libertarianism empirically disconfirmed?

[professor ganson]

Don't get me wrong: I'm a huge fan of personal liberties, and so often find myself on the side of libertarians. At the same time, it just seems evident that failure to REGULATE the financial markets has resulted in disaster here in the US.

Of course, the fall of the Soviet Union strongly suggests that the other extreme is no better.

I admit: I'm not an economist. (My expertise is sense-perception.) It's just hard for me to see how libertarianism is supposed to be a plausible empirical theory when it is quite evident that markets do not take care of themselves.

[Ed Oscuro]

Today on NPR some econ student in New York suggested he'd have become an actor if he had known that wage caps for financial CEOs were in the offing. Myself, I yelled "GOTCHA, SCUMBAG!" at teh radio.

Anyway, this looks like offshootism of the bigbag econ thread, no?

[Ganelon]

It's more like greed combined with stupidity (for ordinary people, investers, lenders, insurers, etc. outreaching their means) causing this mess. In a more just world, nobody would bail these idiots out and they'd plummet (well, there'd be rampant chaos too but I think that's a just price of failure). Unfortunately, there'd be plenty of bystander damage too but all the folks who foresaw disaster (as predicted years ago) would definitely be in the clear.

My point? All these recent occurrences are fair and natural consequences of free markets. If you take big risks, you sometimes win big and you sometimes lose big, as was the case here. It's no more worrisome than if a whole bunch (thousands) of people decided to go to the casinos and gambled their savings away with other folks betting on them winning and giving them money. Do I think it's the government's job to protect them? No, I'm for small government and individual responsibility. But if you always give everybody a free pass for being idiots rather than let them take the consequences of their actions, then why wouldn't folks take whatever risks they want?

Naturally, regulation would've kept this situation from ever occurring. But why would you want your liberties impeded by big government? In a reverse situation, the government could hamper your ability to win big as well if they had more control.

[Ed Oscuro]

The other day a bunch of Frenchies and other Euros were on NPR crowing about how the U.S. market was "fundamentally" different from European ones; ours being (predicably) based on lame "consumption and credit," where the great European economy was based on exports and other great stuff.

And the Economist had a crack at the U.S. as well, noting that after decades of complaining about heavy regulations overseas, the U.S. is "nationalising financial business faster than you can say 'Hugo Chavez.'"

Of course, credit is there to give people the means to live beyond their immediate means; but that doesn't mean it's a bad thing. The two remaining investment banks which have decided to become regular commercial banks did not cause (so it's said) or directly contribute to this crisis, but they've decided that, for the short term at least, investor confidence is not where they'd like it to be in order to keep that business going.

The fundamental issue here, I think, is that it's easy to have high profit margins, or stability, but having both at the same time is tricky. There are plans in the offing for giving the owners of the mortgage-backed securities a fair deal while giving the taxpayer something in the future as well (i.e. stocks from companies being given higher than market price for these investments, with the plan being that on a return to prosperity we make some money back from the $700+ BN).

But I think it's important to repudiate this simple idea that stability is a great thing to aspire to. As long as the world's population grows and commodity prices increase, stability and lower levels to growth aren't going to help out. It is worth mentioning that the innovation in nitrogen-based artificial fertilizers has seen a rise and decline in capturing the popular imagination, and so it's always worth questioning when we are living outside our means. But this, eh, a bunch of people got on the fuckup wagon and that's taking down the whole show.

[Daedalus]

Don't get me wrong: I'm a huge fan of personal liberties, and so often find myself on the side of libertarians. At the same time, it just seems evident that failure to REGULATE the financial markets has resulted in disaster here in the US.

Very heavy stress on the word "Seems". The bumps in our current system aren't exactly flaws, but design choices. Yes, we could do things to prevent this, but then we open ourselves to a whole other host of problems. The evil that you experience always seems worse than the evils you are protected from.

Also, financial markets are very well regulated. What we have in these situations are bad business decisions, coupled with unpleasant business conditions. No amount of regulation is going to make an army of clairvoyant CEOs who make every decision perfect.

Let me share an example. One of the principal problems in these bankruptcies is too much debt, and too much of it bad. To prevent this from happening in the future, the ostensible solution is to limit debt, right?

This will have a host of repercussions. A person who needs to buy a house or a car may not be able to get it because he has less than perfect credit. A business that has the opportunity to expand and create new jobs may not do so because it cannot finance it. Municipalities may not be able to perform necessary civic projects. Investors will get pummeled as stocks underperform due to lack of money and companies stop issuing bonds due to cost. In addition to hurting individual persons and companies, this has a net negative effect on the overall economy.

[BulletMagnet]

Naturally, regulation would've kept this situation from ever occurring. But why would you want your liberties impeded by big government? In a reverse situation, the government could hamper your ability to win big as well if they had more control.

