News Can the market alone fix the economy?

[misgfool]

Give perfect solutions? The Enlightenment was not a religion. It didn't "give solutions". I don't know what to make of this.

The Enlightenment was a time period. You can learn more about it in

http://en.wikipedia.org/wiki/Age_of_Enlightenment

But please, do tell me what it provided?

Individual liberty and general welfare are not at odds with each other. Quite the contrary. Economic freedom results in prosperity.

Why? How?

Economic oppression causes poverty.

Why? How?

 

[misgfool]

I suppose you have evidence of socialist policies causing prosperity?

Perhaps the purpose of a socialist policy is not to directly cause prosperity, but enable the less fortunate sons/daughters to try to obtain it as well.

 

[mheslep]

The Enlightenment was a time period. You can learn more about it in

http://en.wikipedia.org/wiki/Age_of_Enlightenment

But please, do tell me what it provided?...

Science.

 

[mheslep]

Thanks, I hadn't heard of this one. But I think you posted this to the wrong person, since I'm not the free market extremist.

Forget about the politics for a second and just look at the structure of your argument here:
https://www.physicsforums.com/showthread.php?p=2104176#post2104176

 

[Al68]

Individual liberty and general welfare are not at odds with each other. Quite the contrary. Economic freedom results in prosperity.

Why? How?

Economic oppression causes poverty.

Why? How?

Well, if you don't understand that, I'll just have to refer you to some famous economists, many crucial figures of the Enlightenment: John Lock, Thomas Hobbes, etc. Of course there are many more modern authors, and any economics textbook written prior to schools jumping on the Marxist bandwagon explains the principles as well.

Even if you don't agree with the authors, understanding the economic principles involved is beneficial.

 

[Al68]

Perhaps the purpose of a socialist policy is not to directly cause prosperity, but enable the less fortunate sons/daughters to try to obtain it as well.

Well, that I'll agree with. I have no doubt that is the purpose. However I'm more concerned with the actual result than the purpose.

And of course you're right about it not creating prosperity, but what is missed is that confiscating wealth that is created by capitalism causes a reduction of future wealth being created. Maybe that point is not missed, but its effect is greatly underestimated.

Socialist thinkers often refer to the marginal utility of material wealth being greater for the poor than for the rich, and that's true. But when they conclude that that causes the benefits of wealth redistribution to outweigh the negative effect on overall wealth production, they greatly underestimate the effect, especially at higher levels.

Forcing people to share a large percentage of their wealth will reduce the total wealth created exponentially more than forcing people to share a small percentage of their wealth. Of course, I'm ignoring all moral concerns here, just using basic principles of economics.

 

[misgfool]

Forget about the politics for a second and just look at the structure of your argument here:
https://www.physicsforums.com/showthread.php?p=2104176#post2104176

You wouldn't mind to dissect the post and point out flaws in it?

 

[misgfool]

Well, if you don't understand that, I'll just have to refer you to some famous economists, many crucial figures of the Enlightenment: John Lock, Thomas Hobbes, etc. Of course there are many more modern authors, and any economics textbook written prior to schools jumping on the Marxist bandwagon explains the principles as well.

Even if you don't agree with the authors, understanding the economic principles involved is beneficial.

I have never read Locke or Hobbes, but I have read more modern macroeconomics. But perhaps I shall find some time to go through such classics. I believe I understand basic economic principles sufficiently well. Since I understand them, I must demand you to explain your unaccounted claims. My interpretation leads to a very different outcome.

"Leviathan was written during the English Civil War; much of the book is occupied with demonstrating the necessity of a strong central authority to avoid the evil of discord and civil war."

"Any abuses of power by this authority are to be accepted as the price of peace. In particular, the doctrine of separation of powers is rejected: the sovereign must control civil, military, judicial and ecclesiastical powers."

Doesn't Hobbes (in Leviathan) want you to give your freedom to the government in exchange of safety? Isn't this terrible?

 

[Al68]

I have never read Locke or Hobbes, but I have read more modern macroeconomics. But perhaps I shall find some time to go through such classics. I believe I understand basic economic principles sufficiently well. Since I understand them, I must demand you to explain your unaccounted claims. My interpretation leads to a very different outcome.

Well, the claims you challenged were just basic economic principles. The only real historical disagreement has been the extent of the effects, not the existence of the effects.

Doesn't Hobbes (in Leviathan) want you to give your freedom to the government in exchange of safety? Isn't this terrible?

Yes and Yes. My reference to Hobbes was not intended to imply that I agree with everything he ever said. Just some economics points:

Hobbes believed that equal justice includes the equal imposition of taxes. The equality of taxes doesn’t depend on equality of wealth, but on the equality of the debt that every man owes to the commonwealth for his defence and the maintenance of the rule of law.

It's clear that he believed that the justification for taxes is based on services rendered to the person being taxed, not because the government (or anyone else) "needs" the money and the ends justify the means.

 

[Al68]

I have never read Locke or Hobbes, but I have read more modern macroeconomics. But perhaps I shall find some time to go through such classics.

