No Time for Utopian Anti-Interventionism

[bart]

Re: No Time for Utopian Anti-Interventionism

You are an anarchist, not a Libertarian.

There is nothing in what he said that I saw that shows (except perhaps by implication) he believes that all forms of government are oppressive and undesirable and should be abolished, which is the primary definition of anarchism.

I have very major problems with the current bailout/rescue plan myself.

[grapejelly]

Re: No Time for Utopian Anti-Interventionism

You are an anarchist, not a Libertarian.

I believe in free markets. I believe in free money. And free banking.

The present problem was caused entirely by money created by banks out of thin air, resulting in the "FIRE economy" and moral hazard run amok.

The current bailouts, including the one that nobody voted on and that the Fed is executing with other central banks, are being done by people whose livelihoods depend upon the gravy train FIRE economy.

The rest of us are its victims.

Irving Fisher who you brought up was a huge inflationist. Rothbard said he promoted reflation, devaluation and leaving the gold standard.

Fisher prophesied doom with deflation just as you do, and for similar reasons.

It's all about blind panic and I have to say, self interest. Please understand that what I am about to say sounds very critical and I don't mean it that way. But it is very serious and I will say it anyway.

If our friends are in the FIRE economy, and our colleagues, and the people in our social circle, we cannot help but panic when the FIRE economy is all of a sudden "put out".

Rothbard writes that Fisher married an heiress and that "had F.D.R. followed Glass we would have been pretty surely ruined." (Carter Glass, of the Glass-Steagall fame, was an adamant opponent of FDR's inflationary policies.)

And that goes to the heart of the matter. It is a class matter, is it not?

Most of us Main Street types don't understand why a freshly minted MBA should make $90,000 or $150,000 per year right out of college.

Or why the CEOs and presidents of failing banks should make $20 million.

Or why Paulson is worth over $500 million. Or why someone can make a billion smackers on a single deal when they don't "make" anything.

We don't understand where that money comes from. And we don't have it ourselves. So it is the FIREs vs. the No-FIREs.

It is a class struggle.

Precisely what happened to our Congress: they heard from the literally 98% who do not consider themselves "on FIRE". They didn't want to face the wrath of the plebes.

On occasion, the ruling elites get shaken up and stirred. Thrown out. Heads cut off. The result is usually worse than it was before. But they went too far.

There will be bailouts anyway. This is all nonsense because we both know that there will be bailout after bailout. My point is that they are wrong and they crowd out private investment and prevent the unwinding of the huge malinvestments that have gone on.

[Guest]

Re: No Time for Utopian Anti-Interventionism

Are there Libertarians outside of the First World? I always thought of it as a First World luxury.

Too true. It is highly associated with the individualism that is only enabled by socially-generated wealth. Call it the libertarian blind spot...

LOL! "I always thought of it as a First World luxury"! Spot on, Don and Sabocat - both digging sharp barbs into the unconscious American conceits here. Lots of really good things in Libertarianism, but must be kept firmly grounded to the reality which so many other economies experience. Economic bombs bursting, maim and kill inordinately and indiscriminately. Beware that you "true-blue" libertarians have gauged the realism vs. the potential conceits accurately!

[grapejelly]

Re: No Time for Utopian Anti-Interventionism

I don't want $2700 of my money given away to the bankers right now. Call me a Libertarian. I don't want them stealing purchasing power from my bank account. I don't want them bailing out people who never worked a day in their life building their own small business or working a real job.

I have sat in First Class next to these World Banker types and these finance execs. Never a more smug lot you will find. Now they are getting their commupance. And it's good because it was all at your expense and my expense, Lukester. We have paid for this too long.

[orion]

Re: No Time for Utopian Anti-Interventionism

You are an anarchist, not a Libertarian.

I think it can be hard to tell the difference. I see that every time I try to reason out the illegal drug issue vs personal use, but that's another story.

I say kick back and play with your buckets (This is not sarcastic, I really liked that article and I am busy working on mine now).

http://www.itulip.com/forums/showthr...0417#post50417

Now matter is done this thing will crash and burn. Subprime, CDS, XYZ, these losses will be enormous. And I think the politicians want to get the chance to throw entitlements on the fire before we hit reset button.

[bart]

Re: No Time for Utopian Anti-Interventionism

Irving Fisher who you brought up was a huge inflationist. Rothbard said he promoted reflation, devaluation and leaving the gold standard.

Fisher definitely had his problems and blew it badly on predicting the depression, but he did own up to it and come back with the debt deflation theory, and in my opinion it holds water.

I disagree that Fisher is a huge inflationist and also disagree about reflating. Fisher was talking about bringing price (not stock) levels back towards 1929 levels from severely depressed 1933 levels, and although technically that is reflation it's quite a stretch to say the least.

Rothbard and other Austrians also have significant shortcomings. Amongst them are things like not considering money markets funds as money, which leads to really strange outcomes. One would be selling some stock and then transferring half to a checking account and half to an MMF, which leads to only half of it being considered money.
Another is ignoring the workability and truth of the very strong relationship between M2, M3 and corrected CPI - monetary aggregates do have a clear function and much validity.

Please don't get me wrong too, I like a lot of what the Austrians have to say but a bottom line on virtually every school of economics was summed up well by Galbraith: "Economics exists to make astrology look respectable."

[sunskyfan]

Re: No Time for Utopian Anti-Interventionism

It appears that the world is coming to economic terms.

