrastructure provided you have a sufficient budget surplus. but what you are advocating is essentially a.) wage controls b.) building infrastructure just to create jobs.
a is just a terrible idea. more on that later. b is most valuable when it is contracted out to private companies because otherwise you have government inefficiency and you crowd out the private sector. but the benefits of that infrastructure won't be seen for years, and will have no impact on the current crisis. creating jobs just to create jobs is the same thing as economic stimulus package. you may as well just provide government hand outs.
How does the public sector / wage controls crowd out the private sector?
a.) The private sector, to compete for workers, has to increase its wages. Drives up inflation, real wages go down. This would happen with private sector growth too, except that's made up for by the
b.) The private sector is more efficient. If you don't believe this, then really I can't debate with you. Seriously. Industries and markets that could've been occupied by the private sector are instead taken over by the less efficient public sector whose proceeds don't go to investment, but still more inefficient public works.
2.) That point was really an aggregate of my next two...
3.) How in the world does increased employment resuscitate the housing market? This makes no sense at all. Banks STILL suffer from a lack of confidence. This lack of confidence derives from a lack of capital in other banks and the incalculable weight of mortgage and CDO losses. This is what's killing the housing market -- banks are unwilling to lend, not consumers are unable to afford. Your plan does nothing to address the CORE problem. If I may quote from Network:
Am I getting through to you, Mr. Beale? You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM, and ITT, and AT&T, and DuPont, Dow, Union Carbide, and Exxon. Those *are* the nations of the world today.
THE BANKS ARE THE GENUINE ECONOMIC STRENGTH. Credit is everything. I am not referring to consumer confidence, I am talking about creditor confidence. Creditor confidence is low because they don't know which banks will go next. The root of the problem are the complex MBS and their new-found illiquidity. The bailout serves to stabilize balance sheets to get credit going again. Your plan also addresses this problem, but only in the long run as wages accumulate. Your multiplier doesn't work when there's no credit, no loans being made and everything is being held on reserve. The bailout (combined with a drop in the discount rate) fixes credit confidence, and we have the multiplier effect too.
Do you have no idea how stock markets work? People will not invest in a company if they fear it will collapse soon. They will not invest until they have good information about that company's odds for success. What the bailout does is restore liquidity and more perfect ifnormation about companies, restore confidence. As credit is restored, the housing market stops falling, losses stop accumulating, and JESUS SAVES.
4.) See the bottom paragraph in my analysis. This is outweighed by the fact the bailout fixes the credit crisis as well.
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1) I am not talking about wage controls. I am talking about boosting public sector wages indeed but this is NOT controls. I agree that price and wages schemes generate inefficiency. You say that the public sector investment was investment in the private sector. This is true to an extent, but every single good education system on the planet (that i am aware of) was build and maintained in the public sector, this is true with health care also. This is what I'm talking about government investment in the private sector is not particularly important to my argument. I'm talking about public sector jobs.
I read an article recently about how in California the economy is contracting which was decreasing government revenues and increasing their deficit. So in response Schwarzenegger decided to cut billions of dollars from public education cutting such classes as art science and music. He is firing workers by the thousand, this contracts the economy even more. The story is the same across the country I advocate doing the exact opposite.
Private sector is always more efficient? This is a horrible preconception is my opinion. Efficiency by what measure? Profits? This can be applied as a general rule and I do not object to it overall but there are examples where increased 'efficiency' is a detriment to society and the economy. Again Education is an example of this. Private firms attempt to maximise profit. In education they achieve it by firing teachers and over stacking classes and poorly funding maintenance, in this circumstance increased 'efficiency' is actually a detrimental thing.
Private sector competing with the public sector for workers? When you have labor shortages then sure but this is a problem for another day, and it is easily rectified. Rising wages cause inflation maybe, rising wages is the key to increasing peoples standard of living. If wages rise faster than the ability of the supply side of the economy to provide for it then yes it will generate inflation. What you gotta do is ensure that wages rise inline with the supply side so that real wages increase and inflation is kept low, this is irrelevant under current conditions so i wont continue to go into it.
3) How in the world does increased employment help the housing market? If someone has a job and is earning an income they are a hell of a lot more likely to buy a house and be able to pay for it. The fact that peoples wages are falling decreases the capacity of individuals to meet their repayments, this destroys confidence. Banks are unwilling to lend because people do not have enough money to meet their repayments. If people have the physical capacity to meet those repayments it will increase confidence and it will increase the availability of credit.
"People will not invest in a company if they fear it will collapse soon." People will not fear business's collapsing if the economy is in good health. Fixing the real economy will fix the stock market and nothing else can.
Credits effect on the multiplier is irrelevant. Because I am providing physical stimulus then this physical wealth will multiply credit or no credit. In fact the higher a persons marginal propensity to consume then the higher the multiplier. The only time the multiplier wont work thus is if people save more than they spend, this is not the case as far as i can tell.
The Bailout balances their books sure, but as long as the unemployment rate is rising and wages are falling more and more people will default of their mortgages and the banks will continue to go down and confidence will continue to fall.