Locke or Adam Smith would be a better choice, since they wrote more extensively about economics. But I must warn you, if you put their writings in the context of the economy being under the control of government, it won't make any sense at all. Their premises were that people were naturally free, and the right to own property and enter contracts are natural rights, and that every individual owns his own labor (has the right to sell or trade it as he sees fit), which precludes socialist policies by default.

 

[misgfool]

Well, the claims you challenged were just basic economic principles. The only real historical disagreement has been the extent of the effects, not the existence of the effects.

They were not economic principles. They were wishful thinking.

Yes and Yes. My reference to Hobbes was not intended to imply that I agree with everything he ever said. Just some economics points:

It's clear that he believed that the justification for taxes is based on services rendered to the person being taxed, not because the government (or anyone else) "needs" the money and the ends justify the means.

I think you have to look this in it's context. He might have not said that taxes thing, if there wasn't the underlying strong government premise.

 

[misgfool]

Locke or Adam Smith would be a better choice, since they wrote more extensively about economics. But I must warn you, if you put their writings in the context of the economy being under the control of government, it won't make any sense at all. Their premises were that people were naturally free, and the right to own property and enter contracts are natural rights, and that every individual owns his own labor (has the right to sell or trade it as he sees fit), which precludes socialist policies by default.

Lol. I should have read this before I wrote my last message. Ok, so their own writing were contradictory. That should already raise a red flag. Or their writing weren't contradictory and you are just interpreting them in way that you find comforting, but which is not what was originally intended.

 

[Al68]

I think you have to look this in it's context. He might have not said that taxes thing, if there wasn't the underlying strong government premise.

Well, Hobbes was a bad reference on my part, but strong government doesn't imply that the power should be used to oppress. I believe in a strong government. I just think it's legitimate function is to protect liberty, not take it away. Nothing weak about that.

 

[Al68]

Lol. I should have read this before I wrote my last message. Ok, so their own writing were contradictory. That should already raise a red flag. Or their writing weren't contradictory and you are just interpreting them in way that you find comforting, but which is not what was originally intended.

What contradiction are you referring to?

Edit: If you're just referring to the fact that Hobbes is not a libertarian on all issues, then I agree with you. It is interesting how a lot of people are so adamant about liberty on some issues, but ambivalent about it with other issues. A lot of Democrats, although not at all libertarian on economic issues are very libertarian on some social issues. And the reverse is true of some Republicans. Clearly they only agree with the tenets of libertarianism when it serves their agenda.

 

[misgfool]

What contradiction are you referring to?

You wrote that their writings make no sense. What expression would you use?

Edit: If you're just referring to the fact that Hobbes is not a libertarian on all issues, then I agree with you. It is interesting how a lot of people are so adamant about liberty on some issues, but ambivalent about it with other issues. A lot of Democrats, although not at all libertarian on economic issues are very libertarian on some social issues. And the reverse is true of some Republicans. Clearly they only agree with the tenets of libertarianism when it serves their agenda.

Life isn't mathematics and consistency is not a virtue. For instance existence of the death penalty doesn't mean that it should be applied to all offenders. Different people have conflicting interests and when they have to solve common problems, they have to make compromises.

 

[ThomasT]

I've been following the discussion, and think I'm essentially a Libertarian in my beliefs regarding individual freedom (minimal governmental restriction or intrusion on personal freedom, eg., mobility, speech, wealth/ownership, private behavior, etc.). I don't think that any individual should be taxed at a higher rate than any other individual. I do think that the profits of collective enterprises should be taxed at a higher rate than individuals , and that they should be held to higher standards of social responsibility than individuals.

Wrt the current economic situation, there's the argument that increased governmental spending is a necessary part of the solution. Based mostly on what I've read and heard regarding economists opinions that the printing and spending of more money by the federal government would have shortened the time of the Great Depression, I tentatively agree with this approach. This doesn't mean bailing out failing companies.

Individual liberty and general welfare are not at odds with each other.

I agree -- to a certain extent of course. We collectively agree to live by the rule of laws made by publicly elected representatives rather than by the arbitrary whims of powerful individuals. And laws do proscribe and prescribe certain behaviors collectively deemed to be contrary to the general welfare. They limit our freedom. But our collection of laws should be consistent. When a law is found to produce results contrary to those intended, then it should be promply repealed. I think we have far too many laws. For example, the tax code is absolutely ridiculous.

Economic freedom results in prosperity.

I agree -- again, to a certain extent. Sometimes the actions of economically powerful individuals or collectives diminish or suppress the prosperity of individuals -- eg., precursors to the current economic situation.

Economic oppression causes poverty.

This can happen when the practices of companies, corporations, and conglomerate enterprises are inadequately regulated. The abuse of power by collective economic enterprises leads to the economic oppression of individuals. For example, the trend of steady increases in prices without commensurate increases in salaries and wages leads to a steady decrease in the buying power of a large number of individuals in our society.

I believe in a strong government. I just think it's legitimate function is to protect liberty, not take it away.

I agree -- to protect the liberty of individuals. Sometimes it's necessary to constrain the practices of business enterprises in order to do that. Companies and corporations shouldn't be treated as individuals under the law.