Dramatic. Unbelievable. What is going on?

The basic narrative or explanation is that a housing bubble formed in the ffice:smarttags" />US and that this bubble has popped causing a cascading of good loans into bad ones.

I think that this is an incorrect narrative.

I think that the bubble that formed was in the Financial Sector. But before we dig into that and the consequences of it let's examine something that maybe I, as a computer analyst who has spent nearly 25 years making a living in this area may have to offer.

Computers have had a great impact on civilization. They seem to have a magical qualities in the abilities of people and systems of people to manage environments, information, and automatable tasks. I think most of the magical illusion comes from the automatable task regime. I am talking about ATMs, gas pumps, and the self check-out line at the grocery store for the consumer, that kind of thing. Also, in industry productivity per man hour of companies has gone up many fold due to robots and tracking. Even in warfare computer technology has enable very sophisticated weapons systems allowing precise destruction and projection of power unheard of before by such a small military. Most of the time these uses of computer technology all have a very functional quality that has an easily measured outcome of success or failure. Sometimes it does not.

There is another use of computer technology that does not have such an easily measured outcome of success or failure. Everyone experiences it everyday and many of us use it to make a living. It has to do with thinking, meaning, and protocol. Let's use a short and call this TMP. We all understand that TMP has economic value. We have for many years know this and have tried to reward this in our various economic systems. Generally, we try to map TMP economically to what we call intellectual property. This is an attempt to literally value TMP in our economy much like a house or a car or a piece of land has value. This concept kind-of works. I think that the guy, or at least his surviving relatives, who invented the crescent wrench still gets a penny for every wrench sold via a patent. Microsoft's software that implements its operating system and various other computer tools such as word processor and presentation tools (PowerPoint) are another type of intellectual property. Copyrights are another attempt to value intellectual property in an economy. The fact that we don't often consider is that this whole idea of intellectual property is a pretty new concept. The bugs haven't been worked out of the system yet and in fact there is still a debate about what type of intellectual activity can be claimed as property and what cannot. For instance, one of the basic foundations of the United States system is that some intellectual property (speech) must be free! Another is that while people may posses money nobody actually owns the idea of money or the valid right to create money. For the most part we have allowed the problem of TMP to float in the political and even religious part of our lives and once in a while we deal with it in the economic part of our lives.

So, how does this discussion relate to the troubles with the economy? Be patient, I am getting there.

To combine the big stew of ideas and the concept of TMP I have introduced let me ask a question. What if we have finally reached an unignorable crisis between TMP and the meaning and value of money? Few of us would argue that if non-government entities or at least non-government-sanctioned entities started printing money we would have an economic crisis. But, let's back up one more time, and think about who should decide how much money gets created in an Economy or how should it be "injected" into the economy. Keep in mind that of too much money is created compared to the "worth" of the economy then the value of the money shifts in time. Thought there is a lot of chicken-egg arguments this shift causes uncertainty in the value of the money invariably making it worth less (if you are conservative) or more (if you are an optimist) causing inefficiencies. If too little money is in the economy compared to its worth then there is an intrinsic inefficiency due to the fact that too much time is spent finding money itself to use for the transactions of the economy instead of productive time creating wealth. In other words cynicism means deflation and unwarranted belief means inflation. (You might want to keep that in mind to try and decide what to do with your savings in this crisis). Finding the balance is key and creating ways of measure the ebb and tide of the economy due to weather, war, population shifts, brilliant advancements in technologies or techniques, and pretty much the impact of all human existence is the challenge.

When government tries to find this balance it generally fails. It doesn't matter whether you call it communism, socialism, or even fascism the creation of money at least solely in the hands of government doesn't seem to work. Thus, we have the idea of Capitalism. Capitalism puts most of the creation of money in the hands of the private sector based on a few simple rules enforced by the government. The general idea of capitalism is that those who have money get to create more. The rich get richer. This actually makes sense. If I have proven my ability to create wealth then I should be the one who creates the money to measure that wealth in the economy. If I do a bad job then by ability to create wealth gets taken away. This works pretty well if the financial markets are healthy. One other thought is that governments, especially governments closely tied to the people, tend to try and say we are richer then we really are. For this reason popular elected governments tend to make a mess out of the creation of money (thus, the endless debate of the budget and the deficit) even as it is regulating the private sector creation of money. The idea of a central bank, like The Federal Reserve, is to create an ultimately private entity subject to periodic control of the Federal government through appointment of Federal Reserve governors. This creates a hybrid entity to control totally private entities that actually create money under regulation by the government. This hybrid is also protects the money supply from the popular whims of a popular elected government.
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So banks create money when they loan you money for a car or a house. They are authorized to do this by either the Federal Government, a National Bank, or by a state, a State Bank.

Companies create money by issuing stocks. Beyond budget deficits government entities and some huge private entities create money by issuing bonds. Regulated by the SEC.

The premise on all these things is that over time, and the key word is time, the correlation with the money created vs. what is created can be measured and validated. If a company does not perform then the price of its stock goes down. If a city blows money on a bridge that doesn't make economic sense then its ability to create more bonds (more money) goes away. If a bank makes a series of bad loans then its ability to loan more money is diminished if not taken away. Capitalism works because the market itself governs how much money is created. We live and breathe this idea. Why else do we so adamantly and consistently use the phrase "make money" when we talk about being successful in our economy.