People are not and will not take on more credit when they have no confidence in their ability to pay for it.
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I can't argue with you anymore. You just fundamentally have no idea what you're talking about. No clue whatsoever. Read the news sometime. Pick up a magazine. Get a grasp of the situation, and then come back. Normally people posting like you wouldn't bother me, but you go ahead and tap on that you're an econ major, which scares me, because you just don't understand some fairly basic things that simply aren't true.
i.e.
Credits effect on the multiplier is irrelevant
ORLY?! I was facepalming hard by the time I read this.
Banks are unwilling to lend because people do not have enough money to meet their repayments
Not a major factor. It's just NOT. I can't really put it to you in any other way except you are factually incorrect.
I don't think either of us are going to win the debate about wages. Bottom line is, yes creating jobs/stimulus will help. But it won't be as effective as the bailout, because you never address the credit issue. The credit problem doesn't have as much to do with income as you think and your repeated, unwarranted denials of that fact won't change that.
read thoroughly:
http://www.economist.com/displaystory.cfm?story_id=12342237
edit: and i swear i brought this up earlier but also consumers are unlikely to spend their newfound wages when a.) they have to pay back debt b.) they have less confidence in the economy. The banks will also be holding their money in reserve because of the liquidity problem.
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dow down 800 points right now...
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On October 06 2008 18:58 Choros wrote:
Private sector is always more efficient? This is a horrible preconception is my opinion. Efficiency by what measure? Profits? This can be applied as a general rule and I do not object to it overall but there are examples where increased 'efficiency' is a detriment to society and the economy. Again Education is an example of this. Private firms attempt to maximise profit. In education they achieve it by firing teachers and over stacking classes and poorly funding maintenance, in this circumstance increased 'efficiency' is actually a detrimental thing.
He's right Yale, Harvard, Princeton, etc, are such horrible schools.
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On October 06 2008 18:58 Choros wrote:
1) I am not talking about wage controls. I am talking about boosting public sector wages indeed but this is NOT controls. I agree that price and wages schemes generate inefficiency. You say that the public sector investment was investment in the private sector. This is true to an extent, but every single good education system on the planet (that i am aware of) was build and maintained in the public sector, this is true with health care also. This is what I'm talking about government investment in the private sector is not particularly important to my argument. I'm talking about public sector jobs.
Oh man, look how good our education system's doing.
The fact that every good education system has originated in the public sector means nothing, as no modern market-based education system has ever been tried. I'm extremely confident that a correctly-implemented voucher+private school system would be better than anything we have now.
And this is not true with health care. Every nationalized government healthcare system suffers from massive waiting lists, not enough doctors, subpar equipment, and worse health. http://www.cato.org/pubs/pas/pa532.pdf
I read an article recently about how in California the economy is contracting which was decreasing government revenues and increasing their deficit. So in response Schwarzenegger decided to cut billions of dollars from public education cutting such classes as art science and music. He is firing workers by the thousand, this contracts the economy even more. The story is the same across the country I advocate doing the exact opposite.
So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?
Private sector is always more efficient? This is a horrible preconception is my opinion. Efficiency by what measure? Profits? This can be applied as a general rule and I do not object to it overall but there are examples where increased 'efficiency' is a detriment to society and the economy. Again Education is an example of this. Private firms attempt to maximise profit. In education they achieve it by firing teachers and over stacking classes and poorly funding maintenance, in this circumstance increased 'efficiency' is actually a detrimental thing.
You have no clue what you're talking about. Things such as that only happen when people have no alternatives, which coincidentally, can only happen if the government creates that situation. Whenever people have alternatives, companies have incentives to attract people, and those things don't attract people. Government-run industries are the only situations where these detrimental things can happen and people are just forced to deal with them, any private sector firm would be out of business long ago.
Private sector competing with the public sector for workers? When you have labor shortages then sure but this is a problem for another day, and it is easily rectified. Rising wages cause inflation maybe, rising wages is the key to increasing peoples standard of living. If wages rise faster than the ability of the supply side of the economy to provide for it then yes it will generate inflation. What you gotta do is ensure that wages rise inline with the supply side so that real wages increase and inflation is kept low, this is irrelevant under current conditions so i wont continue to go into it.
Wages are determined by productivity, which also determines production. Inflation is a monetary phenomenon. Read some Friedman.
The key to increasing standards of living is increasing productivity, it's impossible to simply increase wages (there's no such thing as a free lunch). No matter how much you want it to, the government isn't simply capable of lifting wages out of nothing. In fact, raising government wages is detrimental on the whole, because the government's productivity isn't going up, therefore they're just generating more deficits which must be taxed or inflated out of.
The ONLY way to increase standards of living is to increase productivity. The most efficient way of increasing productivity is letting the market provide the incentives that unleash the capabilities of the human mind.
You have no clue what you're talking about. Thank you very much.
EDIT: Wait, you're an econ major? Right. We'll go with that. While we're at it, my income is about the same as the GDP of France.
