Ok, I didn't realize people actually said in the mainstream what I just found out this Brooks guy said.
Colbert just pointed out the total irony. Ann Rand's followers are in control while the economy melts down because of how they were set up, without holding bankers accountable for gambling with other people's money, which make it profitable for the bankers to take risks than in the end will cause total collapse.
Then when it all goes down the bankers are the first to be bailed out. And then the Ann Rand supporters claim she was a prophet? And this is exactly what is happening in the book? And now the bankers want to go on strike because the losers want their money?
Not to mention economists understood way back that financial markets can't work the way they were working before the crisis. They couldn't predict what would actually happen. But the risks of it were not unforseen.
On April 19 2009 23:14 Diomedes wrote: Ok, I didn't realize people actually said in the mainstream what I just found out this Brooks guy said.
Colbert just pointed out the total irony. Ann Rand's followers are in control while the economy melts down because of how they were set up, without holding bankers accountable for gambling with other people's money, which make it profitable for the bankers to take risks than in the end will cause total collapse.
Then when it all goes down the bankers are the first to be bailed out. And then the Ann Rand supporters claim she was a prophet? And this is exactly what is happening in the book? And now the bankers want to go on strike because the losers want their money?
Not to mention economists understood way back that financial markets can't work the way they were working before the crisis. They couldn't predict what would actually happen. But the risks of it were not unforseen.
Diomedes, I have to go out for a run now, but I will respond to this post later. Nice posting with you.
That said, I think that a respect of the facts is something that you accept. I am intersted in what facts make you think that the market caused this crisis.
The crisis was caused by loans that were too risky for society as a whole but seen as profitable by the bankers because they were basically gambling with other people's money. They wouldn't have to pay for the losses but they would gain the profits. And because they all did this and totally ignored the damange to the total system if loans would go sour, only those to their own pockets. So called systemic risk. Almost all big banks lost money because of Fanny May, Freddy Mac, Goldman Sacks, AIG, etc. This cost them a lot of money. And the risk of this are all externalities that are never accounted for by a market.
And then they sold and resold loans to each other, creation complex packages no one understood what they were. But it had been considered too profitable not to try to make money off them. It was all a bubble. So this all caused a chain reactions, going through all banks and causing huge damage.
Obama bails then out and then buys a lot of the questionable loans. If the loans go bad, the tax payer pays. If they even generate a profit, the banks get most of it evnethough they already got rid of the risks.
And now no one can get a loan, banks all became zombie banks with no liquidity to do what they are supposed to do. And because they are all too big to fail and nationalization isn't an option they have to be bailed out, costing society a lot of money for now useless not-functioning banks. So the financial economy comes to a standstill. And if this is not horrible in itself, US government spending, debt and the position of the dollar all make it even worse, causing recessions to otherwise good economies worldwide.
In the mean time the bankers all get their bonusses.
On April 19 2009 22:05 sorech02 wrote: when you say that Greenspan was a god for the free market, it turns my stomach a little. He IS government regulation in my view.
Amen. This entire notion being foisted by the media that
A : Greenspan = Free Market B : Greenspan says Free Market failed, therefore it did
is a total load of poppycock. If you believe this nonsense, you're drinking the kool-aid. Just because he used to read Ayn Rand as a kid doesn't mean he's a free market icon.
Greenspan is the antithesis of the free market. He exercised power over the most egregious centrally-dictated price control imaginable - the interest rate. He had singular control over the PRICE OF MONEY - a dictated level of risk and a fundamental control over the balances of savings and investment in a large part of the world's economy and yet the media has the audacity to call him, and the markets touched by US dollars, a "free market". Give me a break.
Greenspan caused the problem. Free markets didn't fail - fake money and central banking failed. To anyone who would argue otherwise, I might ask the question :
What effects would one expect to see in an economy with an artificially low interest rate and risk displacement effected by central guarantees and an infinitely expandable money supply?
The argument the libertarians posit is typically that deregulation only works when it turns it into a truly free market, and thus the financial institutions and other things need to be allowed to fail; as the market will correct itself eventually. They argue against the Federal Reserve and FIAT currency.
