Well, three weeks into the Obama administration and we are getting a real lesson in the two major alternative approaches to macroeconomic analysis that exist within the profession of economics today. The first approach, generally favored by those supporting President Obama, is Keynesian in nature. The second approach, generally favored by those not supporting President Obama, but not necessarily Conservative in their leanings, nor do these people necessarily believe that they are of the Republican Party, tend to work with a different model of the macroeconomy.
The Keynesian approach, developed in the post-World War I era, contends there is a problem in how the macroeconomy works itself out if there is insufficient demand coming from the private sector. This initiating factor in this model is that business expectations about the future drop off considerably…there is a decline in “animal spirits”…and as a consequence investment expenditures collapse. The normal response to this when the economy has not fallen apart is to have the monetary authorities lower interest rates and this action will stimulate investment demand and re-charge the economy.
The problem with this is that when “animal spirits” really collapse and there seems to be a cumulative downward movement in the economy, the monetary authorities cannot stimulate business investment expenditures so that the central bank cannot stop and reverse the downward spiral. Keynes suggested that in such situations the only possible vehicle to stop the cumulative collapse is for the government to come into the picture and substitute government expenditures for the business expenditures that have gone away.
The government can either finance these expenditures by printing money or issuing debt. The idea here is that this spending, even if financed by printing money, will not have an impact on prices (inflation) because of the un-used resources in the economy. That is, the government expenditures will just pick up the slack in demand and then through the multiplier effect created by increasing incomes and consumption expenditures, aggregate economic activity will pick up.
The major question here is about the size of the multiplier. There is much speculation on this, but the figure most people feel that people in the Obama administration are using is 1.5. That is, if the stimulus bill totals about $850 billion, then the total impact on the economy of this program will be $1.275 trillion…a hefty boost to aggregate economic activity.
There are several attacks on this way of thinking that lead us into the conclusions presented by the second approach under review. The first one is that the Keynesian approach, as described above, does not take into account that Keynes constructed his model in a period in which international capital flows were severely limit. Thus, what was done in a sovereign country generally stayed in that country.
The international financial system broke down during World War I…this was the old gold standard system. Keynes fought hard at the Paris Peace Conference which followed the war for fixed currency exchange rates between countries and limited international flows of capital. One of the things that Keynes was most worried about was the Russian Revolution and the spread of the ideas connected with the uprising of the workers and the leadership of the Proletariat. This seemed to be a worldwide concern that lasted in the mid-thirties. The worst fears of many, many people were that economic collapse or depression would result in a movement in which the workers took over.
Economic nationalism was designed to prevent such an occurrence. Fixed exchange rates, restricted international capital flows, and protective tariffs were designed to achieve this result. This was why Keynes wanted countries to be independent of one another so that those that wanted to could follow they own stimulus program without having to worry about currency depreciation or an international loss of capital. His stimulus programs were designed to work in such a country.
This is not the world that we find ourselves…we have floating exchange rates…we have relatively open world capital markets and a free flow of capital to almost anywhere…and in recent years there has been great efforts to promote and expand free trade. The government expenditures promoted by those that support the Keynesian approach have not accounted for the difference between the construction of the world in the 1930s and the construction of the world in the 2000s. The modern argument is that the spending of the government will just be dissipated through open world markets and capital flows and will not be able to achieve the level of stimulus they hope for.
Furthermore, the Keynesian effort will just increase…by substantial amounts…the amount of debt that exists within the world. As I have reported in recent posts, Niall Ferguson has claimed that the proposals of these “born-again” Keynesians are treating a situation where too much debt exists by adding on major amounts of new debt. Or, in other words these proposals are attempting to solve the problem of too much leverage in the system by adding on more leverage. Ferguson, as reported, does not believe that this will work.
In terms of the alternative economic model we find two major editorials published in recent days that lay out some of the concerns of this other school of thought. These are the articles by Robert Barro, “Government Spending is No Free Lunch,” WSJ on January 22, 2009, (http://online.wsj.com/article/SB123258618204604599.html), and Gary Becker and Kevin Murphy, “There’s No Stimulus Free Lunch,” WSJ on February 10, 2009, (http://online.wsj.com/article/SB123423402552366409.html?mod=todays_us_opinion). They are not too optimistic that the Obama stimulus plan will be very effective.
