economics free market freedom of choice

Fascism vs. socialism

Just to pick up on my last post, it’s important to remember the differences between these two evils. In socialism, the government is the supplier of goods and services. Under a fascist government, the government controls businesses in order to further the aims of the government. So, nationalized healthcare where the government is the only supplier of hospitals, doctors, medicines, etc. would be an example of a socialist program. The current bank issues don’t really fall into that category, the banks still exist outside of the government, and there are plenty of banks that are not involved so you can choose one of them if you want.

Fascism is all about the vision of “the country” by the powers in charge. The basic philosophy can be summed up in that awful speech by Kennedy, “Ask not what your country can do for you, ask what can I do for my country.” This was considered uplifting and inspiring at the time. People quickly figured out what it really meant when the government stopped asking and forced people to go die in Vietnam. Nationalism is intrinsically tied up in fascism. The belief that the state is the most important thing and that citizens exist to further the aims of the government is the driving force behind fascism. Can you see why I worry about this so much?

The purchasing of bank shares is rather ominous in my mind. There are some technical issues that need to be addressed. Will the treasury have voting shares in the bank ownership? If regulators feel that a bank is being mismanaged, will they need to bring suit against the treasury department? Can the same branch of the government sue itself?

More worrying to me is the political pressure that could be brought to bear in bank operations. It would be far better to allow those banks to go under. If banks are left alone, ones that are badly managed will go away either through bankruptcy or being bought out. There is the worry that banks that the government have a share in will no longer be as worried about little things like making a profit but will be used to further political ends. Sounds ridiculous? Look at Fannie and Freddy, economists have been warning us of the eventual collapse of those institutions for decades. Because they were tied to the government and had to follow government mandates, we all pay to bail them out.

Why does it matter? With enough government money being spread around, it impacts you and me in the long run. All of these things need to be paid for eventually. We could raise taxes, the government could just print more money (and then we get all the wonderful effects of inflation to deal with) or the government could just default on the loans. None of those things are good, and they’re all avoidable. All we have to do is not fall into the trap of relying on the government to solve things. The line of what should be the realm of government and private enterprise has been dangerously blurred…

economics free market

It’s late and I’m not thinking straight…

I’ll write more on the bank thing later, but I do want to say something now about the ongoing banking thing. I’ve heard some people worried about the “socialist” implications of the government owning parts of banks. I think the thing we need to worry about more is fascism. The government using private businesses to accomplish aims that are important to it. Surely the government knows what’s best, surely they will do what is in the best interest of us all. We should always worry when the government starts to exert new controls. At what point do those ownership shares get subjected to the political process? Be afraid, be very afraid…


Riddle me this…

What are we improving with the bailout? The thing that “sold” the bailout package was the fear that credit would be hard to come by. Of course, banks are still lending, and if you have good credit, there are banks that will lend to you. Well, then we started to hear horror stories about not only large organizations failing because credit had been cut off, but smaller businesses too. I heard worries that companies wouldn’t be able to make payroll because of a credit crunch. Really? No, REALLY?

I’m really hoping that it isn’t a common business practice to use credit to cover regular operating coasts. I understand the need for credit, especially for buying inventory. A company buys things and then they have 30 days to pay for it. Thats a really short term form of credit, and it’s between two businesses, banks are not usually involved. Businesses can get loans based on outstanding bills, and I can understand that being cut off when there’s a credit crunch. But really, credit shouldn’t be used for regular things like payroll. I can only think of two reasons to do that.

1) Businesses really are strapped for cash and credit is what they need to grease the wheels.

2) Credit is so cheap that you might as well make use of it.

I’m guessing that #2 is the more likely. So here’s the question, do we really want to revert back to a point where credit was so cheap and easy that it is used as a matter of course? Wouldn’t we be better off if businesses were required to mostly operate out of cash flow? I’m still wondering what the long term consequences of this bill will be. I’m wondering if the old status quo (which is what we are trying to get back to) is what caused so many people to go into excessive debt and make so many businesses reliant on credit.