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On October 07 2008 03:46 a-game wrote:
dow down 800 points right now...
At work today I heard someone talking about how their 401k was down 26%.
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On October 07 2008 11:46 fight_or_flight wrote:At work today I heard someone talking about how their 401k was down 26%.
My 401k was down 23.8% YTD before today... Scared to look now
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One point I will make regarding this debate is that it is in the nature of economic debates that two economists will debate each other, both will leave believing they have won, and convinced the other is totally mad. It is only the impact that these policies have which can conclusively prove who is correct and who is not. I believe that the failure of the policies you advocate has already begun and has been progressing for some time now. In 12 to 16 months it will be more clear we will probably conclusively know just how bad it will get. At that time I expect I will be saying 'I told you so', but for now all we have are debates without any conclusive result.
It is true that a market based education system has never been tried, in my opinion this has more to do with the fact that only the United States are insane enough to consider such a diabolical and fundamentally flawed system. But I concede that such ideas are relatively new so it is not surprising that they are untried, but no other country would even consider suggesting such policies as the public outcry would be immense. Everything good about our education system was created in the public sector, if it aint broke don't fix it.
The American Education system however is broke, but the fundamental reason for this is the neglect of the public system and consistently deteriorating funding levels. Will a voucher system work? Only time will tell, but I have supreme confidence it will fail.
"So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?"
At the start of the great depression nations cut expenses as their revenues contracted to minimize their deficits. You put a contractionary policy atop a contracting economy and it will contract even faster. One of the great lessons of the great depression experience is the realisation that increased budget deficits must be weathered in order to prevent the further deterioration of the economy. I am stunned how people consistently argue that policies which have been proven disastrous are appropriate. Whats more maintaining funding levels, in this context I'm not talking about increasing funding rather simply maintaining it, will have no significant inflationary impact, but if it did a higher rate of short run inflation is a small price to pay to prevent economic apocalypse.
How does putting downward pressure on a contracting economy increase your international standing? The United States is almost entirely out of respect at the moment and its respect is falling at a rapid pace. Economic collapse will put a nail in the coffin and in my opinion collapse is the only outcome from contracting a contracting economy. But only time will tell.
I have no clue what I'm talking about hey? Such things can only happen if there is no alternative? Well indeed that is true, but when you say to a poor family here take your voucher and get some education what alternatives do they have. Pathetic school A or abysmal school B. There is no effective alternatives available to these people. Indeed it is the government which has allowed this situation to develop. You ever heard of market failure?
Clearly you have no understanding of microeconomics.
Microeconomics is the study of firms, because firms are profit maximising entities we can predict how they will act under certain conditions. If you do not have a genuine competitive market situation then you will have a monopoly or an oligopoly (among others). Under those conditions firms produce inferior product at a higher price. A voucher system effectively creates a monopolistic situation as the individuals have no buyer power. Rich people do have buyer power, but they already go to private schools so they do not count.
The private sector is not always more efficient monopolies and oligopolies are a testament to that fact. The assumption that the private sector is always more efficient is not true. It is more efficient under certain circumstances. Its like saying that 14cc is ALWAYS the best build to do. It is not true, follow this oversimplification at your peril.
"Read some Friedman" Well I am in fact reviewing a Friedman article about the use of monetary policy at present.
"Inflation is a monetary phenomenon". Wrong. Have you ever heard of stagflation? 'Normal' inflation is a monetary phenomenon yes but it is far from the end of the story. The rising cost of oil increases inflation regardless of any monetary impact this is stagflation and it is affecting us right now. For decades economists believed stagflation impossible, ahh the wisdom of economists.
I basically said that boosting the supply side of the economy is the key to prosperity and higher wages. You then say oh your wrong what we need to do is boost the supply side of the economy. Please. Of course productivity is important, this is largely why a good education system is so important. But productivity achieved by paying your workers 50c an hour is the wrong way to go about it. This is effectively what Friedman advocates, the man said many correct things, but he is largely delusional. They live in a fantasy world of economic models which simply do not hold true in the real world. And they use confusing maths and economic jargon to stifle genuine debate. Germany is a good example of how productivity can be immense yet the public sector large. American workers are the most 'productive' on the planet, and look what they have to show for it, the lowest standard of living in the western world.
The following economies were devastated by Friedman trained economists: Chile, Argentina, Bolivia, Brazil, Venezuela, El Salvador, Panama. At this is only a portion of them all, I'm reading a book about it and I have not yet finished. Friedman himself was economic adviser to Augusto Pinochet and his economy catastrophically collapsed as a consequence of the policies he had them implement. They cut government spending on education and health care and these services simply rolled over and died, they cut welfare and it sucked vast quantities of money out of their economic system, they opened up to free trade and their fledgling industries could not compete and they failed. Friedman and his lot call victory and move on the further conquests (Argentina was next). It was not until the abandonment of these abominable polices that these economies began to recover is what was called the "Santiago Consensus" (http://www.weforum.org/pdf/summitreports/latinamerica2007/perspectives.htm) Where these countries instead adopted 'Developmental Economics', this is essentially what I advocate.