I've not done sufficient research into the current situation to really know who's in the right, and there won't be clear indications of what happened for at least a decade I would say. However, I did a lot of research into the dotcom bust of the 90s 2 years ago, and found that some of it could be blamed on deregulation, some on over-regulation. There are some parallels, because both crises are products of the same environment. Let me see if I can explain this briefly... WorldCom declared that internet traffic was doubling every year, and thus made fiber lines appear much more valuable than they actually were (In reality, the capacity for Net traffic was doubling every year), and this inflated prices of dark fiber lines to ridiculous prices through pure speculation. Telecommunication is effectively a government guaranteed monopoly, which is a product of regulation - so not regulating them in other respects was one of the other issues. The problem is more people than anything else, I found a quote from Edward Whitacre (CEO of SBC) where he claimed that if he could force all his competitors to pay him rent for the privilege of competing, he would. It's just human nature more than regulatory issues in my opinion.
The current crisis isn't at all what was described in Atlas Shrugged.
How are we sure that people are buying the book to look for explanations on the current crisis? Is this trend only for Atlas Shrugged or for other books on political economics?
I just find it annoying how every random event now becomes part of the crisis story line and its rationalizations. People can buy Atlas Shrugged for a whole number of reasons, it seems silly that they could all be looking "for clues about the origins of the current financial crisis".
I think there's fanboyism on both sides of the issue here, which is why Atlas Shrugged is a love it or hate it book. Thinking libertarians do not oppose all types of regulations. I'm a libertarian and I'm perfectly comfortable with regulation to correct market failures and make sure markets function efficiently. The type of regulation libertarians and Randians should oppose is overly complex regulation and regulation with progressive intentions, like limiting sugar content in foods.
If proven that the markets on the new financial products aren't efficient and can lead to crises like this unless properly regulated, then I don't see why it would be anti-randian to agree with regulation.
Bottom line, Atlas Shrugged is not about financial regulation. Randians are often fanboys and try to rationalise objectivism into the storyline of the recession, anti-Randians are often haters who try to rationalise objectivism as the cause of the recession. Both are wrong.
There can't even be a free market in the financial world because if governments don't bail out the banks you run the risk of going back to bartering. Free markets for banks isn't even a possibility. And no country in the world even considered just letting all the banks go broke. Every single one took action.
No. They bail them out while still not putting on regulations. If they pay the banks so much money they should just take them over. Then they can actually stop all the damaging behavior. And they will stop being zombie banks.
As for a society with true pure free markets where you just can go Laissez-faire, there is no reason to think this is not a fairy tale. You can see how our attempts a free markets with rational customers making pure rational choices work out. Just watch some ads on tv. The best example of a market that isn't 'proudly irrational' is probably the stock market. You don't buy Microsoft because you want to be a 'cool nerd' just like Bill Gates. And he is a good example. Where did all the money he made come from? Who payed for all the innovations in the computer world? Was it Bill Gates risking his own money to make such a huge profit?
In the mean time in the US for every 10 dollars 1 is spend to undermine rational markets, trying to make them more irrational, through marketing.
On April 19 2009 23:38 Diomedes wrote: There can't even be a free market in the financial world because if governments don't bail out the banks you run the risk of going back to bartering. Free markets for banks isn't even a possibility. And no country in the world even considered just letting all the banks go broke. Every single one took action.
No. They bail them out while still not putting on regulations. If they pay the banks so much money they should just take them over. Then they can actually stop all the damaging behavior. And they will stop being zombie banks.
As for a society with true pure free markets where you just can go Laissez-faire, there is no reason to think this is not a fairy tale. You can see how our attempts a free markets with rational customers making pure rational choices work out. Just watch some ads on tv. The best example of a market that isn't 'proudly irrational' is probably the stock market.
In the mean time in the US for every 10 dollars 1 is spend to undermine rational markets, trying to make them more irrational, through marketing.
Andrew Jackson I think was our last experiment with that.
On April 19 2009 23:06 Diomedes wrote: lol just read at what Brooks, who is now the head of the Ayn Rand Institute, wrote:
In "Atlas," Rand tells the story of the U.S. economy crumbling under the weight of crushing government interventions and regulations. Meanwhile, blaming greed and the free market, Washington responds with more controls that only deepen the crisis. Sound familiar?
Yeah, very. Only it's totally backwards. I thought that lack of regulation and too much greed caused this crisis. I know everyone in Europe has already accepted this. Is it even disputed? Apparently. And thus people are indeed calling for more selfishness and even less regulation, probably fixing the economy by creating new even bigger bubbles, making the mirror image perfect.
No wonder people lkike Michael Shermer claim that there is a Rand cult based on dogma.