For example, I’ve been lead to believe that California is having trouble finding someone to give them loans. Here’s the thing, California has an enormous debt. before all of this stuff happened, they never considered the possibility of the state not being able to get a loan. Now that the credit markets have shrunk, they can’t borrow any more. Isn’t that a good thing? Under the old system, they were able to go further and further into debt, how is that better? My gut feeling (and this stuff is still too diffuse to go on anything other than gut feelings) is that propping up bad debt is going to lead to even more bad debt. We should take the hit, write off the bad debt, and start again with the more conservative credit system that is developing…

economics free market


If I hear “This whole mess is caused by greedy capitalism run amok” one more time, I am going to scream. I don’t know how many times I have seen the terms Laissez Faire and greed together lately.

First of all, there is a huge difference between Laissez Faire and corporitism. Laissez Faire puts the emphasis on competition. Businesses thrive and fail on their own merits. This is rarely ever mentioned in government circles, what is usually put into place is corporitism. That puts the emphasis on protecting a certain business or sector. Often times, this is masked behind “protecting” the consumer by various means. In any case, a company or group of companies benefit at the expese of all of us. This is what Republicans are famous for. People on the left tend to mistakenly refer to those things as “free market” policies. Here’s a hint, if it benefits a business, it isn’t free market. Businesses hate free market reforms, it means less money for them.

The next thing I would like to address is this; if you think that government regulations had nothing to do with this debacle, you’re delusional. People will always try to make as much money as they can. Is that greedy? When you sell your house, do you sell it for as much as you can get? When you work, do you pick a job that benefits you the most? (Benefits and profits are essentially the same thing, see here for an explanation…) Congratulations! You’re a greedy capitalist!

People work on Wall Street to make money. That sounds obvious, but think just a little bit, people come from all over the world to make big bucks in NYC’s financial sector. Think what you want about those people, but their activities have enormous repercussions throughout the world. Their “greed” propels most of the jobs in the US and probably the world.

You can’t legislate away greed. They will do what makes them the most money for the resources that go into it (capital, time, etc.). Government regulations have shaped what is profitable and generally distorted the entire financial sector. Without going into too mucuh detail, the existence of Fannie and Freddie, tax codes that pertain to real estate, mandates to lend to certain groups of people, and of course the Fed’s monetary policies over the last decade have all come together in the perfect storm.

Once again, this mess can be laid at the feet of government meddling. The economy is not a machine that you can steer. A better analogy would be that the economy is like water flowing downhill. You can try to divert it, and you can try to make it work for you, but it will flow all the same. What we are seeing is the flooding caused by government diversions and dams. The bailout will make things worse long term, who knows what unintended consequence will come out of this intervention. It’s best to allow things to die a natural death, clean up after, and then get back to work without government distortions in the market…

PS. Im not saying that the people and companies involved in this collapse weren’t idiots. Companies make mistakes every day. Most banks did not make these mistakes, but a handful of large ones did. Whenever you hear the phrase “too big to fail” you can be sure we are operating under corporitism. The banks that exposed themselves to this kind of risk should go under, no bailout should be considered..

economics free market

Wealth disparity

There are a lot of people that complain that there is too much control held by wealthy people. I don’t really think it’s that big a deal, if there is buying of power I don’t think the people buying it are as bad as the ones selling it…

Anyway, if you are someone that worries about power being controlled by a few people with money, you should be livid at the prospect of $700 billion being handed over to the treasury secretary. Talk about too much power in someone’s hands! The money part of this whole debacle is infuriating, but the power issue is really scary IMO. I’ll give Paulson the benefit of the doubt and assume that he’s a decent, upstanding guy, but no one should have that kind of discretion with that amount of other people’s money without their say so. To me, this is the last piece of W’s legacy, government power gone amuck. I’m really hoping that this whole mess will finally wake people up. Government needs to be reigned in, there has to be hard limits on what they can do. I hope that this isn’t too expensive a lesson to learn…

economics politics

The senate has done it..