I doubt many people are aware that in the 1960's people were marveling at the tremendous success of the 'Latin Core' economies, everyone was saying wow in 50 years time these will be among the most powerful economies on the planet. Well Friedman and his policies ensured they would suffer an entirely different fate.
You are advocating policies that have been tried and have failed. And now we have come full circle, these policies were spawned in the United States and now they have returned to the land of their creation. The current economic downturn is no coincidence rather it is a continence of a long and depressing tale of economic vandalism.
People suggest that the United States is too large to collapse many economies have done over the last 50 years (almost every single one had Friendman's economists behind it). The size of the United States makes collapse less likely but there is only so much beating any economic system can take and right now American economists are brutalizing their economy with a hatchet I doubt it can take much more punishment.
At the end of the day only time will tell, but I remind you that the Bush administration has followed the policies you advocate and I will let the consequences speak for themselves.
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The following economies were devastated by Friedman trained economists: Chile, Argentina, Bolivia, Brazil, Venezuela, El Salvador, Panama. At this is only a portion of them all, I'm reading a book about it and I have not yet finished.
^ Let me guess, you're reading Naomi Klein? And you want us to take her opinions seriously?
I mean, Friedman lost it in the 80s - he totally betrayed everything he previously stood for in the rape of South America. Have you even compared what happened in South America to what is being talked about in terms of economic principles here? Have you thought about how South America was absolutely ravaged by illegal wars waged by the US? That was the antithesis of free capitalism - Klein's book is a very confused and very misguided lashing out at something she has very little understanding of. I would suggest a reading of real history and real economics - not some pulp nonsense by a woman with no idea of what she's talking about. I mean, her heart is in the right place and she is certainly pointing at real issues of oppression, but her inferred conclusions about what exactly it was that caused them is lacking, to say the least.
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On October 07 2008 17:40 jgad wrote:Show nested quote +The following economies were devastated by Friedman trained economists: Chile, Argentina, Bolivia, Brazil, Venezuela, El Salvador, Panama. At this is only a portion of them all, I'm reading a book about it and I have not yet finished. ^ Let me guess, you're reading Naomi Klein? And you want us to take her opinions seriously? I mean, Friedman lost it in the 80s - he totally betrayed everything he previously stood for in the rape of South America. Have you even compared what happened in South America to what is being talked about in terms of economic principles here? Have you thought about how South America was absolutely ravaged by illegal wars waged by the US? That was the antithesis of free capitalism - Klein's book is a very confused and very misguided lashing out at something she has very little understanding of. I would suggest a reading of real history and real economics - not some pulp nonsense by a woman with no idea of what she's talking about. I mean, her heart is in the right place and she is certainly pointing at real issues of oppression, but her inferred conclusions about what exactly it was that caused them is lacking, to say the least.
Indeed I am reading this book. And am surprised people are aware of it here.
The specific circumstances which existed in each economy was different, but the impact in a general sence is much the same. In Chile you have unemployment rise from 5% to 40% in the space of a week, now this is not the case in the United States thus far because these policies were put in place incredibly rapidly so their effects were correspondingly rapid. This is not however the antithesis of free capitalism. Much the same was taught to me in my developmental economics course, this free market ideology has ravaged the developing world, underfunding services leads to decay in those services, opening up to the free market kills new industry, reduced government spending contracts the economy.
I'm actually reading a book called 'The battle between the free market and government which is changing the world' created by Chicago school economists which is where Friedman of course comes from, this effectively is arguing for exactly that which those I have been debating before are arguing for so I would disagree that I am based on a single populist story. Indeed I disagree passionately with 'populist economics'.
None the less the history as described by Klein is accurate in terms of the facts, the interpretation we place upon that is what is really important and I create such conclusions based upon my own understanding.
Now South America was absolutely ravaged by secret wars waged by the United States, this of course had terrible consequences which translate into the economic sphere, but it is possible to differentiate between the effects of the wars and the effects of Friedmanite economic policies.
Klein is an economics professor so I would hesitate before questioning her understanding of economics, but I am not here to defend her or her book, rather I am here to point out the impact that these economic policies have had and are having today.
Edit: You point out how Friedman betrayed things which he stood for and I would like to acknowledge this point, however he made this betrayal because he was still able to try and test his economic policies, he followed his beliefs far more than he betrayed them.
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I don't remember advocating Friedman. I'll let others deal with the above. The key point though, is that nothing you've said is responsive to what I said about the bailout.
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On October 07 2008 15:45 Choros wrote:
One point I will make regarding this debate is that it is in the nature of economic debates that two economists will debate each other, both will leave believing they have won, and convinced the other is totally mad. It is only the impact that these policies have which can conclusively prove who is correct and who is not. I believe that the failure of the policies you advocate has already begun and has been progressing for some time now. In 12 to 16 months it will be more clear we will probably conclusively know just how bad it will get. At that time I expect I will be saying 'I told you so', but for now all we have are debates without any conclusive result.