I also think that certain industries might constructively be considered necessary public services, and to the extent that socializing these industries would result in increasing the liberty of tens of millions of otherwise somewhat oppressed individuals, then they should be socialized.

 

[Al68]

You wrote that their writings make no sense.

I said they would make no sense if they were put in the context of a government controlled economy. That's not the intended context.

 

[Al68]

I don't think that any individual should be taxed at a higher rate than any other individual. I do think that the profits of collective enterprises should be taxed at a higher rate than individuals , and that they should be held to higher standards of social responsibility than individuals.

These statements contradict each other.

For example, the trend of steady increases in prices without commensurate increases in salaries and wages leads to a steady decrease in the buying power of a large number of individuals in our society.

No. The analysis is not that simple. In a competitive free market, prices can't steadily rise for no reason. And buying power is a function of productivity.

Sometimes it's necessary to constrain the practices of business enterprises in order to do that. Companies and corporations shouldn't be treated as individuals under the law.

They are individuals. Deciding not to treat people like people doesn't actually keep them from being people.

I also think that certain industries might constructively be considered necessary public services, and to the extent that socializing these industries would result in increasing the liberty of tens of millions of otherwise somewhat oppressed individuals, then they should be socialized.

If they are considered public services, then the state or local government should provide them, not prohibit or restrict others from providing them. There is no reason for example for the government to try to control FedEx or UPS, for example. Private competition is a good thing, even for services provided by government.

 

[WhoWee]

Should a PhD earn more than a BS?

WHY?

Could it be BECAUSE THEY EARNED IT?

Should PhD's be required to go back and tutor underachieving/underprivileged students...because they are struggling?

In America, people are paid based upon economics...supply and demand...talent, education and abilities are rewarded. Unfortunately, tax strategies are out of sync with this norm.

A small businessperson often (first went to college) risks their home, life savings and future security of their family to EARN A PROFIT. Someone that RISKS EVERYTHING to earn a higher income should not be taxed at a higher percentage than someone who punches a time clock...and risks nothing but time.

In America...High Risk = High Reward (or Loss). It should not mean high penalties for achievement.

 

[misgfool]

I said they would make no sense if they were put in the context of a government controlled economy. That's not the intended context.

I don't get it. They want a strong government. They also want free markets, but not a strong government. Isn't that a contradiction?

 

[Al68]

I don't get it. They want a strong government. They also want free markets, but not a strong government. Isn't that a contradiction?

No.

The words "strong" and "oppressive" are not synonyms. Strength can and should be used in defense of liberty.

The fact that a hypothetical government doesn't oppress people doesn't make it weak just like the fact that I don't try to boss people around all the time doesn't make me weak.

 

[misgfool]

No.

The words "strong" and "oppressive" are not synonyms. Strength can and should be used in defense of liberty.

The fact that a hypothetical government doesn't oppress people doesn't make it weak just like the fact that I don't try to boss people around all the time doesn't make me weak.

You are splitting hairs here. A strong non-oppressive government only exists in an idealistic world, which is definitely not this one.

 

[Al68]

You are splitting hairs here. A strong non-oppressive government only exists in an idealistic world, which is definitely not this one.

Now that's a good point.

There is a big danger in delegating too much power to government. That's why the U.S. government has only limited powers delegated by the constitution. It wasn't intended to be weak, just to have limited power. Of course we've seen that politicians will ignore those limits whenever they can get by with it, which is a lot in the last few decades.

But strong or weak, the legitimate function of a government which acts only as an agent of the people is limited to those powers delegated to it by the people. And those powers are limited to the legitimate powers possessed by people. People only have the right to use force against other people when it is defensive force.

Where would government get the legitimate power to use force for any other purpose?

 

[misgfool]

Now that's a good point.

There is a big danger in delegating too much power to government. That's why the U.S. government has only limited powers delegated by the constitution. It wasn't intended to be weak, just to have limited power. Of course we've seen that politicians will ignore those limits whenever they can get by with it, which is a lot in the last few decades.

But strong or weak, the legitimate function of a government which acts only as an agent of the people is limited to those powers delegated to it by the people. And those powers are limited to the legitimate powers possessed by people. People only have the right to use force against other people when it is defensive force.

Where would government get the legitimate power to use force for any other purpose?

Lol. A country with a preemptive strike doctrine can justify any use of power.

If you give to an individual the option of power, (s)he will eventually use it abusively. If there is a possibility to use power, the government will use it. Legitimacy is overhyped. In the real world legality is the only thing that counts. Well sometimes even that isn't necessary.

 

[Al68]

Lol. A country with a preemptive strike doctrine can justify any use of power.

If you give to an individual the option of power, (s)he will eventually use it abusively. If there is a possibility to use power, the government will use it. Legitimacy is overhyped. In the real world legality is the only thing that counts. Well sometimes even that isn't necessary.

True, but that doesn't mean I have to agree with their actions.

 

[misgfool]

True, but that doesn't mean I have to agree with their actions.

The point is, that it's unrealistic to believe that the conditions required for your liberalism are achievable. Therefore we need to look at alternatives.