Call me a filthy commie if you want, but if foregoing some remote jackpot was the price I had to pay to ensure at least some measure of security for myself, as well as many others whom my decisions affected, I wouldn't hesitate to take it. Frankly, I find it funny that while conservatives around here are incredibly stingy on "security" (or like to say they are) when it comes to terrorists (sorry, can't allow you to have private phone conversations or guarantee habeas corpus, can't risk Osama taking advantage somewhere down the line!) they have no problem allowing their corporate pals to exploit every loophole in the book...if there are even laws or oversight left to loophole. As I've heard it put, as good a game as conservatives like to talk about free markets and such, they have no problem socializing risks even as they move to privatize profits. There's simply no limit to how far they're willing to go, even in opposition to their own dogmas, to line their pockets, it's as simple as that.

[professor ganson]

Yeah, I couldn't agree with BM more. McCain is so ridiculous on all of this; it's frightening, really.

[Ed Oscuro]

Fiscal conservativism meant limiting government expenditures, not limiting the economy (which would be the contradiction). The "God/Guns/Gays" unholy trio got picked up because it raked in the votes.

I put some credence in the equation that "a house you can't buy = not more value in the market," but the simple math is that at some point the credit markets were adding value and were making things more accessible.

There used to be a time (and there will be a time again) when we favored the memory of firebrands who started up companies and marched on in the face of defeats and bankruptcy to create products and corporations with lasting value. Failure is a part of the American way; the market's ability to bounce back after failure - even when failure costs somebody else their money - the investors - and for an individual to pass that barrier is the thing that keeps F. Scott Fitzgerald's dictum about second chances from being the reality.

The average person probably thinks advertising is a waste. "Why advertise if you have a product you can sell?" One of these topics brings parties; the other brings the backing to make it happen. A good idea or interest alone will not get things moving.

I also think it's pretty strange to say, as Daedalus does, that the cumbersome and baroque system of regulations in this country is in line with good practice. Even if we don't agree that regulations are needed on the capital markets (I can't imagine why anybody would want to invite this to happen again, although only the clueless newbies of investing would buy into these schemes again, which is a pretty important point), the rules could use some reforming.

[Daedalus]

I also think it's pretty strange to say, as Daedalus does, that the cumbersome and baroque system of regulations in this country is in line with good practice. Even if we don't agree that regulations are needed on the capital markets (I can't imagine why anybody would want to invite this to happen again, although only the clueless newbies of investing would buy into these schemes again, which is a pretty important point), the rules could use some reforming.

I don't know about that. There will always be companies that get too free with credit. And most investors won't know, because there will always be CEOs that think they can turn it around. Bad debt, an omnipresent problem in the banking community, has slammed us time and time again over the past century. I don't think we'll be learning anything from this one.

As for reforming the rules, I'm wondering what you think we could do that wouldn't put undue stress and expense on watchdog entities or the companies themselves.

[MathU]

Ron Paul is about the craziest candidate I've ever seen, and he's not even a real libertarian. What are real ones like?

[Ed Oscuro]

As for reforming the rules, I'm wondering what you think we could do that wouldn't put undue stress and expense on watchdog entities or the companies themselves.

It doesn't really matter since I'm just repeating everything I hear on NPR to improve my retention rate

In any case, yeah, there isn't a way to "fix" risk, that's just absurd. Enough people get on the same flawed train of thinking and bad things will happen; but you can't predict what they'll be beforehand nor is it really advisable to shut down whole categories of finance because of the jitters.

[Neon]

'disconfirmed' sounds awkward, i suggest debunked or something. But yeah.

I don't mind a little economic slowdown. What was that stat where the US would require like three earths to keep consumption at current levels? There's something wrong in the world when 1/3 of us are fat while people in Haiti are eating cakes made of dirt.

[Acid King]

The idea that libertarianism is "empirically disconfirmed" by one period of economic stress in one economy at one period of time is silly, especially considering the fact that the US economy is not, in any sense of the word, libertarian nor is it "unrestrained capitalism" as so many claim. It's not nearly as cut and dried as you're making it out to be.

[professor ganson]

'disconfirmed' sounds awkward, i suggest debunked or something. But yeah.

It's just jargon from philosophy of science. Perfectly good English, but probably not too familiar to most.

[Ed Oscuro]

cakes made of dirt.

We're doing better up here, Walt's Leaves of Grass are quite tasty.

But yes @ Acid King, sillyness abounds in this topic.

Of course, as I stated before, some in Europe are having a field day with this.

[BulletMagnet]

The idea that libertarianism is "empirically disconfirmed" by one period of economic stress in one economy at one period of time is silly, especially considering the fact that the US economy is not, in any sense of the word, libertarian nor is it "unrestrained capitalism" as so many claim. It's not nearly as cut and dried as you're making it out to be.