None of the policies that I advocate have been put into practice. The people who are saying that this crisis is a result of laissez faire and a failure of markets are retards, this crisis is a result of absolutely stupid monetary policy and government mandates/interference. Laissez-faire has never existed.
It is true that a market based education system has never been tried, in my opinion this has more to do with the fact that only the United States are insane enough to consider such a diabolical and fundamentally flawed system. But I concede that such ideas are relatively new so it is not surprising that they are untried, but no other country would even consider suggesting such policies as the public outcry would be immense. Everything good about our education system was created in the public sector, if it aint broke don't fix it.
The American Education system however is broke, but the fundamental reason for this is the neglect of the public system and consistently deteriorating funding levels. Will a voucher system work? Only time will tell, but I have supreme confidence it will fail.
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Microeconomics is the study of firms, because firms are profit maximising entities we can predict how they will act under certain conditions. If you do not have a genuine competitive market situation then you will have a monopoly or an oligopoly (among others). Under those conditions firms produce inferior product at a higher price. A voucher system effectively creates a monopolistic situation as the individuals have no buyer power. Rich people do have buyer power, but they already go to private schools so they do not count.
The US education system is a government imposed monopoly. Monopolies are inefficient (by your own admission). Therefore, the government-run education systems must be inefficient, because they are just monopolies with little to no incentives to increase quality or decrease costs.
A voucher system with for-profit schools would be absolutely the best following microeconomic principles. People will be able to choose from different schools competing for students. Therefore, people will flock to the absolute best schools in the area, and if there aren't any good schools in the area, someone will see a chance to make a lot of money and will come found one. I don't see how you see this as anything close to monopolistic, and I especially don't see how you think this is more monopolistic than government schools.
Either way, how about we do this. Set up a voucher system alongside the current government schools. Give vouchers to students who request to go to private schools that are worth the same amount the government pays per student. Let people decide whether they want to go to private or public schools, and either way the government will be footing the bill (and the same bill). Let private schools keep any and all profits they make off the vouchers.
And rather that giving individuals no buying power, it gives everyone the same buying power (depending on implementation). By the way, your argument about deteriorating funding is an absolute joke, funding per student in the US is astronomical, has been growing at an astonishing rate, and is much higher than pretty much all other countries.
"So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?"
At the start of the great depression nations cut expenses as their revenues contracted to minimize their deficits. You put a contractionary policy atop a contracting economy and it will contract even faster. One of the great lessons of the great depression experience is the realisation that increased budget deficits must be weathered in order to prevent the further deterioration of the economy. I am stunned how people consistently argue that policies which have been proven disastrous are appropriate. Whats more maintaining funding levels, in this context I'm not talking about increasing funding rather simply maintaining it, will have no significant inflationary impact, but if it did a higher rate of short run inflation is a small price to pay to prevent economic apocalypse.
How does putting downward pressure on a contracting economy increase your international standing? The United States is almost entirely out of respect at the moment and its respect is falling at a rapid pace. Economic collapse will put a nail in the coffin and in my opinion collapse is the only outcome from contracting a contracting economy. But only time will tell.
Right, because FDR's New Deal was such a contractionary program. Look at all the good it did (aka lengthening the Great Depression by years).
Creating inflation during times of depression is only okay if you cut back during times of plenty, which we didn't (Negative inflation-adjusted interest rates during the 2000's anyone?). You can't inflate during times of prosperity, and then inflate more during down-turns.
I have no clue what I'm talking about hey? Such things can only happen if there is no alternative? Well indeed that is true, but when you say to a poor family here take your voucher and get some education what alternatives do they have. Pathetic school A or abysmal school B. There is no effective alternatives available to these people. Indeed it is the government which has allowed this situation to develop. You ever heard of market failure?
I should've addressed this up there, but whatever.
Markets would create choice. If the only choices in the are were schools A and B, entrepreneur C would go "Hey look, I can make a massive profit by creating decent school C." In fact, the worse the schools in the area, the easier it is to attract students at low cost and make huge profits, the more schools will come in to compete.
Government monopolies destroy choice. The only choice in a government-run school system is to go to the school in the area, regardless of whether it's good, decent, horrible, or worse. It's not like a market system where it's self-correcting; instead of a battle of the fittest where only the schools that best serve the consumer at the lowest cost survive we get a system where inefficiency is rewarded and innovation and improvement are largely ignored.
Ever hear of government failure? Either way, any positive externality would be accounted for by the fact that the government is still subsidizing education, just not controlling it directly. And I don't see any negative externalities either.
"Inflation is a monetary phenomenon". Wrong. Have you ever heard of stagflation? 'Normal' inflation is a monetary phenomenon yes but it is far from the end of the story. The rising cost of oil increases inflation regardless of any monetary impact this is stagflation and it is affecting us right now. For decades economists believed stagflation impossible, ahh the wisdom of economists.