 

[turbo]

I don't think that any individual should be taxed at a higher rate than any other individual. I do think that the profits of collective enterprises should be taxed at a higher rate than individuals , and that they should be held to higher standards of social responsibility than individuals.

Thank you, TT! Businesses in our current economy/government have far more rights than are accorded to individuals, with tax benefits that are sometimes obscene.

Businesses thrive on the stable atmosphere that our system of governance provides, and they should pay more taxes than individuals because their existence and profitability depend on the health of our government. The naive notion that "business is good" for us is far out-dated. Too many businesses are stripping wealth from our country, shipping it off-shore, and sucking up benefits from the tax-payers who are expected to pay for their excesses.

 

[Al68]

The point is, that it's unrealistic to believe that the conditions required for your liberalism are achievable. Therefore we need to look at alternatives.

The fact that we can't achieve perfection applies to any alternative as well. More economic freedom is better than less economic freedom despite the fact that we may never have perfect economic freedom.

 

[ThomasT]

I don't think that any individual should be taxed at a higher rate than any other individual. I do think that the profits of collective enterprises should be taxed at a higher rate than individuals , and that they should be held to higher standards of social responsibility than individuals.

These statements contradict each other.

Only if the consequences of the collective actions of two or more people are taken to be necessarily equivalent to those of a single person -- and since they aren't, necessarily, then it might be argued that the principle of individual liberty doesn't necessarily apply to collectives.

However, the aim is to maximize the liberty of all individuals. And, toward that goal, I think that drastically simplifying the tax code vis a single universal income tax rate takes precedence over the fact that, wrt some minimum standard of living, a sufficiently high flat tax (applicable to all, including those whose incomes are lower than the current standard deductions) diminishes the liberty of lower income earners proportionately more than it diminishes the liberty of higher income earners. (The federal government can deal with that disparity vis increased grants, loans, coupons, services, etc. to lower income earners.)

I was advocating a higher tax rate for the profits of collectives primarily because I wanted to do away with certain other taxes that are now levied, and (other than a progressive tax on individual incomes which is what we're trying to get away from) I couldn't think of any other way to generate what I thought was the minimum necessary revenue. But after doing some calculations I now think that a flat tax rate for ALL income (along with other changes) is a viable alternative to the current mess of a tax code.

However, until I learn something that changes my mind, and notwithstanding the apparent inconsistency of the position, I think that collectives should generally be held to higher standards of social responsibility (generally closer scrutiny by regulatory agencies and whatever it takes to keep them from screwing up environments, coercing government officials, monopolizing markets, undermining collective bargaining efforts, etc.) than individuals, because the power of a collective to suppress or diminish the liberty of its individual constituents, or other individuals who its actions might affect, is greater than the power of any of its individual constituents to do that.

Simply put, with greater power comes greater responsibility. Didn't you see Spiderman?

... buying power is a function of productivity.

Yes, but more to the point of what I was saying, buying power refers to the relationship between prices and disposable income.

If they are considered public services, then the state or local government should provide them, not prohibit or restrict others from providing them. There is no reason for example for the government to try to control FedEx or UPS, for example. Private competition is a good thing, even for services provided by government.

What do you think of the idea of the federal government extending Medicare and Medicaid type programs to provide health care to people who don't now qualify for those or other programs and can't afford health insurance?

 

[misgfool]

The fact that we can't achieve perfection applies to any alternative as well. More economic freedom is better than less economic freedom despite the fact that we may never have perfect economic freedom.

Good. You acknowledge that talk of free markets is just rhetorics? Now it all depends on where we draw the line. That is a purely subjective matter and determining the degree of rightness is also purely subjective. That is because in one model we can give some freedoms that don't exist in the other one. Comparing two freedoms and assigning them a quantized freedom value hasn't been done. So essentially any choice we make is in some sense the right and the free one.

 

[Astronuc]

Please let's stay on topic, which is "How to fix the economy". There are some interesting discussions on the philosophy and functionality of government and economy that are worthy of their own threads.

Meanwhile - Fed's Hoenig slams bank-rescue efforts
Calls for nationalizing all insolvent banks, big or small

WASHINGTON (MarketWatch) -- The president of the Kansas City Federal Reserve Bank slammed the government's approach to weak banks as counterproductive Friday and called for the government to move in, take over and clean house at insolvent institutions.

"We ... are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis," Thomas Hoenig remarked in a speech in Omaha, Neb.

The architects of the government response -- primarily Fed Chairman Ben Bernanke, former Treasury Secretary Henry Paulson and Paulson successor Timothy Geithner -- have argued that, because there were no rules to take over big but weak bank-holding companies, they have been forced to play a bad hand and keep the institutions operating and pushing in government money to strengthen them.

But as the cost of this approach keeps expanding beyond the initial $700 billion price tag, there is a growing sense that good money may be being thrown after bad. . . .

The takeovers of Washington Mutual, Wachovia, Countrywide and Merrill Lynch were "hasty," according to Hoenig. He called for the Obama administration to declare banks insolvent and use its power to take over failing institutions and continue operations under new management. This would be "temporary" and has precedent in history, he said.