So, what would happen if someone found a way to make money without contributing real measurable wealth to the economy?

Well, we are testing that scenario. It has happened. It has happened because we have no mechanisms for checking the power of computers to manipulate the value of TMP in our economy.

And, what would happen if someone found a way to convince you that you could make money simply by being who you are? Your existence is a de facto contribution to the rest of humankind and you can trade this existence for stuff. This has also happened. He/She is called the American consumer and at least part of this convincing is how powerful we feel in our technologically enhanced life style again distorting the value of TMP.

And, finally, what would happen if there was a technology developed, that if you simply possess it and have access to it, those who don't will assume you are contributing to the wealth of the economy to the point that they allow you to literally make money. This is called the electronically traded financial system: another gigantic distorted hole in the evaluation of TMP. Hiding in the bowels of Wall Street and indeed the rest of the financial centers around the world investment bankers found a way to "make" a ridiculous amount of money without creating real wealth. They mapped the accountability to most Americans and Europeans via home mortgages, car loans, and credit card based consumption. Generally the argument they made economically is that our very existence justified this consumption power we were given (kind of explains the celebrity and our fascination with Paris Hilton now doesn't it?). With computer technology they moved the paper trail so quickly and hid their tracks so well in the barrage of computer amplified, automated bullshit generation that even hard working wealth creating emerging economies ate up this "paper". (This is why the world’s financial system is at risk and not just the US’s). If someone so invested could be fooled how could some poor government regulator try to keep up? Even the sharkish, BS spewing investment bankers were convinced that lack of accountability meant validity. You can even hear them talking to themselves: "Nobody has called me on it so I guess I must be creating something". Much like the American consumer has been saying : "Nobody has called me on it so I guess I must be creating something".

We first got an inkling of computer driven TMP distortion phenomena with the dot.com explosion ten years ago. The business model was absurd but people bought it and made money for a while. The NASDAQ has never recovered.

We saw it again in the Pentagon and the delusional anticipation of easy success in Iraq with our shock and awe inducing smart weapon amplified military. Bush even tried to extend a kind of American consumer justification to the Iraqi people when he argued that they would pay for the war simply with their freedom. Computer amplified TMP could invade a country, depose its leader, and set up a government with a free market economy and make money!

We have now seen it in our banking, financial, and consumer credit system. Derivatives and junk bonds. Hedge funds and counter-party risk blah-blah-blah. Really? With the speed of computers and access to an incredibly complex computer accounted system these guys became economic super men creating wealth. But what did these guys create g besides money and with no wealth added to the economy?

But, now something has changed. The party is over. Somebody has called us on it. Globalization has enabled the world to be big enough to stand up to us and is measuring the true wealth we have created. This happened quicker than anybody though because of a stupidly expensive war and our unmitigated consumerism and you guessed it, computer amplified TMP.

Now, in their panic, economists and politicos are trying to connect all the bullshit money these Financial Supermen have created to something real. Whether it is oil, land, food the panic has been obvious. It first created the commodities bubble no its effects are expanding. Funny, that in desperation we are trying to post-facto place the governments mandate to print money on top of all this phony money creation to somehow validate it. This is ridiculous. Do you really think that suddenly that really gives it true meaning? No wealth has been created. But, they try. The fantasy is hard to kill.

In the end we are all in trouble and it is a crisis in confidence. Not in our ability to solve problems. Not even in our lack of ability to understand what our houses, companies, money, and 401ks are really worth. Our crisis is that we don't know what WE are really worth. We have moved from being farmers, labor workers, teachers, soldiers and parents to being some kind of professional in a computer amplified society who lives off of the creation and control of TMP. Computer amplified TMP. Something whose value to the rest of the economy is really unknown. Yes, we face an existential crisis that deep.

Really, that deep? You may ask. Think about it. We have broken so severely with the basic covenant of capitalism of those who produce get to make money that we are even questioning the idea of capitalism itself. Think I am joking? We have nationalized almost all of the mortgage industry and most of the financial system the last two weeks! There are no band-aides. There are no simple cures. We cannot play currency games to hide our insecurity and our mistake. "The Secret" is not going to save us. Christ is not going to come down to Earth and save us. Aliens will not land on the White House lawn. All the guys on Wall Street with their million dollar bonuses, all those people in 3000 square foot homes they can't afford, all those feeding gas to those huge gas guzzling trucks and SUVS driving to a far-away suburbia to live, all those living on credit cards, and finally all those baby boomers who bought the fantasy of the 401k and that they can be so productive for half of their lives they can live wealthy without producing the other half of their lives are going to have to walk into the real world and produce justification for their wealth or walk away from the fantasy. Most will fail and most will have to walk away, at least for a while. The challenge is when they walk away we have to set up some rules so that civilization still works and that we don't return to a feudal system where the strong victimize the weak. The economists and politicos need to deal with this reality not continue to play games dreaming this is just some kind of accounting snafu that can be fixed by special act of an economic god that is the infinite balance sheet of the US government. That is the challenge of our day. That is the challenge for you and me and our leaders. It is time for everybody to get real. Once the smoke has cleared we then must address the problem that created this: the evaluation of TMP (thinking, meaning, and protocol) and the computer amplified relevance and value of TMP to the basics of our economy like food, shelter, and defense. Take the 700B dollars and find the small banks and companies that have measured wealth accurately and let the rest fail. The problem is that expectations must deflate. Is it possible to deflate expectations without deflation? I don’t think so. We are spending precious resources and time trying to defend a dead system. The key is to fund entities that preserve economic rationality into the future and past the transient even we are so desperately trying to avoid. We must prepare metaphorical caves of capital as if we were preparing real caves of food and water as if a real asteroid were about to hit earth. They will make loans to support things like legitimate shelter support, food, transportation, and energy. Once they are in place we must let the system reboot and let the transient event happen. We will then have to come to terms with our own intrinsic worth in our economy. We may not like what we see for a while. Usually, human being resort to violence and war to truly find their worth. I don’t think that has to happen. The one thing we have that the past did not is a fantastic communication system called the internet. Where as the reboot of the 30’s took a decade this one could just take a year. If we are smart. My guess is that the aftermath will be a mix of Linear Free Markets and conservative capital formation not non linear derivatives and demand driven capital formation. TMP will probably we enter the public domain where it belongs. We won’t like it but we will respect our lives again.