Absolutely it is disputed. Greed is eternal. Humans have been greedy since the dawn of time. How did this suddenly become a problem all at once? The only explanation I can have for this narrow view of things is that the TV continues to repeat it every hour, on the hour. Nowhere have I seen any logical explanation of the claim that "greed and deregulation" caused the problem. It's just stated as rhetoric, and people love them some rhetoric. Simple, easy to digest and repeat - it has a clear "bad guy" and there's very little thinking required. In fact, a little bit of thinking would make this notion completely disintegrate.
Let's give it a shot.
Greed, of course, is only half of the equation. Greed is balanced in humans by fear and risk is the factor that determines which side of the fence our decisions land on. If someone came to you to borrow $100, say, and offered to return you $1000 at the end of the month, would you take his money? Even if you were an extremely greedy person? Wouldn't you ask what he planned to do with it and attempt to figure out how he would multiply your money by ten - wouldn't you want some assurances that his plan to make money would succeed?
You see, greed works both ways. So long as the person taking the risk is the one who has to bear the burden of failure when the risk goes bad, then greed can be a powerful motivator to make good financial decisions - the risk of losing your money by throwing after a bad investment is what makes markets work. It's the reason we seek advice and reviews before buying a product - we want to make sure that our money is well spent. That we get a quality mouse, for example, to play Starcraft with, and not a piece of junk that won't work. That's greed in action too - we're greedy to want good hardware that works. We want the best our money can buy, in fact, and nothing less.
How would we buy mice, though, if there were government guarantees on bad products? Say everytime you bought a mouse that didn't work the way you wanted, you could apply to the government to get your money back. They would buy the shitty mouse from you for the price you paid for it, regardless of the fact that it may not be worth that, and you would be free to go and try again.
Would you do your research as dilligently? Would you bother to try buying a good mouse, or would you just keep buying bad mice until you hit upon something that you liked? And even if you would still be cautious and responsible, do you think everybody else would?
This is called "moral hazard" - when risk is displaced from the person taking the risk to another person or group, especially when the people who are assuming the risk, in this case, the taxpayer, often have no choice - the decision is made for them. This is what caused the banking crisis - not greed, not lack of regulations, but regulations which allowed people taking risks to do so at somebody else's expense.
A free market would not allow this.
And how about interest rates? How do those dictate our actions. Again, let's assume we are all greedy people. What if the interest rate was 15% - would you save up money to buy a car, earning 15% on your savings while you earned enough to buy a car in cash, or would you take out a loan or lease, paying the 15% penalty to have the car now? What if the interest rate was 0.5%? Then would you save, or would you take out the loan and pay practically nothing extra to have it now?
How about a house?
In a free market, the interest rate is set by the market, not by a government office or central bank. People who have savings are competing to lend them at the highest rate they can find borrowers for. Borrowers are looking for the lowest rates they can find lenders to lend to them. When there are lots of savings around, the rate goes down. Business investments will tend to absorb the first savings at the highest prices because they are using that money on capital equipment and investments - they can afford to pay a higher interest rate because they are using the money to build a business that will generate money of its own. They might purchase, for example, production equipment that can build Plasma TVs - in time, when they are making TVs with that equipment, they can sell those TVs to repay the loan.
But when there are lots of savings and all of the investment borrowers have bought up what they need, the remaining lenders have to settle for lower rates of return. They have to lend to people less capable of repaying - riskier borrowers who are less sure of their ability to repay in the future, or who are less able to repay at a higher rate. This is the person who would not choose to borrow at 10% to buy a car, but may consider it at 1%. The lower the interest rate, the more outstanding debt becomes built into the system and the riskier that debt is - there are more people who owe money who may or may not be able to repay it.
So when the central bank sets interest rates artificially low, they, ipso facto, start building up a glut of unreliable, risky credit. Malinvestment happens all over the place because money is so cheap. People who have savings are pressured into spending it because they can't compete with such artificially low interest rates - it's not worth their while to save or lend money because they get such a pathetic return for their efforts. People start spending their savings and real credit is drained out of the system. Risk piles up, and eventually we hit a crisis where everyone realises that they're never going to be repaid.
None of this would happen in a free market. Interest rates would reflect savings, and when savings went down, interest rates would go up. Demand for credit would increase the price of borrowing ever scarcer savings. This didn't happen because central banks can dictate the interest rate, and even if there are NO savings in the system, as was the case in the US, which was carrying a NEGATIVE savings rate AND had 1% interest rates at the SAME TIME - this was done by Greenspan.
So, to blame greed? I don't think so. What happened is a logical and natural consequence of a price control on interest rates. To prevent the problem from happening again, one has two options :
1) Get rid of central banks and allow the free market to operate properly, including the determination of interest rates.