I admit that I oversimplified it. But I have to note that only Keynesians thought that stagflation was impossible, and Keynes was an idiot who put economic thinking back decades. He's only popular because FDR liked him because his theories validated FDR's retarded government programs. And interestingly enough, Friedman predicted stagflation.
I basically said that boosting the supply side of the economy is the key to prosperity and higher wages. You then say oh your wrong what we need to do is boost the supply side of the economy. Please. Of course productivity is important, this is largely why a good education system is so important. But productivity achieved by paying your workers 50c an hour is the wrong way to go about it. This is effectively what Friedman advocates, the man said many correct things, but he is largely delusional. They live in a fantasy world of economic models which simply do not hold true in the real world. And they use confusing maths and economic jargon to stifle genuine debate. Germany is a good example of how productivity can be immense yet the public sector large. American workers are the most 'productive' on the planet, and look what they have to show for it, the lowest standard of living in the western world.
Right, Americans have the lowest standard of living in the western world. I'd like to see some data on that. Not only do we have more disposable income that almost any country, but we also don't have to wait in 3-month lines to get into hospitals. Gotta love that 12% German unemployment (is that it currently? I know it's up past 10). And you gotta love how American income per household is still one of the highest in the world.
I think you're missing out of something called competition for labor. If every company is paying $1 wages, it's in every individual company's interest to charge $2 in order to get the best available talent. This continues up to productivity as long as there isn't an external factor affecting supply (like rampant immigration). Labor is fundamentally a product, and is driven by the same supply and demand forces that any other product is. And just as any product's price will approach marginal cost (or as close as information dispersion and ease of transition will let it), wages will approach marginal productivity.
I never said that we need to boost the supply said (or I might've, but I don't believe it). We need to let the market find the stable equilibria. The government doesn't need to do anything, because almost anything the government does will distort the equilibria and bring on future price corrections.
And if you've ever actually read lots of Friedman's work, it's very readable and understandable. Sure he has a bunch of work directed at the professional economist and backed up by mathematical models, but he also has a bunch of work directed at the layman, relatively easy readings filled with logic and reason.
You are advocating policies that have been tried and have failed. And now we have come full circle, these policies were spawned in the United States and now they have returned to the land of their creation. The current economic downturn is no coincidence rather it is a continence of a long and depressing tale of economic vandalism.
To risk beating a dead horse, these policies have not been tried, no matter how much people want to think that they have. Though I do have to say over world history, I'd like you to find an economic system that has worked better than relatively free capitalism.
And Friedman and his fellow Chicagoans who tried to mold South American economies were retarded. Their fundamental failure was that the institutions and culture needed for market economies to thrive didn't exist and couldn't be created on a whim.
And yes, I agree that it is the result of a "long and depression tale of economic vandalism". That vandalism has been the increasingly large role of government in the economy and it's desire to "do good" without looking at the consequences or worrying about the money it's spending.
People suggest that the United States is too large to collapse many economies have done over the last 50 years (almost every single one had Friendman's economists behind it). The size of the United States makes collapse less likely but there is only so much beating any economic system can take and right now American economists are brutalizing their economy with a hatchet I doubt it can take much more punishment.
Let's look at the two probably biggest economic collapses in the last 50 years. The Soviet Union and Communist China. Because these were so free-market and directed by Friedman, obviously state intervention and control are the only answers.
At the end of the day only time will tell, but I remind you that the Bush administration has followed the policies you advocate and I will let the consequences speak for themselves.
Not at all, and the "Bush administration" didn't do anything. "Administrations" aren't actors, and either way, Bush didn't control much of this, much was by the fed or previous administrations/Congress (though he might've enabled it).
The consequences are from disastrous management by the federal reserve, bad government mandates on home ownership, and a good bit of overzealous government intervention and regulation. This bubble would've never happened if the government hadn't caused it to happen.
What I get from you is that you're a pretty hardcore Keynesian that also believes that the government is perfect. Except that you're a classical Keynesian, which has been discredited time after time, and you haven't read up much on public choice theory. Either way, I won't be responding to you again, as it simply isn't worth my time or effort anymore. You're economic education is... lacking to say the least. And either way, this discussion has gotten way off-topic.
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United States22883 Posts
I'm not sure you can rule out a government run education system so easily. Geography plays a massive role, which is a weak point of a private+voucher program, and I think we'd see more polarization in schools than we already do currently. I don't have any reports on hand to back it up, but there's plenty of wrenches to throw into the mix that make it vastly different from any other type of business and the improvement wouldn't be much greater from what the best schools already have. It's not like we're seeing a failure of government run school systems across the board, only with ours because we implemented a system advocated by the former governor of the state with the 49th worst education system. We can create incentive for teaching without privatizing it.
The South America example is incredibly poor and all it really does is work against Ricardo's competitive advantage in most cases. There was no infrastructure or culture in place to support that kind of development. You can make the case that protectionism or a large degree of government intervention is needed in developing countries but those states have little in common to the US in 2008.