They passed their version of the bailout bill. Some of the additions are comical. There is a tax benefit for bicycle commuting in there as well as an extension for a renewable energy tax credit… These are clearly needed to help save the economy and help wall street… Gah, this better not pass the house.



Warren, over at Coyote Blog pulls no punches when talking about the bailout. Here’s his response to a democratic friend of his lamenting the republicans not getting together to pass the bailout…

“I find it surprising that you take this administration on faith in its declaration of emergency in the financial sector. You’ve lamented for years about the “rush to war” and GWB’s scare tactics that pushed, you felt, the nation into a war it should not be fighting, all over threats of WMD’s that we could never find. You lamented Democrats like Hillary Clinton “falling for this” in Congress

But now the mantra is the same – rush, rush, hurry, hurry, fear, fear, emergency, emergency. Another GWB declared crisis in which the country needs to give the administration unlimited power without accountability and, of course, stacks of taxpayer dollars to spend. A decision that has to be made fast, without time for deliberation. Another $700 billion commitment. And here the Democrats go again. Jeez, these guys may have the majority in Congress but it is sure easy for GWB to push their buttons when he wants to. Heck, Pelosi is acting practically as the Republican Whip to get GWB’s party in line.

This is Iraq without the body bags, and without the personal honor of brave soldiers in the trenches to give the crisis some kind of dignity.”

So Warren, what do you really think? I think he overstates why dems are chomping at the bit for this bailout, but still, it makes one wonder. You’d think we’d learn by now….

economics free market

I’m glad it didn’t pass

I really am. People should be very suspicious whenever the government wants to give money to businesses. Whether we’re talking about farmers, car makers, or investment bankers, it always stinks. Luckily, people in the “I hate rich people” camp are objecting to it too. It’s an odd combination, fiscal conservatives and wealth redistribution types, but hey, whatever works…

I’m still not sure what I’m supposed to see that is so good in the bailout. People made a lot of money assuming the risk of those bad loans, why are we now considering helping them now that the chickens have come home to roost? It was their call, they should bear the consequences.

I’m not dogging them for taking risks. At some point, if you want to invest, you will have to take some risks. It’s up to the organization to determine how much risk to take. Clearly, wall street as a whole took on too much risk. But not all banks did. That brings me to my next point. People say that we need to do something, otherwise the credit markets will dry up and the economy will grind to a halt. There’s a few problems with that thought, first, contrary to the panicky headlines everywhere, not all banks, not even most banks are having problems. This article from WaPo talks about how many banks are having no problems lending. As a matter of fact, they are “drowning in liquidity” because people are liquidating assets they think are risky (like stocks, more on that in a sec) and putting the money into the banks. Imagine that, there are some banks that are run properly, who would’ve thunk it?

The other problem with the “we have to prop up the credit markets” schtick is that the organizations that lend money to make money have to, well, lend money. Think about it, if the business is in the business of lending money to make a profit, they will have to do something to stay in business. In other words, they’ll figure it out. Even if there is a credit freeze, the industry will thaw itself out.

But what about the stock market? We have to do something to stabilize it!!! Yes, the stock market plunged (that’s the only good word), but I’m of the opinion that it was going to do that anyway what with the mismanagement of all of those banks. Do we really want a “stable” stock market is it requires the backing of all US taxpayers to keep it stable? Really? There was a lot of selling selling yesterday, but remember this, for every sale there must be a buyer. People are willingly buying up stocks. Admittedly, at the right price, but still, people still think there is value in them. There was a predictable bounce today (at least early on when I wrote this), a good trader made a killing yesterday and today… Anyway, unlike the bailout, all of those transactions are voluntary. Investors can examine the risks and invest in what they want.