2) Get rid of the market completely and administer all economic functions from a totalitarian government body.
Of course, nobody wants to think about the problem. They just want someone to blame and "something to be done". Ooh... it must be those greedy people. 0_o
If you don't understand interest rates, you'll never understand what's going on and you will continue to blame the wrong things and the wrong people for it all going wrong.
1) Get rid of central banks and allow the free market to operate properly, including the determination of interest rates.
How plausible is this option... really? Just the uncertainty it would create in financial markets seems to me to be a good reason not to experiment around.
How sure can we possibly be that things would work out after a dismantling of the Fed?
I only used the word 'greed' because that Brooks guy did. Bankers have to be motivated and be innovative with the money they are investing. But the point is that it wasn't a free market and it wasn't their money. If they were being greedy the natural outcome would naturally be bad. So there should have been regulations as most banks have stockholders and are complied by precedents from cases like Dodge vs Ford to be as greedy as possible. Otherwise you get what we got, which was maybe not predicted but certainly forseen.
The whole idea of this never happening in a true free market where everyone is purely rational, does one even have to discuss that? First off, people never have all the information. So even if they are purely rational, one can never be sure there still aren't taken faulthy risks. Then, how does a market manage itself so no bank get too big to fail? Customers keep banks small because they are rational enough to realize they shouldn't go to this one huge bank that offers them the most interest because it's big and thus efficient. No, they go to other banks so other people's banks stay small enough to be allowed to go bankrupth, saving the tax payer money?
Then governments just want to meddle in markets. How are you going to stop it? No matter how much policy makes believe, or claim to believe, in free markets, these same people will still make sure the opposite happens. It's true for Greenspan and every other person that's out there and claims to support free markets. And no one can deny that in certain areas this has been a huge benefit. Can one truly imagine a world where the government doesn't invest at all in certain technologies?
And then customers aren't rational. People aren't and their customer aspect isn't as well. And they never will be. Especially not if companies are trying so hard to make sure they aren't. Because irrational customers are just much much more profitable than rational ones. Even if it's possible, it will never be allowed exactly by the market itself. If customers got rational overnight it may cause a bigger economic crisis than the current one. Imagine how many companies would suddenly lose all their income.
1) Get rid of central banks and allow the free market to operate properly, including the determination of interest rates.
How plausible is this option... really? Just the uncertainty it would create in financial markets seems to me to be a good reason not to experiment around.
How sure can we possibly be that things would work out after a dismantling of the Fed?
Uncertainty is a part of life we have to get realistic about. The government can shield people from uncertainty, as it has, but that doesn't get rid of the fact that it's there and is waiting in the shadows to bite you in the ass. Uncertainty is fine as long as you are aware that it is there. What has happened presently is that the uncertainty was swept under the carpet by worry-warts who think exactly the way you have just outlined, and who falsely believed that you can somehow make the uncertainty go away by pretending it doesn't exist. That doesn't work - it just makes you entirely unprepared to deal with the consequences when they eventually manifest themselves, as we have been. Ergo, financial crisis.
On April 20 2009 00:09 Diomedes wrote: in a true free market where everyone is purely rational, does one even have to discuss that? First off, people never have all the information. ...(etc)
This is a misconception and a flawed perception of what a free market is. Rationality is at best irrelevant in a true free market. The very notion is not applicable. Of course nobody has perfect information, but the operation of the free market is not predicated on this. All that free markets suppose is that people have desires and will act in a way that they feel will most effectively satisfy those desires. How correct they are in their assesment is irrelevant - what matters is the assertion that each individual is most qualified to know what their desires are and how to act accordingly. If you reject this notion - if you suggest that someone else is the best person to make decisions for you - then you're really suggesting that I shouldn't consider your opinion valid. Why should you care to have an opinion on such matters when you are obviously not qualified? Leave it to the experts, eh?
The very fact that you have an opinion tells me that you feel better qualified to exercise your affairs than, for example, I do. And that's fine. I'm happy to allow you to exercise your own affairs. I just don't want you, or anybody else, exercising my affairs, because I also feel competent to do so myself. For those who want someone else to carry out their business for them, let them seek out such council on their own rather than impose it by force. That's all free markets say.
Can one truly imagine a world where the government doesn't invest at all in certain technologies?
I shudder to think of a world where possibilities are restricted to the content of your imagination - or anyone else's, including my own, for that matter.