If we are stupid it this could take the war path. I have confidence we won’t go there. Alas, either the spirit of humanity will prevail or it won’t. Humanity is what will save us not greed induced self interest. I bet on us. You should as well. Our very way of life depends on it.

[rj1]

Re: No Time for Utopian Anti-Interventionism

I think some things need to be made clear.

First off, part of a hero complex that some people get, is to think that a person can solve anything by applying the right solution. There's an arrogant type of thinking going on in American political and financial circles that if we just apply this lever or release this lever and switch it with another policy all will be made better, business will return to prosperity, we can join hands, and sing Kum By Yah. It's a bit like how teenage boys believe that if they work hard enough or say just the right things, they can get any girl to date them. It's just not true.

There's also a natural logical fallacy that people learn from previous mistakes and that we are superior to those in the past simply because "we have evolved" from that point. You could see this with the financial leadership in this crisis especially. There will always be wars, there will be always genocides...and there will always be depressions.

What's the solution? I'll admit I don't know because I admit I'm not smart enough to know the solution, which is a statement not only of humility but also of Socratic honesty (Socrates being told by the Oracle that he was the smartest man in all of Greece, Socrates rejected this because he thought he knew nothing, but because of his religion and beliefs he had to believe it, so after touring Greece to talk to intellectuals, he realized what made him smarter than everyone else was that he realized he knew nothing while no one else did).

I only know of characteristics that are going on in this crisis and that some of the stated solutions have glaring errors.

-I know that in this crisis there is a lot of outstanding debt.
-I know that money that only existed on paper no longer exists and hence it cannot be used to pay back that debt (like on Monday when $1.4 trillion of paper worth was wiped out).
-I know that the government's store of wealth is based on raising tax money from its citizens, and so regardless of what anyone says, yes, we are paying for anything they do, most likely the buying of this outstanding debt.
-While I am a libertarian, I do not have a pure belief in free market systems.
-I know that I am a member of the middle-class and most likely will be all my life.
-I know that my standing in this class means that I do not benefit from either side of the political argument. Lower taxes benefits predominantly the rich. Wealth redistribution benefits predominantly the poor.

Now my calculations:

-I don't know this, but I believe the excesses of the last 15 years are an anomaly and will not happen again, being brought upon by the introduction of capitalism (or at the least, a form of business where people were allowed to make money on a grand scale) to the wider world after the universally recognized failure of state-controlled communism (to what can now be called state-controlled capitalism in the case of China, a kind of 21st-century mercantilism).
-Someone is going to be a loser in this crisis: someone is losing money. The arguments going on right now between the public, Wall Street, and Congress, is who is going to lose the most money amongst them.
-The United States of America, when it exits this crisis, will be in a weaker position on the global scale.
-The older and supposedly wiser I get, the more I think that I will be put in a position to be hurt by the actions of others despite not doing anything wrong. Which kind of makes me wonder what the point of it all is if I am always going to lose despite doing nothing wrong, just because I'm middle-class and I did not go out and spend money like a drunken sailor. So the solution going around now, in my opinion, makes me the loser. It makes it very hard to be a gung-ho American when this is the system that my country uses to screw me over.
-The loser will also be the children, they will have to pay back the debt. And when that eventually occurs, it will partially foment this country no longer "being on top". I am a libertarian mainly because I am 25 years old, and the older people among the U.S. population have created a system where all the bills come due either when they are dead or near death. I believe this is by design.

EJ, my main complaint with your post is that you think there is an alternative. I do not believe that is the case. There's the Paulson Plan or there's nothing. That is how the entire debate has been shaped by the Treasury Department, Federal Reserve, and Congress. As I said yesterday elsewhere on why I was happy with the plan's initial defeat, if Paulson stated the full intentions for what he wanted, buying underperforming and toxic debt at higher prices than the market would not pay in an effort to recapitalize the banks, it would've never gotten even the 205 votes it got on Monday. He's not a fool, because fools don't get made the CEO of Goldman Sachs.

No, it is not a class struggle, nor a struggle between workers and capitalists. That ended decades ago. As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state."

I disagree. There is a class struggle, just not between workers and capitalists (honestly, what's a capitalist? it would be a libertarian, wouldn't it?), rather the class struggle is between the classes of creditors, debtors, and people that are neither. The creditors want to be paid back, the debtors don't have the money, so they want to get the money from "the people that are neither" because they still have capital having not squandered it.