This school of thought emphasizes more the supply side of the economy and is concerned that the appropriate incentives are set up. For one, both articles contend that the multiplier is substantially below 1.0…I have used 0.4 in my writing. If the multiplier is 0.4 then the $850 billion in government spending will only produce approximately $340 billion in additional output…not much bang for the buck. The reason why is that the spending part of the program will draw resources away from other, private spending so there will not be the add-on effect, but a substitution effect in which resources that would have been used in other areas of the economy are now drawn to these areas. In terms of tax cuts, they argue that the way the tax cuts are structured the additional funds available to consumers will go into savings or a “rainy day” fund to protect against future economic difficulties. Thus, in neither effort is the government getting much for its spending.
In terms of the “right” incentives, Barro would like to see a reduction or elimination of the corporate income tax. In this way Barro believes that the incentives would be right for businesses to spend and put resources to work for they would be getting that extra boost from the lower or non-existent tax rates. In this way the supply side of the economy is stimulated…which Barro contends will be much more effective than the spending and tax-reduction programs that have been proposed.
The differences are great and they are now starting to get full exposure. We will talk more about these in the future.
Tuesday, February 10, 2009
Saturday, February 7, 2009
Government and "Economic Shocks"
Elected officials, in general, have two fundamental incentives; the first is to get elected or re-elected; and the second is to do some good. The first is very straightforward and easily understandable. The second…well, the second creates a question…do some good…for whom? Generally, this question can be answered by saying that “for whom?” refers to people that will elect the officials…or will re-elect them.
Elected officials are often asked to behave in ways that reflect the common good…that ignore total self-interest. But, the very cynical argue that you can count on one hand the number of times that an elected official acted in ways that were solely for the good of all and did not reflect just self-interest. Others would argue that the number is larger than that…but to understand the elected official you must not ignore the fact that his or her position depends upon them acting in their own self-interest.
If a subset of the electorate elects an official, they do so on the expectation that the official will represent them and support their interests. If the official does not represent the subset’s interest to the degree that they expect the official to…then they have incentive to support another candidate. So, elected officials really only have one incentive in running for office…to get elected or to get re-elected.
The point here is that elected officials may have incentives that are different from the incentives that exist within the economic system. For example, if economic growth is slowing down…elected officials or those appointed by elected officials may have an incentive to stimulate the economy and increase employment if an election is near at hand. If elected officials or those appointed by elected officials express concern that the stock market may collapse, they may try and keep interest rates extremely low in order to avoid a stock market correction or a readjustment to a more realistic level. If elected officials or those appointed by elected officials believe that every American…or almost every American…should own a home, they will create and support programs that encourage such a result.
Every one of these efforts…and many more like them…can be traced back to efforts to get elected officials re-elected…and they are all aimed at a “good” thing…or a “good” cause. No one can disagree with the basic attempt by the elected officials or those appointed people.
Each of these efforts, however, is what the economist would call a “shock” to the economic system. Each of these efforts represents a response to a different set of incentives than those that exist within the functioning of markets and relationships in the economic system, itself. Economic models attempt to separate out the different factors that are at work within an economic system. Factors that do not respond to the regular incentives that exist within the economic system are called “exogenous” variables and changes in these variables are introduced independently of the system. Other variables that respond to the incentives that exist within the system, both those created by other non-exogenous variables as well as to the incentives created by the exogenous variables are called “endogenous” variables.
The importance of this distinction is that many of the “shocks” that an economic system receives is of the “exogenous” variety and are introduced into the economy for reasons other than allowing the economic system to work out all the incentives and dis-incentives that currently exist. In effect, these “exogenous” shocks are often aimed at preventing the economic system to work itself out in the direction it is going. And, as stated above, many of these interventions are for the “good” of the economy or for the “good” of, at least, some of the people in the economy.
The fact of the matter is that we don’t really have good theory to examine how these “exogenous” shocks come about. If we did, obviously, then they could be incorporated into the economic model and would become “endogenous” variables. Therefore, these “exogenous” shocks…government decisions…must stay exogenous and be introduced as they happen or are expected to happen.