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On October 08 2008 08:03 theonemephisto wrote:Show nested quote +On October 07 2008 15:45 Choros wrote:
One point I will make regarding this debate is that it is in the nature of economic debates that two economists will debate each other, both will leave believing they have won, and convinced the other is totally mad. It is only the impact that these policies have which can conclusively prove who is correct and who is not. I believe that the failure of the policies you advocate has already begun and has been progressing for some time now. In 12 to 16 months it will be more clear we will probably conclusively know just how bad it will get. At that time I expect I will be saying 'I told you so', but for now all we have are debates without any conclusive result. None of the policies that I advocate have been put into practice. The people who are saying that this crisis is a result of laissez faire and a failure of markets are retards, this crisis is a result of absolutely stupid monetary policy and government mandates/interference. Laissez-faire has never existed. Show nested quote +It is true that a market based education system has never been tried, in my opinion this has more to do with the fact that only the United States are insane enough to consider such a diabolical and fundamentally flawed system. But I concede that such ideas are relatively new so it is not surprising that they are untried, but no other country would even consider suggesting such policies as the public outcry would be immense. Everything good about our education system was created in the public sector, if it aint broke don't fix it.
The American Education system however is broke, but the fundamental reason for this is the neglect of the public system and consistently deteriorating funding levels. Will a voucher system work? Only time will tell, but I have supreme confidence it will fail.
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Microeconomics is the study of firms, because firms are profit maximising entities we can predict how they will act under certain conditions. If you do not have a genuine competitive market situation then you will have a monopoly or an oligopoly (among others). Under those conditions firms produce inferior product at a higher price. A voucher system effectively creates a monopolistic situation as the individuals have no buyer power. Rich people do have buyer power, but they already go to private schools so they do not count. The US education system is a government imposed monopoly. Monopolies are inefficient (by your own admission). Therefore, the government-run education systems must be inefficient, because they are just monopolies with little to no incentives to increase quality or decrease costs. A voucher system with for-profit schools would be absolutely the best following microeconomic principles. People will be able to choose from different schools competing for students. Therefore, people will flock to the absolute best schools in the area, and if there aren't any good schools in the area, someone will see a chance to make a lot of money and will come found one. I don't see how you see this as anything close to monopolistic, and I especially don't see how you think this is more monopolistic than government schools. Either way, how about we do this. Set up a voucher system alongside the current government schools. Give vouchers to students who request to go to private schools that are worth the same amount the government pays per student. Let people decide whether they want to go to private or public schools, and either way the government will be footing the bill (and the same bill). Let private schools keep any and all profits they make off the vouchers. And rather that giving individuals no buying power, it gives everyone the same buying power (depending on implementation). By the way, your argument about deteriorating funding is an absolute joke, funding per student in the US is astronomical, has been growing at an astonishing rate, and is much higher than pretty much all other countries. Show nested quote +"So you'd rather all government run up massive deficits that they can't pay, inflate their way out of it, and create runs on the dollar that collapse our economy and destroy any international standing we have?"
At the start of the great depression nations cut expenses as their revenues contracted to minimize their deficits. You put a contractionary policy atop a contracting economy and it will contract even faster. One of the great lessons of the great depression experience is the realisation that increased budget deficits must be weathered in order to prevent the further deterioration of the economy. I am stunned how people consistently argue that policies which have been proven disastrous are appropriate. Whats more maintaining funding levels, in this context I'm not talking about increasing funding rather simply maintaining it, will have no significant inflationary impact, but if it did a higher rate of short run inflation is a small price to pay to prevent economic apocalypse.