Obviously the blurbs here don't cover every nuance, but seriously, haven't we seen enough real-world evidence (not just now, but during the Great Depression and via other minor recessions, a la Reaganomics) to at least laugh anyone out of the room who still claims that leaving businesses unregulated to the largest extent possible will inevitably result in the best outcome for everybody, and that their unerring devotion to free market principles ensures that the worst among them will be weeded out "naturally" (i.e. they'll never ask for, let alone demand, a government bailout in exchange for their longed-for freedoms)? Can we at least say THAT much?

[professor ganson]

The idea that libertarianism is "empirically disconfirmed" by one period of economic stress in one economy at one period of time is silly, especially considering the fact that the US economy is not, in any sense of the word, libertarian nor is it "unrestrained capitalism" as so many claim. It's not nearly as cut and dried as you're making it out to be.

Obviously the blurbs here don't cover every nuance, but seriously, haven't we seen enough real-world evidence (not just now, but during the Great Depression and via other minor recessions, a la Reaganomics) to at least laugh anyone out of the room who still claims that leaving businesses unregulated to the largest extent possible will inevitably result in the best outcome for everybody, and that their unerring devotion to free market principles ensures that the worst among them will be weeded out "naturally" (i.e. they'll never ask for, let alone demand, a government bailout in exchange for their longed-for freedoms)? Can we at least say THAT much?

Agreed. At the very least, the burden of proof is entirely on the side of those who think an extreme libertarian position is defensible. Show me that nearly everyone is wrong in thinking that a failure to regulate accounts for the current (not to mention past) crises.

[Acid King]

Obviously the blurbs here don't cover every nuance, but seriously, haven't we seen enough real-world evidence (not just now, but during the Great Depression and via other minor recessions, a la Reaganomics) to at least laugh anyone out of the room who still claims that leaving businesses unregulated to the largest extent possible will inevitably result in the best outcome for everybody, and that their unerring devotion to free market principles ensures that the worst among them will be weeded out "naturally" (i.e. they'll never ask for, let alone demand, a government bailout in exchange for their longed-for freedoms)? Can we at least say THAT much?

We really can't since there are all kinds of disagreements about about what actually caused our current problems, the great depression and the "minor recessions" you cite. God only knows how many economists would say that Roosevelt's intervention in the market exacerbated the depression. Not only is the government bail out is incredibly anti-market, since it picks and chooses who is weeded out whereas a failing company will simply fail and die. You wouldn't have businesses sticking their hands out if the the government wasn't in the business of interfering in the market.

Besides, social sciences aren't hard and fast like that. Until someone actually quantitatively suggests otherwise, it will remain a viable theory. Even then, it will take years and years of replication before a consensus is reached. It may have been disproved in the minds of arm chair economists, but any social scientist or economist worth his shit could tear holes a mile wide in that suggestion. There are way too many factors to consider to say something like that at this time.

[Ed Oscuro]

tl;dr'ing my own post:

I agree that the actions of the Fed haven't been consistent, but anti-market? That's a stretch - remember that Lehman was left to fail by both the Fed and the private sector. Then there's the matter of the last two investment banks - Goldman Sachs, and Morgan Stanley, hanging it up (for the time being) and asking the Fed for the protections given to all other regular commercial banks. Henry Paulson has had consistent reasons for doing what he has; saving the taxpayer money was the reason he chose to let Lehman fail - even though we only needed to throw a dozen billion at it (or something - I don't remember the figure, but it shouldn't have been more than $10BN).

AIG, on the other hand, was simply "too big to fail." Everyday consumers would suffer the ramifications of the failure, even as we're certain to suffer the consequences of the bailout (but at least that provides a chance at recouping some of the costs via stock options for the Fed).

I will note - and hopefully we agree here - that Paulson's intention of stopping short-selling is short-sighted, even retarded. The market punished stocks as far as it dared with short-selling; some of that was piling-on and it's not clear that anything but the Fed's announcement of the bailout stopped it, but all the same it was possibly a needed readjustment.

[Acid King]

I agree that the actions of the Fed haven't been consistent, but anti-market? That's a stretch - remember that Lehman was left to fail by both the Fed and the private sector. Then there's the matter of the last two investment banks - Goldman Sachs, and Morgan Stanley, hanging it up (for the time being) and asking the Fed for the protections given to all other regular commercial banks. Henry Paulson has had consistent reasons for doing what he has; saving the taxpayer money was the reason he chose to let Lehman fail - even though we only needed to throw a dozen billion at it (or something - I don't remember the figure, but it shouldn't have been more than $10BN).