Economics is a study of human behavior. Therefore, the predictions that come from economic models are going to be highly imprecise. Economic models are all incomplete and fallible. We just can’t do better than that when dealing with human behavior. Some situations lend themselves to more consistent behavior that allow for the making of better predictions…but other situations…like government decision making…are not systematic and so are almost impossible to model. And, we are finding out through the research in areas such as behavioral economics and behavioral finance that some situations that were, in the past, assumed to be fairly regular, are not that regular and need to be modeled with much less confidence about the accuracy of their predictions.
The name of John Maynard Keynes has surfaced a lot these days…and I am going to refer back to something that he wrote that, I believe, pertains to this very issue. In his commentary of the great economist Alfred Marshall after the great man died, Keynes discusses what makes an exceptional economist. In terms of Marshall, Keynes remarked that he was very learned in history. And then Keynes followed up on this by saying that anyone that wanted to be a top level economist needed to incorporate history into his or her explanation of how things worked. And, Keynes did not mean by history, incorporating a huge amount of statistical data into the model building process. Keynes was referring to the need to understand specific individuals and how those individuals made decision…how they were affected by their time…and how they were affected by their own experience and upbringing. He concluded that good economics required a good knowledge of history and biography…not something that is often taught in Ph. D. programs in economics or finance.
The point of this post is that in the policy making issues that government has to deal with we cannot just rely on assumptions of completely self-correcting free market economic systems where the incentives generated within the system are sufficient to work themselves out in a deterministic fashion. These systems will be continuously impacted by “exogenous” shocks that will bump the system one way or another, preventing the system from working itself out into a “new equilibrium” where everything is OK. These systems…for better or for worse…will be buffeted by these “exogenous” shocks and this will mean that we, in order to understand what is happening or what has happened, will need to introduce history and biography into the analysis we are going through. That is…economics cannot stand alone and provide all the answers.
This leads us into the position that we can…and must…look for bumps and shifts in the economy that are caused by governmental interference…usually with good intentions…and see how the government changes incentives…and how these changed incentives can divert the economy from one path onto another.
A good example of this comes in situations that create what economists call “moral hazard”…actions that lead people to do perverse things that they would not do under other circumstances. For example, people have to take risks in what they do…starting a business, buying a home, investing in securities, and so on. If a situation arises in which the people that have done one or more of these things get into dire straights…that is, they may face foreclosure or bankruptcy…elected officials can decide…for good reason…to protect them in some way. This presents a situation of “moral hazard” because those people that get protected may, in the future, decide to take on even higher levels of risk and make the economic or financial system more fragile. One can applaud of condemn actions that create “moral hazard” but it is a judgment decision. The elected officials must make a decision relating to the trade off between avoiding a bad situation now…protecting the people who have gotten in trouble…versus not protecting the people now and facing a economic or financial catastrophe. Where you set the tradeoff is a personal decision.
Elected officials are often asked to behave in ways that reflect the common good…that ignore total self-interest. But, the very cynical argue that you can count on one hand the number of times that an elected official acted in ways that were solely for the good of all and did not reflect just self-interest. Others would argue that the number is larger than that…but to understand the elected official you must not ignore the fact that his or her position depends upon them acting in their own self-interest.
If a subset of the electorate elects an official, they do so on the expectation that the official will represent them and support their interests. If the official does not represent the subset’s interest to the degree that they expect the official to…then they have incentive to support another candidate. So, elected officials really only have one incentive in running for office…to get elected or to get re-elected.
The point here is that elected officials may have incentives that are different from the incentives that exist within the economic system. For example, if economic growth is slowing down…elected officials or those appointed by elected officials may have an incentive to stimulate the economy and increase employment if an election is near at hand. If elected officials or those appointed by elected officials express concern that the stock market may collapse, they may try and keep interest rates extremely low in order to avoid a stock market correction or a readjustment to a more realistic level. If elected officials or those appointed by elected officials believe that every American…or almost every American…should own a home, they will create and support programs that encourage such a result.
Every one of these efforts…and many more like them…can be traced back to efforts to get elected officials re-elected…and they are all aimed at a “good” thing…or a “good” cause. No one can disagree with the basic attempt by the elected officials or those appointed people.