If the United States continues on the course it is going now, everything it has preached to the rest of the world since 1945 will be proved a failure, just as communism was proved a failure in 1989. You're not allowed to have your principles that you only follow in good times, you follow it in good times and bad. This is not a consequence of utopianism, if the U.S. is not capitalist when it is in its deepest crisis, than why should El Salvador be capitalist when their financial crisis comes in five years? Why should anyone listen to the financial advice of the U.S.-led IMF and their policies that the IMF is pushing on them? What is going on right now, and it is being completely ignored on all American media fronts, is the complete abandonment and failure of 63-year-old American doctrine. Anyone that thinks that doctrine should be abandoned, fine, I only ask you to recognize its abandonment publicly and that it is going bye bye and that we as a country no longer have the right to tell anyone what to do if they're in financial trouble. There are long-term consequences to the actions Paulson is taking, this is one of them.


Now, ultimately, I think the Paulson Plan is going to pass anyway. Political news today was that after observing the Rosh Hashanah holiday today, the Senate will pass the bill tomorrow with minor tweaks. It'll then go back to the House, perhaps as early as Friday, where they only need 12 votes to switch, Bush's signature, and then it is law.

[EJ]

Re: No Time for Utopian Anti-Interventionism

I believe in free markets. I believe in free money. And free banking.

So do I.

The present problem was caused entirely by money created by banks out of thin air, resulting in the "FIRE economy" and moral hazard run amok.

You learned about the FIRE Economy here.

The current bailouts, including the one that nobody voted on and that the Fed is executing with other central banks, are being done by people whose livelihoods depend upon the gravy train FIRE economy.

The rest of us are its victims.

Yes, our financial system has been poisoned by Credit Risk Pollution.

Irving Fisher who you brought up was a huge inflationist. Rothbard said he promoted reflation, devaluation and leaving the gold standard.

Rothbard is an ideologue. Fisher was a serious economist who got wrapped up in the new Era thinking of the late 1920s but got his shit together later. His theory of debt deflation is strong. Unfortunately for him, and for the nation, by 1930 he'd blown his reputation on his New Era calls.

"The U. S. is headed toward a period of business depression, probably beginning within the next two years, which may exceed that which preceded the War. . . . The only thing that will save us is a new gold policy or the discovery of a new process or additional gold fields. If the fall [of gold production] is not prevented by design or accident we shall throttle business, wringing out all profits and experiencing all the evils of deflation."

Prophecy is no new business for Professor Fisher, whose last previous prophetic utterance, however, proved false. Last fall Professor Fisher was prominent among the bull economists who saw no evil in the bull market. He scoffed at bearish forebodings, and even after the bull market had broken he compared its collapse to the failure of a fundamentally sound bank, wrecked only by a psychological "run" of frightened depositors. Professor Fisher's imperfections as clairvoyant were quickly recalled by a rival prophet, Roger Ward Babson of Babson Park, Mass., who said: "It should be recognized that he [Fisher] has changed his position from where he stood when he criticized me in my bearish forecast in ... September 1929. Then he was distinctly bullish on both the stock market and business." Prophet Babson added: "I am not especially troubled about the available supply of gold . . . only one of the many factors which bear upon the business situation."

- Fisher on Gold, Time Magazine, Jan. 20, 1930

I am reminded of Ben Bernanke and his stories about the "contained" sub-prime crisis. He and Paulson have lost their credibility. From now on it does not matter if they are right or not. The sooner he and Paulson step down and are replaced the better.

Fisher prophesied doom with deflation just as you do, and for similar reasons.

He was right, but it didn't matter.

It's all about blind panic and I have to say, self interest. Please understand that what I am about to say sounds very critical and I don't mean it that way. But it is very serious and I will say it anyway.

I have heard criticism from all manner of detractors for many years. I welcome it. Time has always been on my side.

If our friends are in the FIRE economy, and our colleagues, and the people in our social circle, we cannot help but panic when the FIRE economy is all of a sudden "put out".

Do you mean capitalists? Yes. I make no apology. Do you mean venture capitalists? No apology there, either. They do not live off economic rent. They are not bankers in the traditional sense. They take risks based on equity. Most fail without fanfare or protest. You never hear about it. A few succeed. You do hear about them. That is how it should be.

Rothbard writes that Fisher married an heiress and that "had F.D.R. followed Glass we would have been pretty surely ruined." (Carter Glass, of the Glass-Steagall fame, was an adamant opponent of FDR's inflationary policies.)

A curious revision of history. No need to count on the Mises site to filter history for you. These days you can go read it for yourself. I recommend the Time Magazine site especially, although Harper's is great, too. Here's how Glass was covered at the time. Judge for yourself.

Compare these accounts to today's. You will lfind that the parallels to the 1930s debt deflation pale beside the historic examples of exessive external debt. It's hard to say which of the two will hit use harder.

And that goes to the heart of the matter. It is a class matter, is it not?

Most of us Main Street types don't understand why a freshly minted MBA should make $90,000 or $150,000 per year right out of college.

Or why the CEOs and presidents of failing banks should make $20 million.

Or why Paulson is worth over $500 million. Or why someone can make a billion smackers on a single deal when they don't "make" anything.

We don't understand where that money comes from. And we don't have it ourselves. So it is the FIREs vs. the No-FIREs.

It is a class struggle.

Ah, so you are a socialist! Now I understand where you are coming from.