"If institutions -- no matter what their size -- have lost market confidence and can't survive on their own, we must be willing to write down their losses, bring in capable management, sell off and reorganize misaligned activities and businesses and begin the process of restoring them to private ownership.
. . . .

On the other hand - Some banks try to escape TARP trap
Dividend cut may help Wells Fargo repay government quicker; exits will take time

However, analysts say it will still take years, not months, for big banks to extricate themselves from the Treasury's Troubled Asset Relief Program, or TARP.

In October, the government invested more than $100 billion in the nation's nine largest banks through TARP, with Wells Fargo getting $25 billion.

Since the first TARP money began flowing, the government has had to increase its support of Citigroup and Bank of America and a new administration has made it clear that other banks needing extra help will face much tougher restrictions on things like executive compensation.

Even though the government has stressed it doesn't want to manage big banks' day-to-day operations, a lot of political pressure has been exerted on institutions to get them to lend more.
. . . .
Wells Fargo said Friday that it will save $5 billion a year by cutting its dividend. The bank also hinted that the extra capital will help it repay the TARP investment more quickly.

"The U.S. Treasury's Capital Purchase Program investment is generating a return for the U.S. taxpayer -- at significant cost to the company," Wells Chief Executive John Stumpf said in a statement.
. . . .
Iberiabank Corp. and TCF Financial, two smaller banks, have already asked for approval to repay the TARP money they got last year.

"Recent actions, interpretations, and commentary regarding various aspects of the program places our company at an unacceptable competitive disadvantage," Iberiabank Chief Executive Daryl Byrd said in late February.

TCF Chief Executive William Cooper said the TARP rules had "definitely changed" since last year.

TARP was originally designed to encourage healthy banks to lend more to help revive the economy. But recent actions by the Treasury and possible restrictions imposed by Congress or regulators make it look like banks took TARP money out of weakness, he explained.
. . . .

If banks can do without TARP funds, then let them return the funds, and let's move on.


When economy bottoms out, how will we know?
http://news.yahoo.com/s/ap/20090307/ap_on_bi_ge/economy_where_s_the_bottom


If the banks aren't lending, then they presumable do not have confidence in the ability of the businesses or individuals to repay the loans, i.e. the banks (or financial institutions) looking forward are assuming that the demand (economic activity) is not there. At some point, that becomes a self-fulfilling prophesy, which induces a decline in economic acitivty.

The other point discussed in this thread is "what should be the role of government in regulating the ecomony" as well as "what level of regulation is acceptable". Should regulation include stimulation, or limited to setting the standards (rule of principles and practices) for economic activity? But these would seem to be topics for other threads.

 

[WhoWee]

Thank you, TT! Businesses in our current economy/government have far more rights than are accorded to individuals, with tax benefits that are sometimes obscene.

Businesses thrive on the stable atmosphere that our system of governance provides, and they should pay more taxes than individuals because their existence and profitability depend on the health of our government. The naive notion that "business is good" for us is far out-dated. Too many businesses are stripping wealth from our country, shipping it off-shore, and sucking up benefits from the tax-payers who are expected to pay for their excesses.

Your rhetoric can be inflammatory and dangerous when taken out of context...again...when taken out of context.

Too many individuals group all businesses together in the "evil" column. You are talking about large multi-national conglomerates...I get it. But the anti-business sentiment has spread to include all businesses...from the corner pizza shop to the local plumber to the corner auto body shop to the local McDonald's franchisee to the local auto parts store to the town saw mill and the 200 employee fabrication shop that's struggling to compete with a Chinese factory to make component parts.

While it's easy to sit back and comment that government favors business...the statement is quite naive. In reality business is saddled with mandated expenses in order to comply with regulations such as SOX, high insurance costs to protect from law suits, matching taxes, workers comp, compliance with EPA, HIPPA, OSHA, hiring quotas, multitudes of audits, health and building codes, zoning, transportation rules, unions and maintaining a separate set of tax accounting books. Now cap and trade will add even more costs.

The truth is that government FEEDS off business. Business regulation creates the need for hundreds of thousands of government jobs.

The only time an individual experiences government regulations is when they pull a building permit or obtain a license...and most complain about the experience. Business deals with government intervention on a daily basis.

Do your homework and stop ignoring the relevant facts...small to medium sized businesses are over-regulated and often spend as much or more to maintain compliance as they pay in taxes.

 

[Astronuc]

While it's easy to sit back and comment that government favors business...the statement is quite naive. In reality business is saddled with mandated expenses in order to comply with regulations such as SOX, high insurance costs to protect from law suits, matching taxes, workers comp, compliance with EPA, HIPPA, OSHA, hiring quotas, multitudes of audits, health and building codes, zoning, transportation rules, unions and maintaining a separate set of tax accounting books. Now cap and trade will add even more costs.

The truth is that government FEEDS off business. Business regulation creates the need for hundreds of thousands of government jobs.

Or government feeds on business as the case may be.

Excessive regulation, or nonsense rules that simply make work for government employees, or high-priced consultants, is simply wasteful and costly.