Each of these efforts, however, is what the economist would call a “shock” to the economic system. Each of these efforts represents a response to a different set of incentives than those that exist within the functioning of markets and relationships in the economic system, itself. Economic models attempt to separate out the different factors that are at work within an economic system. Factors that do not respond to the regular incentives that exist within the economic system are called “exogenous” variables and changes in these variables are introduced independently of the system. Other variables that respond to the incentives that exist within the system, both those created by other non-exogenous variables as well as to the incentives created by the exogenous variables are called “endogenous” variables.
The importance of this distinction is that many of the “shocks” that an economic system receives is of the “exogenous” variety and are introduced into the economy for reasons other than allowing the economic system to work out all the incentives and dis-incentives that currently exist. In effect, these “exogenous” shocks are often aimed at preventing the economic system to work itself out in the direction it is going. And, as stated above, many of these interventions are for the “good” of the economy or for the “good” of, at least, some of the people in the economy.
The fact of the matter is that we don’t really have good theory to examine how these “exogenous” shocks come about. If we did, obviously, then they could be incorporated into the economic model and would become “endogenous” variables. Therefore, these “exogenous” shocks…government decisions…must stay exogenous and be introduced as they happen or are expected to happen.
Economics is a study of human behavior. Therefore, the predictions that come from economic models are going to be highly imprecise. Economic models are all incomplete and fallible. We just can’t do better than that when dealing with human behavior. Some situations lend themselves to more consistent behavior that allow for the making of better predictions…but other situations…like government decision making…are not systematic and so are almost impossible to model. And, we are finding out through the research in areas such as behavioral economics and behavioral finance that some situations that were, in the past, assumed to be fairly regular, are not that regular and need to be modeled with much less confidence about the accuracy of their predictions.
The name of John Maynard Keynes has surfaced a lot these days…and I am going to refer back to something that he wrote that, I believe, pertains to this very issue. In his commentary of the great economist Alfred Marshall after the great man died, Keynes discusses what makes an exceptional economist. In terms of Marshall, Keynes remarked that he was very learned in history. And then Keynes followed up on this by saying that anyone that wanted to be a top level economist needed to incorporate history into his or her explanation of how things worked. And, Keynes did not mean by history, incorporating a huge amount of statistical data into the model building process. Keynes was referring to the need to understand specific individuals and how those individuals made decision…how they were affected by their time…and how they were affected by their own experience and upbringing. He concluded that good economics required a good knowledge of history and biography…not something that is often taught in Ph. D. programs in economics or finance.
The point of this post is that in the policy making issues that government has to deal with we cannot just rely on assumptions of completely self-correcting free market economic systems where the incentives generated within the system are sufficient to work themselves out in a deterministic fashion. These systems will be continuously impacted by “exogenous” shocks that will bump the system one way or another, preventing the system from working itself out into a “new equilibrium” where everything is OK. These systems…for better or for worse…will be buffeted by these “exogenous” shocks and this will mean that we, in order to understand what is happening or what has happened, will need to introduce history and biography into the analysis we are going through. That is…economics cannot stand alone and provide all the answers.
This leads us into the position that we can…and must…look for bumps and shifts in the economy that are caused by governmental interference…usually with good intentions…and see how the government changes incentives…and how these changed incentives can divert the economy from one path onto another.
A good example of this comes in situations that create what economists call “moral hazard”…actions that lead people to do perverse things that they would not do under other circumstances. For example, people have to take risks in what they do…starting a business, buying a home, investing in securities, and so on. If a situation arises in which the people that have done one or more of these things get into dire straights…that is, they may face foreclosure or bankruptcy…elected officials can decide…for good reason…to protect them in some way. This presents a situation of “moral hazard” because those people that get protected may, in the future, decide to take on even higher levels of risk and make the economic or financial system more fragile. One can applaud of condemn actions that create “moral hazard” but it is a judgment decision. The elected officials must make a decision relating to the trade off between avoiding a bad situation now…protecting the people who have gotten in trouble…versus not protecting the people now and facing a economic or financial catastrophe. Where you set the tradeoff is a personal decision.