No, it is not a class struggle, nor a struggle between workers and capitalists. That ended decades ago. As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state."

Precisely what happened to our Congress: they heard from the literally 98% who do not consider themselves "on FIRE". They didn't want to face the wrath of the plebes.

There is something to this. But we have all been complicit. Let me give you an example. Do you appreciate that crime in your nearest city has been so low and declining during the rise of the FIRE Economy? That is largely due to the contribution of the FIRE Economy to expanding the US prison system. Were the FIRE Economy to fail, one's recollections of "high crime rates" from, say, the pre FIRE Economy 1970s will soon turn sentimental. In the "cleansing" depression envisioned by ideologues, the prisons that should not have been filled in the first place will have to be emptied out. And if you think the duped sub-prime mortgage borrowers are cranky, wait until you meet a guy who has been in jail for years for no good reason, now trained as a criminal, after he comes knocking on your door looking for recompense in his own way.

On occasion, the ruling elites get shaken up and stirred. Thrown out. Heads cut off. The result is usually worse than it was before. But they went too far.

No argument there. But who let them? Who voted for the politicians that ran our country while this disaster developed?

There will be bailouts anyway. This is all nonsense because we both know that there will be bailout after bailout. My point is that they are wrong and they crowd out private investment and prevent the unwinding of the huge malinvestments that have gone on.

Yes, as I told my publisher and was reported in the LA Times and repeated afterwards by others, “We always do the right thing, but only after exhausting all other options."

We have only just begun to fuck up.

[Tulpen]

Re: No Time for Utopian Anti-Interventionism

[Non-intervention is not the answer. Congress needs to move quickly to draft legislation that conforms to the principles put forth in the King plan.

Et Tu Brute?

So the King plan wants to make it easier for borrowers while the premise is that they cannot afford to borrow at current market prices?

By the way I completely agree with Jeffrey A. Miron's article.

[sabocat]

Re: No Time for Utopian Anti-Interventionism

EJ said: "As JK Galbraith noted: "The great dialectic in our time is not, as anciently and by some still supposed, between capital and labor; it is between economic enterprise and the state.""

This is where the wheels fall off. It is impossible for markets to deliver collective benefits without the presence of governments. There is a reason that markets which generate the most wealth always exist in territories with strong states, if not downright imperial states.

Whatever the degree of EJ's policy pragmatism, which I actually think trumps statements like this most of the time or I am sure I wouldn't bother visiting this site, this dualistic view of the world is simply not very helpful at this point. It is part of the problem. The question is simply what are governments and markets supposed to do. The story worldwide over the last 40 years is not one of the triumph of markets or states. Rather, it is one of extensive institutional experimentation with different roles for and combinations of state, market, and civic. Viewing the world in these dualistic terms is not just dogmatic, it makes it impossible to see, much less assess, a much larger realm of institutional possibility.

The beauty of the proposal that opened this thread is that it doesn't operate with this dualism in mind. To the extent it is insightful it is insightful along entirely different axes of inquiry. If it weren't it would just be banal.

In short, Galbraith's statement is just as anachronistic as Marx's. It is just fighting the last war (quite literally in Galbraith's case).

[sunskyfan]

Re: No Time for Utopian Anti-Interventionism

It appears that the world is coming to economic terms.

Dramatic. Unbelievable. What is going on?


The basic narrative or explanation is that a housing bubble formed in the US and that this bubble has popped causing a cascading of good loans into bad ones.


I think that this is an incorrect narrative.


I think that the bubble that formed was in the Financial Sector. But before we dig into that and the consequences of it let's examine something that maybe I, as a computer analyst who has spent nearly 25 years making a living in this area may have to offer.


Computers have had a great impact on civilization. They seem to have a magical qualities in the abilities of people and systems of people to manage environments, information, and automatable tasks. I think most of the magical illusion comes from the automatable task regime. I am talking about ATMs, gas pumps, and the self check-out line at the grocery store for the consumer, that kind of thing. Also, in industry productivity per man hour of companies has gone up many fold due to robots and tracking. Even in warfare computer technology has enable very sophisticated weapons systems allowing precise destruction and projection of power unheard of before by such a small military. Most of the time these uses of computer technology all have a very functional quality that has an easily measured outcome of success or failure. Sometimes it does not.


There is another use of computer technology that does not have such an easily measured outcome of success or failure. Everyone experiences it everyday and many of us use it to make a living. It has to do with thinking, meaning, and protocol. Let's use a short and call this TMP. We all understand that TMP has economic value. We have for many years know this and have tried to reward this in our various economic systems. Generally, we try to map TMP economically to what we call intellectual property. This is an attempt to literally value TMP in our economy much like a house or a car or a piece of land has value. This concept kind-of works. I think that the guy, or at least his surviving relatives, who invented the crescent wrench still gets a penny for every wrench sold via a patent. Microsoft's software that implements its operating system and various other computer tools such as word processor and presentation tools (PowerPoint) are another type of intellectual property. Copyrights are another attempt to value intellectual property in an economy. The fact that we don't often consider is that this whole idea of intellectual property is a pretty new concept. The bugs haven't been worked out of the system yet and in fact there is still a debate about what type of intellectual activity can be claimed as property and what cannot. For instance, one of the basic foundations of the United States system is that some intellectual property (speech) must be free! Another is that while people may posses money nobody actually owns the idea of money or the valid right to create money. For the most part we have allowed the problem of TMP to float in the political and even religious part of our lives and once in a while we deal with it in the economic part of our lives.