How does putting downward pressure on a contracting economy increase your international standing? The United States is almost entirely out of respect at the moment and its respect is falling at a rapid pace. Economic collapse will put a nail in the coffin and in my opinion collapse is the only outcome from contracting a contracting economy. But only time will tell. Right, because FDR's New Deal was such a contractionary program. Look at all the good it did (aka lengthening the Great Depression by years). Creating inflation during times of depression is only okay if you cut back during times of plenty, which we didn't (Negative inflation-adjusted interest rates during the 2000's anyone?). You can't inflate during times of prosperity, and then inflate more during down-turns. Show nested quote +I have no clue what I'm talking about hey? Such things can only happen if there is no alternative? Well indeed that is true, but when you say to a poor family here take your voucher and get some education what alternatives do they have. Pathetic school A or abysmal school B. There is no effective alternatives available to these people. Indeed it is the government which has allowed this situation to develop. You ever heard of market failure? I should've addressed this up there, but whatever. Markets would create choice. If the only choices in the are were schools A and B, entrepreneur C would go "Hey look, I can make a massive profit by creating decent school C." In fact, the worse the schools in the area, the easier it is to attract students at low cost and make huge profits, the more schools will come in to compete. Government monopolies destroy choice. The only choice in a government-run school system is to go to the school in the area, regardless of whether it's good, decent, horrible, or worse. It's not like a market system where it's self-correcting; instead of a battle of the fittest where only the schools that best serve the consumer at the lowest cost survive we get a system where inefficiency is rewarded and innovation and improvement are largely ignored. Ever hear of government failure? Either way, any positive externality would be accounted for by the fact that the government is still subsidizing education, just not controlling it directly. And I don't see any negative externalities either. Show nested quote +"Inflation is a monetary phenomenon". Wrong. Have you ever heard of stagflation? 'Normal' inflation is a monetary phenomenon yes but it is far from the end of the story. The rising cost of oil increases inflation regardless of any monetary impact this is stagflation and it is affecting us right now. For decades economists believed stagflation impossible, ahh the wisdom of economists. I admit that I oversimplified it. But I have to note that only Keynesians thought that stagflation was impossible, and Keynes was an idiot who put economic thinking back decades. He's only popular because FDR liked him because his theories validated FDR's retarded government programs. And interestingly enough, Friedman predicted stagflation. Show nested quote +I basically said that boosting the supply side of the economy is the key to prosperity and higher wages. You then say oh your wrong what we need to do is boost the supply side of the economy. Please. Of course productivity is important, this is largely why a good education system is so important. But productivity achieved by paying your workers 50c an hour is the wrong way to go about it. This is effectively what Friedman advocates, the man said many correct things, but he is largely delusional. They live in a fantasy world of economic models which simply do not hold true in the real world. And they use confusing maths and economic jargon to stifle genuine debate. Germany is a good example of how productivity can be immense yet the public sector large. American workers are the most 'productive' on the planet, and look what they have to show for it, the lowest standard of living in the western world. Right, Americans have the lowest standard of living in the western world. I'd like to see some data on that. Not only do we have more disposable income that almost any country, but we also don't have to wait in 3-month lines to get into hospitals. Gotta love that 12% German unemployment (is that it currently? I know it's up past 10). And you gotta love how American income per household is still one of the highest in the world. I think you're missing out of something called competition for labor. If every company is paying $1 wages, it's in every individual company's interest to charge $2 in order to get the best available talent. This continues up to productivity as long as there isn't an external factor affecting supply (like rampant immigration). Labor is fundamentally a product, and is driven by the same supply and demand forces that any other product is. And just as any product's price will approach marginal cost (or as close as information dispersion and ease of transition will let it), wages will approach marginal productivity. I never said that we need to boost the supply said (or I might've, but I don't believe it). We need to let the market find the stable equilibria. The government doesn't need to do anything, because almost anything the government does will distort the equilibria and bring on future price corrections. And if you've ever actually read lots of Friedman's work, it's very readable and understandable. Sure he has a bunch of work directed at the professional economist and backed up by mathematical models, but he also has a bunch of work directed at the layman, relatively easy readings filled with logic and reason. Show nested quote +You are advocating policies that have been tried and have failed. And now we have come full circle, these policies were spawned in the United States and now they have returned to the land of their creation. The current economic downturn is no coincidence rather it is a continence of a long and depressing tale of economic vandalism. To risk beating a dead horse, these policies have not been tried, no matter how much people want to think that they have. Though I do have to say over world history, I'd like you to find an economic system that has worked better than relatively free capitalism. And Friedman and his fellow Chicagoans who tried to mold South American economies were retarded. Their fundamental failure was that the institutions and culture needed for market economies to thrive didn't exist and couldn't be created on a whim. And yes, I agree that it is the result of a "long and depression tale of economic vandalism". That vandalism has been the increasingly large role of government in the economy and it's desire to "do good" without looking at the consequences or worrying about the money it's spending. Show nested quote +People suggest that the United States is too large to collapse many economies have done over the last 50 years (almost every single one had Friendman's economists behind it). The size of the United States makes collapse less likely but there is only so much beating any economic system can take and right now American economists are brutalizing their economy with a hatchet I doubt it can take much more punishment. Let's look at the two probably biggest economic collapses in the last 50 years. The Soviet Union and Communist China. Because these were so free-market and directed by Friedman, obviously state intervention and control are the only answers. Show nested quote +At the end of the day only time will tell, but I remind you that the Bush administration has followed the policies you advocate and I will let the consequences speak for themselves. Not at all, and the "Bush administration" didn't do anything. "Administrations" aren't actors, and either way, Bush didn't control much of this, much was by the fed or previous administrations/Congress (though he might've enabled it). The consequences are from disastrous management by the federal reserve, bad government mandates on home ownership, and a good bit of overzealous government intervention and regulation. This bubble would've never happened if the government hadn't caused it to happen. What I get from you is that you're a pretty hardcore Keynesian that also believes that the government is perfect. Except that you're a classical Keynesian, which has been discredited time after time, and you haven't read up much on public choice theory. Either way, I won't be responding to you again, as it simply isn't worth my time or effort anymore. You're economic education is... lacking to say the least. And either way, this discussion has gotten way off-topic.
I will respond to your response however why don't you detail your plan for the economy rather than criticize mine?
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from reading this thread i have concluded:
economics is made up entirely of magic and fairy dust
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United States22883 Posts
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EPT