Tuesday, February 3, 2009
Liberal Democracy
Liberal democracy has its benefits and it has its problems. One of the things the founders of the United States seemed to want to avoid was the creation of a democracy…instead they wanted to produce a republic. Why would this be the case?
A democracy, Webster’s tells us, is “rule of the majority.” A republic, Webster’s states, is “a government in which supreme power resides in a body of citizens entitled to vote and is exercised by elected officers and representatives responsible to the citizens and governing according to law.” In addition, a republic is “a government having a chief of state who is not a monarch.”
The difference in emphasis is dramatic…a democracy…the majority rules. In a republic…people govern who are representatives of the people…and are elected to use their own judgment. A democracy can also have an elected body, but the people serving in that government are expected to be conduits of the will of the people.
The founders and many other individuals of a “liberal” persuasion tended to shy away from the idea of a democracy because they equated democracy with a rule by the crowd or the mob. The thing that these people were concerned about is the tendency for the crowd to be moved by emotion and to swing first one way and then another. Representatives in a republic are responsible to bring with them their intelligence and experience and judgment…they are not expected to be swayed by the emotion of the moment or by this trend or that trend.
The problem that occurs when a republic becomes dominated by “public opinion” they begin to act more like a democracy. That is, they pay less attention to their own judgment and abdicate their responsibility to the “will of the moment.”
History has shown that incentives exist for politicians to extend the voting franchise whenever it is in their best interest to enlarge the number of people that are allowed to vote. We see this to be the case in England…Disraeli and Gladstone both increased the franchise to get them elected and serve their own purposes. We see that happening over-and-over again in the United States. The effort of the politicians is to play to the preferences of different “interest” groups and ride them into office and into power.
To discuss this in very modern terms, I refer once again to the recent work of Niall Ferguson, especially his latest book titled “The Ascent of Money.” There are two specific areas that I would like to focus on specifically in this post. The first area concerns how capitalism and, more specifically, the financial aspects of capitalism can create opportunities for politicians to build large constituencies that can help them attain office perhaps to the potential detriment of the health of the country. The second has to do with “housing” democracy, the idea that all…or at least the vast majority…of Americans should own their own home.
The first of these areas relates to the “bad press” that finance and financiers have gotten over time. Historically, finance and financiers have been depicted as parasites that prey on the “real” economic activities that are carried on by the rest of the society. Somehow these people attach themselves to what is really going on in an economy and “suck” the system for what it is worth. Essentially, what is being said about finance and financiers is that they are peripheral to the real work of the economy contributing little or nothing to the output produced real workers.
One of the things that Ferguson presents and stresses is that economic development requires that finance exist within an economy and without a financial system (private property and the rule of law) little enterprise, innovation, or expansion takes place. Finance brings resources, particularly financial resources, to where they can be the most productive in a society. Without this allocation function, societies tend to remain dormant…listless…poor.
With this said, Ferguson goes on to write that debtors have seldom felt well disposed toward creditors and the former has tended to outnumber the latter by a large amount. Because of this debtors have tended to get better coverage in the press and a wider audience for their complaints among intellectuals and people with particular political leanings. Politicians can count and are very aware that debtors outnumber creditors.
Furthermore, financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty rather than prosperity, volatility rather than stability. That is, finance disrupts people’s lives…it seems to make things more difficult…it is identified with “cheats” and “frauds”. Again, the thing that seems to “stick” in people’s minds is the “bad stuff” and not the “good stuff” that comes from a well-functioning financial system.
There are two other factors that seem to permeate the image of the financier to “common” citizens. First, there are wide disparities in income and wealth distribution separating “financiers” from the rest of society. This doesn’t seem very democratic and fair…especially if these people are parasites. Second, for centuries, financial services have been disproportionately provided by members of ethnic or religious minorities who have been excluded from other important positions in the society.
The point of this is that people that have or can have negative feelings about finance and those people that work in financial institutions. These negative feelings can be played upon by those that can gain from obtaining support from these large numbers of people. That is, politicians and others can play on the emotions of the discontented, the dislocated, and the disenfranchised. In this way they can play down or tarnish the image of the good that comes from the financial system.