So, how does this discussion relate to the troubles with the economy? Be patient, I am getting there.


To combine the big stew of ideas and the concept of TMP I have introduced let me ask a question. What if we have finally reached an unignorable crisis between TMP and the meaning and value of money? Few of us would argue that if non-government entities or at least non-government-sanctioned entities started printing money we would have an economic crisis. But, let's back up one more time, and think about who should decide how much money gets created in an Economy or how should it be "injected" into the economy. Keep in mind that of too much money is created compared to the "worth" of the economy then the value of the money shifts in time. Thought there is a lot of chicken-egg arguments this shift causes uncertainty in the value of the money invariably making it worth less (if you are conservative) or more (if you are an optimist) causing inefficiencies. If too little money is in the economy compared to its worth then there is an intrinsic inefficiency due to the fact that too much time is spent finding money itself to use for the transactions of the economy instead of productive time creating wealth. In other words cynicism means deflation and unwarranted belief means inflation. (You might want to keep that in mind to try and decide what to do with your savings in this crisis). Finding the balance is key and creating ways of measure the ebb and tide of the economy due to weather, war, population shifts, brilliant advancements in technologies or techniques, and pretty much the impact of all human existence is the challenge.


When government tries to find this balance it generally fails. It doesn't matter whether you call it communism, socialism, or even fascism the creation of money at least solely in the hands of government doesn't seem to work. Thus, we have the idea of Capitalism. Capitalism puts most of the creation of money in the hands of the private sector based on a few simple rules enforced by the government. The general idea of capitalism is that those who have money get to create more. The rich get richer. This actually makes sense. If I have proven my ability to create wealth then I should be the one who creates the money to measure that wealth in the economy. If I do a bad job then by ability to create wealth gets taken away. This works pretty well if the financial markets are healthy. One other thought is that governments, especially governments closely tied to the people, tend to try and say we are richer then we really are. For this reason popular elected governments tend to make a mess out of the creation of money (thus, the endless debate of the budget and the deficit) even as it is regulating the private sector creation of money. The idea of a central bank, like The Federal Reserve, is to create an ultimately private entity subject to periodic control of the Federal government through appointment of Federal Reserve governors. This creates a hybrid entity to control totally private entities that actually create money under regulation by the government. This hybrid is also protects the money supply from the popular whims of a popular elected government.
So banks create money when they loan you money for a car or a house. They are authorized to do this by either the Federal Government, a National Bank, or by a state, a State Bank.

Companies create money by issuing stocks. Beyond budget deficits government entities and some huge private entities create money by issuing bonds. Regulated by the SEC.

The premise on all these things is that over time, and the key word is time, the correlation with the money created vs. what is created can be measured and validated. If a company does not perform then the price of its stock goes down. If a city blows money on a bridge that doesn't make economic sense then its ability to create more bonds (more money) goes away. If a bank makes a series of bad loans then its ability to loan more money is diminished if not taken away. Capitalism works because the market itself governs how much money is created. We live and breathe this idea. Why else do we so adamantly and consistently use the phrase "make money" when we talk about being successful in our economy.


So, what would happen if someone found a way to make money without contributing real measurable wealth to the economy?

Well, we are testing that scenario. It has happened. It has happened because we have no mechanisms for checking the power of computers to manipulate the value of TMP in our economy.


And, what would happen if someone found a way to convince you that you could make money simply by being who you are? Your existence is a de facto contribution to the rest of humankind and you can trade this existence for stuff. This has also happened. He/She is called the American consumer and at least part of this convincing is how powerful we feel in our technologically enhanced life style again distorting the value of TMP.


And, finally, what would happen if there was a technology developed, that if you simply possess it and have access to it, those who don't will assume you are contributing to the wealth of the economy to the point that they allow you to literally make money. This is called the electronically traded financial system: another gigantic distorted hole in the evaluation of TMP. Hiding in the bowels of Wall Street and indeed the rest of the financial centers around the world investment bankers found a way to "make" a ridiculous amount of money without creating real wealth. They mapped the accountability to most Americans and Europeans via home mortgages, car loans, and credit card based consumption. Generally the argument they made economically is that our very existence justified this consumption power we were given (kind of explains the celebrity and our fascination with Paris Hilton now doesn't it?). With computer technology they moved the paper trail so quickly and hid their tracks so well in the barrage of computer amplified, automated bullshit generation that even hard working wealth creating emerging economies ate up this "paper". (This is why the world’s financial system is at risk and not just the US’s). If someone so invested could be fooled how could some poor government regulator try to keep up? Even the sharkish, BS spewing investment bankers were convinced that lack of accountability meant validity. You can even hear them talking to themselves: "Nobody has called me on it so I guess I must be creating something". Much like the American consumer has been saying : "Nobody has called me on it so I guess I must be creating something".


We first got an inkling of computer driven TMP distortion phenomena with the dot.com explosion ten years ago. The business model was absurd but people bought it and made money for a while. The NASDAQ has never recovered.

We saw it again in the Pentagon and the delusional anticipation of easy success in Iraq with our shock and awe inducing smart weapon amplified military. Bush even tried to extend a kind of American consumer justification to the Iraqi people when he argued that they would pay for the war simply with their freedom. Computer amplified TMP could invade a country, depose its leader, and set up a government with a free market economy and make money!