But then how does one protect the General Welfare from 'bad' business practices. The rhetoric of "the market will regulate business", only works after the fact - after the damage is done.

How does the market protect against fraudulent mortgages or sub-prime loans? Clearly the government didn't perform its regulatory function, but then the financial industry failed to self-regulate.

How does the market enforce fiduciary responsibility and due diligence? It clearly didn't during the last decade or so. Even after Enron, WorldCom, Adelphia, Global Crossing, . . . . , we still got the Financial Meltdown.

How does the market protect against "credit default swaps" and other dubious instruments that have contributed to enormous losses?

How des the market protect against ponzi schemes like Bernie Madoff of Alan Stanford? After the $billions are gone - it's too late to correct. And we've seen this before.

How does the market protect the public against negligence, particularly criminal negligence resulting in severe injury or death? Most (tort) lawsuits would probably not be necessary if individuals were more careful or diligent.

One shouldn't generalize about poorly run large, medium and small corporations and unilaterally condemn all business. Most business people I know work really hard to do the right thing.

 

[WhoWee]

We are a country of laws. Our system allows for a single court ruling on an isolated event to affect everyone. Law students dream of the day they can argue such a case.

Unfortunately, this type of adjudication often leads to over-regulation (over-reaction)...which often creates a new set of circumstances.

Enron is a good example...to this day, very few people really comprehend what actually happened...from a business model perspective. But now we have the Sarbanes-Oxley Act to make sure it doesn't happen exactly that way again. Yet the problem with derivatives trading persists...in an arguably MORE complicated fashion than Enron's futures trading format.

EVERY ACTION of the Executive, Legislative and Judicial branches have long term and far reaching consequences...NO DECISIONS should ever be made in haste.

 

[OmCheeto]

Please let's stay on topic, which is "How to fix the economy". There are some interesting discussions on the philosophy and functionality of government and economy that are worthy of their own threads.

Meanwhile - Fed's Hoenig slams bank-rescue efforts
Calls for nationalizing all insolvent banks, big or small

I don't have a problem with this. Other than the fact it's not desirable. But I think it is the only rational fix to the current slide.

On the other hand - Some banks try to escape TARP trap
Dividend cut may help Wells Fargo repay government quicker; exits will take time
If banks can do without TARP funds, then let them return the funds, and let's move on.

The EESA/TARP restrictions don't seem all that draconian to me. Unless you are the CEO of one of these banks with a pot of gold to lose:

http://banking.senate.gov/public/_files/latestversionEESASummary.pdfd"
In order to participate in this program, companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits “golden parachutes” and requires that unearned bonuses be returned.

When economy bottoms out, how will we know?
http://news.yahoo.com/s/ap/20090307/ap_on_bi_ge/economy_where_s_the_bottom


If the banks aren't lending, then they presumable do not have confidence in the ability of the businesses or individuals to repay the loans, i.e. the banks (or financial institutions) looking forward are assuming that the demand (economic activity) is not there. At some point, that becomes a self-fulfilling prophesy, which induces a decline in economic acitivty.

Which is why I stated earlier that everything that everyone seems to be doing is the wrong thing to do at this time, with the exception of Obama.

In hindsight, I do think that the market needed it's current correction. I wasn't even aware that there was a bubble going on before a few months ago. But looking over the charts for companies, indexes, and housing prices, over the last 50 years, it's pretty obvious.

The other point discussed in this thread is "what should be the role of government in regulating the ecomony" as well as "what level of regulation is acceptable". Should regulation include stimulation, or limited to setting the standards (rule of principles and practices) for economic activity? But these would seem to be topics for other threads.

There were regulations and policies that were in place before this fiasco began that were, over time, changed. It might be a good idea to put them back the way they were:
Mortgage interest deduction on home loans: 1913
Mortgage backed securities privatized: 1968 (OMG. Does that mean they were nationalized before that? Were our parents and grandparents a bunch of commies? OMG!)
First sub-prime mortgage: 1993
Uptick rule on shorting revoked: July 2007

And then there's that new financial "invention" that fed the blob:
Credit default swaps: invented in 1997

http://www.factcheck.org/elections-2008/who_caused_the_economic_crisis.html"
October 1, 2008

The U.S. economy is enormously complicated. Screwing it up takes a great deal of cooperation. Claiming that a single piece of legislation was responsible for (or could have averted) the crisis is just political grandstanding. We have no advice to offer on how best to solve the financial crisis.

The only thing that is keeping me from investing seriously in the market is trust.
I don't trust the buggers running the place.
Until there are enough rules and oversight that will keep my money from being sucked up by bear raiders, top level corporate hogs, et al, it's penny ante for me. And I probably speak for the rest of America.

And last, but not least, another pat on the back for Barack:

http://online.wsj.com/article/SB123559630127675581.html?mod=todays_us_page_one"
FEBRUARY 26, 2009
Upper-Income Americans Would See Deductions Cut on Charity and Mortgage Interest

 

[Ivan Seeking]

Perhaps the most distressing announcement that I've heard to date:

Tim Geithner: Earlier today I proposed that the Federal Treasury set aside $420 billion. This $420 billion will be placed in a special fund and will go to the first individual who comes up with a workable plan to solve the banking crisis.