The other topic I wanted to emphasize is what has been titled “housing” democracy…the concept that all…or, at least, most…Americans should own their own home. This move started in the 1930s as laws and institutions were created to make it easier for people to own their own home. This effort increased after the close of World War II and gathered speed in the 1960s with the “Great Society” and did not slow down into the Nixon years.
I remember working on something called a mortgage backed security during the time I was in the Washington, D. C. in the 1971-72 period. The rationale, as least the one I heard, for this effort was to help get Republicans re-elected to Congress as well as to bring more Republicans into government. How could this happen? Well, if we could get thrift institutions, the primary organizations that originated mortgages, to package their mortgages and sell them to other financial institutions, like insurance companies and pension funds that purchased long term assets, then the thrift institutions could go out and originate more mortgages. More people could own their own homes…and since the Republicans created this process…the voters would reward them by electing or re-electing them to public office.
During the rest of the century this idea was not lost on either Republicans or Democrats. Basically, this effort became a part of the American dream…the creation of everyone owning their own home. So, financial innovation built on financial innovation…and these innovations were constantly celebrated. As a consequence, mortgage-related securities are the most prominent financial asset in the world in terms of outstanding amounts. And, this promotion of “housing” democracy has brought us to the brink of financial collapse…or worse. But, it reportedly got a lot of happy homeowners to vote.
If these politicians have pushed America…and other countries…into more and more of a democratic mode…the question is…has this been helpful? Has this made things better off or worse off? Another question follows…if this process of “democratization” has actually taken place and has not been the most beneficial approach to the health and welfare of the country…what can be done to counteract it? This last point will be discussed in my next post.
A democracy, Webster’s tells us, is “rule of the majority.” A republic, Webster’s states, is “a government in which supreme power resides in a body of citizens entitled to vote and is exercised by elected officers and representatives responsible to the citizens and governing according to law.” In addition, a republic is “a government having a chief of state who is not a monarch.”
The difference in emphasis is dramatic…a democracy…the majority rules. In a republic…people govern who are representatives of the people…and are elected to use their own judgment. A democracy can also have an elected body, but the people serving in that government are expected to be conduits of the will of the people.
The founders and many other individuals of a “liberal” persuasion tended to shy away from the idea of a democracy because they equated democracy with a rule by the crowd or the mob. The thing that these people were concerned about is the tendency for the crowd to be moved by emotion and to swing first one way and then another. Representatives in a republic are responsible to bring with them their intelligence and experience and judgment…they are not expected to be swayed by the emotion of the moment or by this trend or that trend.
The problem that occurs when a republic becomes dominated by “public opinion” they begin to act more like a democracy. That is, they pay less attention to their own judgment and abdicate their responsibility to the “will of the moment.”
History has shown that incentives exist for politicians to extend the voting franchise whenever it is in their best interest to enlarge the number of people that are allowed to vote. We see this to be the case in England…Disraeli and Gladstone both increased the franchise to get them elected and serve their own purposes. We see that happening over-and-over again in the United States. The effort of the politicians is to play to the preferences of different “interest” groups and ride them into office and into power.
To discuss this in very modern terms, I refer once again to the recent work of Niall Ferguson, especially his latest book titled “The Ascent of Money.” There are two specific areas that I would like to focus on specifically in this post. The first area concerns how capitalism and, more specifically, the financial aspects of capitalism can create opportunities for politicians to build large constituencies that can help them attain office perhaps to the potential detriment of the health of the country. The second has to do with “housing” democracy, the idea that all…or at least the vast majority…of Americans should own their own home.
The first of these areas relates to the “bad press” that finance and financiers have gotten over time. Historically, finance and financiers have been depicted as parasites that prey on the “real” economic activities that are carried on by the rest of the society. Somehow these people attach themselves to what is really going on in an economy and “suck” the system for what it is worth. Essentially, what is being said about finance and financiers is that they are peripheral to the real work of the economy contributing little or nothing to the output produced real workers.
One of the things that Ferguson presents and stresses is that economic development requires that finance exist within an economy and without a financial system (private property and the rule of law) little enterprise, innovation, or expansion takes place. Finance brings resources, particularly financial resources, to where they can be the most productive in a society. Without this allocation function, societies tend to remain dormant…listless…poor.