Both Adam Smith and Ayn Rand, if you can even use those names in the same phrase, both saw rational self-interest as essential for the functioning of a free market. WIthout it a market can still be free, that's not to point, but then it isn't any good.
I shudder to think of a world where possibilities are restricted to the content of your imagination - or anyone else's, including my own, for that matter.
It's not about possibiliteis being restricted. That was not the point. The point was, you can imagine living in a world without computers? Without cell phones?
So much science and research is subsidized. Just go to Forbes 500 and try to find a company that deals in an economic branch where there hasn't been any subsidization.
On April 20 2009 00:24 Diomedes wrote: Both Adam Smith and Ayn Rand, if you can even use those names in the same phrase, both saw rational self-interest as essential for the functioning of a free market. WIthout it a market can still be free, that's not to point, but then it isn't any good.
Ayn Rand was a hack, Adam Smith is ancient.
Human Action - Chapter 1, Section 4 : Rationality and Irrationality; Subjectivism and Objectivity of Praxeological Research.
Human action is necessarily always rational. The term “rational action” is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaning-less.
Man, Economy, and State - Chapter 1, Section 2 : Fundamentals of Human Action, First Implications of the Concepts
Another fundamental implication derived from the existence of human action is the uncertainty of the future. This must be true because the contrary would completely negate the possibility of action. If man knew future events completely, he would never act, since no act of his could change the situation. Thus, the fact of action signifies that the future is uncertain to the actors. This uncertainty about future events stems from two basic sources: the unpredictability of human acts of choice, and insufficient knowledge about natural phenomena. Man does not know enough about natural phenomena to predict all their future developments, and he cannot know the content of future human choices. All human choices are continually changing as a result of changing valuations and changing ideas about the most appropriate means of arriving at ends. This does not mean, of course, that people do not try their best to estimate future developments. Indeed, any actor, when employing means, estimates that he will thus arrive at his desired goal. But he never has certain knowledge of the future. All his actions are of necessity speculations based on his judgment of the course of future events. The omnipresence of uncertainty introduces the ever-present possibility of error in human action. The actor may find, after he has completed his action, that the means have been inappropriate to the attainment of his end.
Both basic fundamentals outlined in the opening chapter of the most relevant works on the topic. To assert the fallacy that man must act "rationally" is to assert nothing more than ignorance about what free markets are and what they are not.
It's not about possibiliteis being restricted. That was not the point. The point was, you can imagine living in a world without computers? Without cell phones?
Non sequitur.
So much science and research is subsidized. Just go to Forbes 500 and try to find a company that deals in an economic branch where there hasn't been any subsidization.
Because it is does not mean that it must be. All government funds are expropriated from the private sector. When a government is taking up to half of the funds in an economy and putting them to work, can you really suggest what the private sector would or would not have done with thoses resources given the chance?
So you see, it is about restricting possibilities, because rather than leaving everyone to freely choose how to employ their capital - letting everyone use their imaginations - much of it is expropriated by the state and put to uses IT deems as "rational" or "worthwhile", removing that choice from the people who originally owned those resources.
It would be like me taking $100 from you at gunpoint and then buying you a new suit with it - then turning around and saying : gee, look at that nice suit you have! You certainly would not have had it if I had not forced the choice to purchase it on you. Maybe you would have it, maybe you wouldn't - the point is that we will never know. If you did want the suit, you probably would have bought it anyway. If you didn't, you would probably have bought something you would rather have had and been happier for it. At best I can predict what you want and at worst you get something you don't want.
How is me explaining how you missed the point non sequitur?
The idea of free markets is that they are effective utilizing the judgment of the people. It's mainstream free market thinking that this works through rational self-interests. And both are not self evident. And without these two the proposed system has no mechanism by which it operates.
As for subsidies, I don't get your analogy at all. Why would industry not let the governemnt take the risk? Why would they do it themselves?
But the point is that true free markets don't exist and while they may work in theory, it's at least worth trying, it's always used by a powerful institution as an excuse to restrict someone else: "Free markets for you, not for me." This crisis is a perfect example of that.
If you want to argue for theoretical free markets, go ahead. But it's not much different from argueing for actual communism. In the end we have the 'free markets' we have now and the 'communism' we saw in the past.
And in the mean time you still have on you the burden of proof how free markets would have prevented this crisis. And even if it did, economics are difficult enough to manage that it would be much more convenient to prevent the crisis through other means. You need to regulate to get free markets since there are too many greedy people. And if you can do that then why would the problem of this crisis even come up?
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Ooh I thought you were quoting Smith. So I was right.
EPT