From a Saturday Night Live parody
http://www.msnbc.msn.com/id/29581959/page/4/

 

[WhoWee]

Maybe Geithner is trying to tell us he's underpaid...wants a bonus?

Let's not forget...Geithner is the ONLY guy who can fix this mess...by the way, have they hired anyone to help him yet?

 

[Astronuc]

How to fix the economy?

Get a job!


Even in a recession, some companies are hiring
http://news.yahoo.com/s/ap/20090309/ap_on_bi_ge/help_wanted

Help wanted: pharmacists, engineers and nurses. Believe it or not, even some banks are hiring, at least for their technology teams.

While the recession has claimed 4.4 million jobs, the economy has created others, many of them for highly trained and specialized professionals. More than 2 million jobs openings now exist across a range of industries, according to government data!

Job seekers beware, though. An average of nearly five people are competing for each opening. That's up sharply from a ratio of less than 2-to-1 in December 2007, when the recession was just starting and nearly 4 million openings existed.

. . . .

 

[Ivan Seeking]

There was one pundit punditting the other day... not sure who now, but his logic caught my attention. He was first arguing that IT jobs will help the economy recover so we should focus our efforts to that effect. Later he complained about how our health care system is far behind any other industry in regards to IT - that one of the main ways to cut medical costs is to apply state-of-the-art IT to the medical industry. The last point was that while he supports the stimulus package, now is not the time to take-on health care costs.

While I understand his objections to overloading the political system, I also think this is one example of what Obama calls "opportunity" - solutions that operate on multiple levels. In order to revamp health-care, we provide a broad stimulus to the IT industry. This in turn helps to create jobs and reverse the downward trends. Next, long-term economic stability depends greatly on controlling health care costs. So by focusing on health care now, we improve health care, reduce costs, provide a short-term stimulus for jobs, and provide for long-term economic stability.

..oh yes, and because of circumstances, we can get it done. That might not be true later. I think it was George Will, on ABC's, This Week, who said that the first attempt to reform health care was under the Roosevelt Administration - Teddy, not Franklin.

 

[Astronuc]

Health care must move away from treatment toward prevention. It's much less costly to prevent illness, than to treat it. Of course, the industry would rather have people pay $10-100 billions for treatment as opposed to $million or a few $billion for prevention.


Meanwhile - Sickly U.S. economy set for 2nd half rebound: survey
http://news.yahoo.com/s/nm/20090310/bs_nm/us_usa_economy_bluechip

The consensus of the 51 forecasters surveyed looks for U.S. gross domestic product to tumble at a sharp 5.3 percent annual rate in the first quarter and to decline at a 2 percent pace in the second quarter.

In the third quarter, however, economists expect the economy to expand at a 0.5 percent rate, followed by a 1.8 percent fourth-quarter gain.

For the year as a whole, the economy is expected to shrink 2.6 percent, which would be the largest annual contraction since the Great Depression. A month ago the survey pointed to a drop of 1.9 percent.

Good sign -
Pandit: Citi operating at profit through February
http://biz.yahoo.com/ap/090310/citigroup_ceo_letter.html

 

[turbo]

We might have saved ourselves a lot of this grief if Congress and Bush had set strict compensation limits for bank officers that had their hands out for the first "bailout". I wonder how many of the beggars would have re-evaluated their "need" for the money and turned it down rather than having their compensations cut...

 

[Astronuc]

The economy may be starting to fix itself.

Stocks shoot higher on Citigroup profit news
http://news.yahoo.com/s/ap/20090310/ap_on_bi_st_ma_re/wall_street

NEW YORK – Wall Street has had its best day of the year, storming higher after some good news from Citigroup.

Citigroup Inc. says it operated at a profit during the first two months of the year. That energized financial stocks and in turn, the entire stock market. Surprised investors drove the major indexes up more than 5.5 percent to their biggest one-day rally of the year. The Dow Jones industrials shot up nearly 380 points.

However, many analysts are still cautious — noting that Wall Street has seen many blips higher since the credit crisis and recession began. Word of Citi's performance broke a months-long torrent of bad news from the banking industry but analysts weren't ready to say the stock market was at a turning point and about to barrel higher after a slide that's lasted more than 16 months.

"To have a sustained rally, we have to have a shift in sentiment," said Kurt Karl, chief U.S. economist at Swiss Re. "One day isn't going to make a trend."

Still, the Citigroup news offered investors some hope that the first quarter will show signs of improvement.

In a letter to employees Monday, Citi Chief Executive Vikram Pandit said the performance this year has been the bank's best since the third quarter of 2007 — the last time it booked a profit for a full quarter. Based on historical revenue and expense rates, Citi's projected earnings before taxes and one-time charges would be about $8.3 billion for the full quarter.

. . . .

Maybe time to by some shares in Citigroup, which moved up $0.40 or 38%. GE had a good day moving up $1.46 (19.70%). One day doesn't make a rally, but it may be a start. Nevertheless, we have to wait for the quarterly reports in early April.