If there’s one thing that Wall Street does well, it’s salvage jobs. If there is something that is worth money offered at the right price, someone will buy it. We should allow that to happen. Let the companies that screwed up go under and let the people that didn’t screw up (JP Morgan, I’m looking at you) prosper. Yes, there is going to be some turbulence and some pain, but we don’t need to add to it or prolong it by sinking taxpayer’s money into it too…

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Anti-goughing bullshit

Just the other night, my mother remarked “People that deliberately raise prices during an emergency should be arrested.” I didn’t feel like getting into it at the time so I just told her that it was a more complicated situation than she was allowing for. Well, here it is a few days later and guess what? Many gas stations around here are running out of gas!

Why do you think that is? “That’s obvious Isaac, there was a hurricane that disrupted the gas supplies.” Yes, that’s true, but it’s only half the reason. There is less gas, but the other important point is that people kept using it at the same rate they always did. The result? No gas.

This is not unavoidable. There is no reason to run out of gas even when there is a supply crunch. Let me try to explain it this way. People kept using gas like they normally do because there wasn’t any obvious sign that there was less gas to go around. If people had read up on the wholesale gas situation, they may have decided to conserve since they knew it was going to be in short supply. Let’s forget the fact that no one reads that kind of stuff, they wouldn’t conserve even if they had. In fact, they would have tried to consume more. Why? Wouldn’t you? If you knew that we were going to run out of gas soon, wouldn’t you try to get some while there were supplies?

So the trick is to tell people that there is less to go around AND make them willingly conserve. How in the world do we do that? RAISE THE EFFING PRICE FOR GOD”S SAKE! High gas prices are not a crisis, no gas is. When you raise the price, people will use less of it. And here’s the real beauty of it, it doesn’t matter why the price is higher, people will automatically conserve in reaction to the higher price. All the information you need to have as far as how scarce something is, or how in demand it is, is reflected in the price. If the price is “high,” you know it is in high demand or there is a scarcity of that thing. People will use less of it with a higher price, and the demand will slack off and the price comes down eventually.

It works really well, that is unless there is government interference in the pricing system. Due to so-called gouging laws, retailers cannot raise the price as far as it should be in order for gas to be readily available. So I hope that everyone that supported this law is happy about having to scrounge for gas. Actually, that’s just a dream, I know full well that those people will never put these two things together…

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culture economics politics

I’m reading a new book

It’s a little light reading entitled “The Logic of Political Survival.” I had heard of this work before and it intrigued me. In it, De Mesquita et. al. tries to explain how bad policy is often good politics and how good policy is actually bad politics.

He takes a rather cynical view of politics (something that I can identify with) but it works rather well for explaining things. It turns out that if you see governments as essentially collecting taxes and then distributing them, you can make sense of what most governments do most of the time. This applies to the worst autocracies and dictatorships as well as to the highest functioning democracies in the world. It’s nice to see a theory that applies to all types of governments.

I have never really read any political science work before, but I’m diving into the deep end. Bruce De Mesquita is actually a controversial figure in this realm. As far as I can tell, he has gained this notoriety by actually using mathematics to formalize his theories. Game theory is very well known to economists, but it has come very late to the political science realm. Deep down, I wonder if the people that oppose this approach resist because they can’t handle the math. It wouldn’t be the first time that’s happened…

This is one of two political science books that I have wanted to read for a while. I own the other but have never gotten the chance to read it. “The Calculus of Consent; Logical Foundations of Constitutional Democracy” by Tullock and Buchanan (Buchanan won the Nobel prize for it) started the entire field of political economy. In short, they had as their premise that politicians are motivated not by altruistic thoughts but by self interest. Their ability to accurately predict how government bodies act pretty much proved that their approach is sound. It turns out that politicians aren’t saviors, who knew?

I think that books like this should be mandatory reading, especially during an election year. I’ll report back with any amazing things I learn as I read…