Anti-market in that bail outs are intervention in the marketplace. I'm not placing a value on the statement, just stating it as an example of how the government manages the economy and that the government is not, and has not engaged in the kind of free market capitalism or "extreme libertarianism" (which is a fucking bullshit misnomer since libertarianism is largely a social, not just economic, philosophy) we see held up as their supposed model. We may have fewer restrictions than other countries, which I am not even sure about, but that in no way tags our practice as the sort of unregulated "capitalism gone bad" people hyberbolically call it.

[Ed Oscuro]

Anti-theoretical-free-market, then, which as you've said is something that doesn't exist in the real world (nor can it ever, as I think we all agree, just as a completely centrally controlled and planned economy is impossible). I get why you're saying this, and that this wasn't your meaning, but anti-market suggests that it's just anti- whatever market is in place.

[BryanM]

Moderate Socialism is the ideal. The idea that people can take care of themselves is absurd.

[captpain]

Your answer is "no".

[Stormwatch]

Moderate Socialism is the ideal. The idea that people can take care of themselves is absurd.

People are too stupid to make decisions for their lives.

Therefore, the government (which, like soylent green, is made of people) must take care of them.

Does not compute.

[BulletMagnet]

God only knows how many economists would say that Roosevelt's intervention in the market exacerbated the depression.

I'm sure you have a link or two to write-ups on this that you could recommend - though as I've said before, I'm not an economics expert, but I'm still plenty eager to see what sort of evidence these guys present to support their case. In any event, if placing accurate blame for economic downturns of this nature is as difficult as you say, one can presume that their arguments are no more provable or viable than those on the opposite end of the spectrum, since it'll be ages before we have enough hard information to speak anything accurately on these matters. This sounds vaguely familiar to the tune that many global warming skeptics sing...so how long will be long enough? How many times does the economy have to tank before we can say what did it, let alone actually do anything about it?

In the meantime, however, what do you (and they) suggest we do? And should it be totally off the table to at least make a note of the main, huge factor that all these periods of recession have had in common?

Not only is the government bail out is incredibly anti-market, since it picks and chooses who is weeded out whereas a failing company will simply fail and die. You wouldn't have businesses sticking their hands out if the the government wasn't in the business of interfering in the market.

The thing is, corporations and the like are constantly moaning about how the government should keep its hands off of them, and under the current administration (and previous ones like it) it's largely done just that...at least in terms of allowing them to engage in questionable (but profitable!) practices to their heart's desire. At the same time, however, to cite one example, the ("economically conservative") government protects private insurers from competing directly with Medicare, which is about as "anti-market" as you can get - but do any of those insurers complain about this? Quite the contrary, if memory serves - as I said before, all these so-called "hardcore capitalists" have no problem spreading risk to others or allowing the government to stack the deck in their favor, even when there's no arguable reason to do so, but whine like babies whenever anyone suggests that they ought to also experience the flipside of whichever coin they choose, rather than simply keeping the advantages and passing the downsides on to the general public.

"Anti-market?" Sure, but the "free marketers" are loath to complain, as long as it's to their advantage. Doesn't this speak to their credibility on these matters just a LITTLE bit?

[Ed Oscuro]

Huh...actually just a few days ago I was pissed that this hadn't happened, but it doesn't really make Obama look good, does it:

http://www.cnn.com/2008/POLITICS/09/24/ ... topstories

We'll see what happens...

[BulletMagnet]

Why would it make Obama look bad? If I read the article correctly, he hasn't yet responded to McCain's proposal...

Though how about this - imagine for a second what the reaction would have been if Obama had been the one to propose the suspension?

"He's getting desperate!"

"An obvious, calculated play for attention, to take momentum away from McCain."

"Typical liberal showmanship without substance."

Tell me I'm wrong.

[professor ganson]

We really can't since there are all kinds of disagreements about about what actually caused our current problems.

But there ISN'T much disagreement, in fact. To doubt that a failure to regulate is the cause-- that's a fringe view, akin to doubting the widely accepted views about global warming. Even Bush concedes now that there are human causes of global warming and that we need greater regulation of the financial markets.

[Ed Oscuro]

Tell me I'm wrong.

Different people will take it different ways, of course.

And I'm not aware (quick Google check confirms this), so all that they could likely accomplish is get in the way of Sen. Dodd's Committee's work.

Anyway, I think this is Obama's semi-answer to McCain's challenge.

moar on McCain's proposal.

It really does seem like an attempt at grabbing the party leadership, now that I look at it more carefully.

[The n00b]

We are a country that pay people millions to play what are essentially children's games (basketball, football, and baseball). It's okay, nobody gives a crap about these guys. We laugh when they waste all their money on "bling." Good times, eh?

However if a guy works his ass off through school. He develops enough of a reputation of success in his career to actually be considered CEO of a company and America hates him. Or rather I'd say blue collar or "working class" America hates him. The way the lower classes in this country mock education just blows my mind sometimes.