 

[Ivan Seeking]

The economy may be starting to fix itself.

Since Obama gets blamed for the drops now, clearly this is a response to his recovery package.

We won't recover until the credit markets are in order.

 

[Ivan Seeking]

We might have saved ourselves a lot of this grief if Congress and Bush had set strict compensation limits for bank officers that had their hands out for the first "bailout". I wonder how many of the beggars would have re-evaluated their "need" for the money and turned it down rather than having their compensations cut...

By all accounts that I've heard, there was simply no time. Many people look to the first bailout as if it was intended to fix the economy, but it wasn't. It was intended to prevent a collapse of the financial system, which apparently it did.

 

[turbo]

By all accounts that I've heard, there was simply no time. Many people look to the first bailout as if it was intended to fix the economy, but it wasn't. It was intended to prevent a collapse of the financial system, which apparently it did.

It needn't have taken a lot of time. Simply specify that the bank officers could not get any bonuses or stock options until the TARP funds were repaid. Not a complex thing.

I bet that most of the beggars would have re-evaluated their positions when they found out that they would have to agree to forgo the "sugar" they were accustomed to.

 

[Ivan Seeking]

It needn't have taken a lot of time. Simply specify that the bank officers could not get any bonuses or stock options until the TARP funds were repaid. Not a complex thing.

I don't think that was possible. Bonuses are part of the normal income structure. It would be like telling a company that they can't pay their salesmen commissions until the loan is paid off.

I bet that most of the beggars would have re-evaluated their positions when they found out that they would have to agree to forgo the "sugar" they were accustomed to.

Keep in mind that they were told by Paulson that they would take the money - they had no choice. They were handed a one-page form and effectively ordered to sign it.

 

[Ivan Seeking]

Health care must move away from treatment toward prevention. It's much less costly to prevent illness, than to treat it. Of course, the industry would rather have people pay $10-100 billions for treatment as opposed to $million or a few $billion for prevention.

True, but a lot of progress can be made by simply increasing the efficiency of the system through IT. I would have dig around to find the figures, but it has been shown before that paperwork accounts for a signficant percentage of health care cost. Having been in the medical field myself, and being married to someone who has been in medicine for over thirty-five years, there is no doubt in my mind that this is the case. There are also many medical errors made that that cost lives and money, that could be prevented through IT. For example, one of the most common errors is to misread a doctor's handwriting. A simple mistake like this can result in many $millions in legal fees and settlements.

 

[Al68]

Good. You acknowledge that talk of free markets is just rhetorics?

I don't think so.

Now it all depends on where we draw the line. That is a purely subjective matter and determining the degree of rightness is also purely subjective. That is because in one model we can give some freedoms that don't exist in the other one. Comparing two freedoms and assigning them a quantized freedom value hasn't been done. So essentially any choice we make is in some sense the right and the free one.

That must be a joke.

 

[Al68]

I don't think that any individual should be taxed at a higher rate than any other individual. I do think that the profits of collective enterprises should be taxed at a higher rate than individuals , and that they should be held to higher standards of social responsibility than individuals.

These statements contradict each other.

Only if the consequences of the collective actions of two or more people are taken to be necessarily equivalent to those of a single person -- and since they aren't, necessarily, then it might be argued that the principle of individual liberty doesn't necessarily apply to collectives.

The tax rate paid by each member of the "collective" is exactly equal to the tax rate applied to the "collective". That makes your statements contradict each other.

However, until I learn something that changes my mind, and notwithstanding the apparent inconsistency of the position, I think that collectives should generally be held to higher standards of social responsibility (generally closer scrutiny by regulatory agencies and whatever it takes to keep them from screwing up environments, coercing government officials, monopolizing markets, undermining collective bargaining efforts, etc.) than individuals, because the power of a collective to suppress or diminish the liberty of its individual constituents, or other individuals who its actions might affect, is greater than the power of any of its individual constituents to do that.

I have no problem with, and I advocate laws that forbid violating anyone's individual liberty. Applicable to both businesses and individuals and government agents. Of course no private company has ever had any legal authority to give me orders or restrict my liberty in any way, so I've never had that problem. Maybe an example of what you're talking about would help.

As far as flat taxes, how about a Dick Armey style tax? Flat rate with HUGE standard deductions but no other deductions. This was about 15 yrs ago, but I remember the standard deduction being about $38,000 for a family of four. It had the advantage (or disadvantage?) that it was so simple that people couldn't easily be misled about tax policy.

Or the flat sales tax with a monthly check to everyone that re-inburses a fixed amount to everyone, which would effectively exempt all poor and most middle class income? Again, since it's simple, there is a great opposition to it.

 

[Ivan Seeking]

Here we go.

...Kerry's $350 billion figure for what's spent on health care paperwork and administrative overhead is far less certain, but still a reasonable estimate. Various scholarly studies have put the cost of paperwork and administrative overhead at anywhere from 7.6% to 31% of the total cost of healthcare in the US. Kerry's figure is just over 23%, on the high side but still not unreasonable...

http://www.factcheck.org/kerry_paperwork_ad_accurate.html