We have now seen it in our banking, financial, and consumer credit system. Derivatives and junk bonds. Hedge funds and counter-party risk blah-blah-blah. Really? With the speed of computers and access to an incredibly complex computer accounted system these guys became economic super men creating wealth. But what did these guys create g besides money and with no wealth added to the economy?


But, now something has changed. The party is over. Somebody has called us on it. Globalization has enabled the world to be big enough to stand up to us and is measuring the true wealth we have created. This happened quicker than anybody though because of a stupidly expensive war and our unmitigated consumerism and you guessed it, computer amplified TMP.

Now, in their panic, economists and politicos are trying to connect all the bullshit money these Financial Supermen have created to something real. Whether it is oil, land, food the panic has been obvious. It first created the commodities bubble no its effects are expanding. Funny, that in desperation we are trying to post-facto place the governments mandate to print money on top of all this phony money creation to somehow validate it. This is ridiculous. Do you really think that suddenly that really gives it true meaning? No wealth has been created. But, they try. The fantasy is hard to kill.

In the end we are all in trouble and it is a crisis in confidence. Not in our ability to solve problems. Not even in our lack of ability to understand what our houses, companies, money, and 401ks are really worth. Our crisis is that we don't know what WE are really worth. We have moved from being farmers, labor workers, teachers, soldiers and parents to being some kind of professional in a computer amplified society who lives off of the creation and control of TMP. Computer amplified TMP. Something whose value to the rest of the economy is really unknown. Yes, we face an existential crisis that deep.

Really, that deep? You may ask. Think about it. We have broken so severely with the basic covenant of capitalism of those who produce get to make money that we are even questioning the idea of capitalism itself. Think I am joking? We have nationalized almost all of the mortgage industry and most of the financial system the last two weeks! There are no band-aides. There are no simple cures. We cannot play currency games to hide our insecurity and our mistake. "The Secret" is not going to save us. Christ is not going to come down to Earth and save us. Aliens will not land on the White House lawn. All the guys on Wall Street with their million dollar bonuses, all those people in 3000 square foot homes they can't afford, all those feeding gas to those huge gas guzzling trucks and SUVS driving to a far-away suburbia to live, all those living on credit cards, and finally all those baby boomers who bought the fantasy of the 401k and that they can be so productive for half of their lives they can live wealthy without producing the other half of their lives are going to have to walk into the real world and produce justification for their wealth or walk away from the fantasy. Most will fail and most will have to walk away, at least for a while. The challenge is when they walk away we have to set up some rules so that civilization still works and that we don't return to a feudal system where the strong victimize the weak. The economists and politicos need to deal with this reality not continue to play games dreaming this is just some kind of accounting snafu that can be fixed by special act of an economic god that is the infinite balance sheet of the US government. That is the challenge of our day. That is the challenge for you and me and our leaders. It is time for everybody to get real. Once the smoke has cleared we then must address the problem that created this: the evaluation of TMP (thinking, meaning, and protocol) and the computer amplified relevance and value of TMP to the basics of our economy like food, shelter, and defense. Take the 700B dollars and find the small banks and companies that have measured wealth accurately and let the rest fail. The problem is that expectations must deflate. Is it possible to deflate expectations without deflation? I don’t think so. We are spending precious resources and time trying to defend a dead system. The key is to fund entities that preserve economic rationality into the future and past the transient even we are so desperately trying to avoid. We must prepare metaphorical caves of capital as if we were preparing real caves of food and water as if a real asteroid were about to hit earth. They will make loans to support things like legitimate shelter support, food, transportation, and energy. Once they are in place we must let the system reboot and let the transient event happen. We will then have to come to terms with our own intrinsic worth in our economy. We may not like what we see for a while. Usually, human being resort to violence and war to truly find their worth. I don’t think that has to happen. The one thing we have that the past did not is a fantastic communication system called the internet. Where as the reboot of the 30’s took a decade this one could just take a year. If we are smart. My guess is that the aftermath will be a mix of Linear Free Markets and conservative capital formation not non linear derivatives and demand driven capital formation. TMP will probably we enter the public domain where it belongs. We won’t like it but we will respect our lives again.
If we are stupid it this could take the war path. I have confidence we won’t go there. Alas, either the spirit of humanity will prevail or it won’t. Humanity is what will save us not greed induced self interest. I bet on us. You should as well. Our very way of life depends on it.

[atotic]

Re: No Time for Utopian Anti-Interventionism

The plan you've outlined makes a lot of sense, and I'd support it. But that is not going to be the plan presented to us. Maybe in January, once Obama is elected...

I hate the House proposal. Murky, not sure if it'll get the job done, and it rewards the ones who messed up in the first place. And if no other plan is presented, I'll happily buckle down for those hard years, knowing that in 10 or 20, we'll be in a better place than we are today.

[jtabeb]

Re: No Time for Utopian Anti-Interventionism

You are an anarchist, not a Libertarian.

Then there are a lot of those types lurking around here (Myself included)

BTW missed the rebuttal, or was that just a dismissal?

[Charles Mackay]

Re: No Time for Utopian Anti-Interventionism

Harry Browne said "You CAN be free in an Unfree World" ..

Those who don't agree can just say NO to F.I.R.E. economy elites and keep their money outside the dollar system.

Other's who believe socializing these things is the best way to go can stay and continue making sausage.

That's the real beauty of it all!!!