With this said, Ferguson goes on to write that debtors have seldom felt well disposed toward creditors and the former has tended to outnumber the latter by a large amount. Because of this debtors have tended to get better coverage in the press and a wider audience for their complaints among intellectuals and people with particular political leanings. Politicians can count and are very aware that debtors outnumber creditors.
Furthermore, financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty rather than prosperity, volatility rather than stability. That is, finance disrupts people’s lives…it seems to make things more difficult…it is identified with “cheats” and “frauds”. Again, the thing that seems to “stick” in people’s minds is the “bad stuff” and not the “good stuff” that comes from a well-functioning financial system.
There are two other factors that seem to permeate the image of the financier to “common” citizens. First, there are wide disparities in income and wealth distribution separating “financiers” from the rest of society. This doesn’t seem very democratic and fair…especially if these people are parasites. Second, for centuries, financial services have been disproportionately provided by members of ethnic or religious minorities who have been excluded from other important positions in the society.
The point of this is that people that have or can have negative feelings about finance and those people that work in financial institutions. These negative feelings can be played upon by those that can gain from obtaining support from these large numbers of people. That is, politicians and others can play on the emotions of the discontented, the dislocated, and the disenfranchised. In this way they can play down or tarnish the image of the good that comes from the financial system.
The other topic I wanted to emphasize is what has been titled “housing” democracy…the concept that all…or, at least, most…Americans should own their own home. This move started in the 1930s as laws and institutions were created to make it easier for people to own their own home. This effort increased after the close of World War II and gathered speed in the 1960s with the “Great Society” and did not slow down into the Nixon years.
I remember working on something called a mortgage backed security during the time I was in the Washington, D. C. in the 1971-72 period. The rationale, as least the one I heard, for this effort was to help get Republicans re-elected to Congress as well as to bring more Republicans into government. How could this happen? Well, if we could get thrift institutions, the primary organizations that originated mortgages, to package their mortgages and sell them to other financial institutions, like insurance companies and pension funds that purchased long term assets, then the thrift institutions could go out and originate more mortgages. More people could own their own homes…and since the Republicans created this process…the voters would reward them by electing or re-electing them to public office.
During the rest of the century this idea was not lost on either Republicans or Democrats. Basically, this effort became a part of the American dream…the creation of everyone owning their own home. So, financial innovation built on financial innovation…and these innovations were constantly celebrated. As a consequence, mortgage-related securities are the most prominent financial asset in the world in terms of outstanding amounts. And, this promotion of “housing” democracy has brought us to the brink of financial collapse…or worse. But, it reportedly got a lot of happy homeowners to vote.
If these politicians have pushed America…and other countries…into more and more of a democratic mode…the question is…has this been helpful? Has this made things better off or worse off? Another question follows…if this process of “democratization” has actually taken place and has not been the most beneficial approach to the health and welfare of the country…what can be done to counteract it? This last point will be discussed in my next post.
Friday, January 30, 2009
Big Government
So much discussion is going on today about “Big Government.” The urgency of the talk is, of course, a result of the Obama stimulus plan…and TARP…and a possible “bad bank”…and possibly even more spending and tax cuts coming down the line. There is even a new book out called “The Case for Big Government,” by Jeff Madrick.
Has anyone been to Washington, D. C. lately?
Tell me what someone means when they say…”small government”?
It’s all relative…right?
To me the talk about “Big Government” or “small government” is so much wasted energy. The United States government IS big! It is going to STAY big! There is no way that I can see it becoming smaller. And, this doesn’t even take into account that we are faced, throughout the world, with dealing with other BIG governments.
The question to me is not about the size of the government. I would even argue that the size and complexity of other organizations within the country and the problems that must be dealt with require that the government be big. To me the question is about how this government goes about its business…that is how the public sector interacts with the private sector.
Last February, I put up a post on this site titled “More on Hamiltonian Government” (2/27/2008). In this post I argued that government faces three problems that put a limit on its power. These problems relate to the creation of incentives, the lack of sufficient information, and the speed at which events are taking place in the modern world. These limits, as I saw the situation, restricts what a government can achieve and directs us to those things a government can do that are actually helpful. The conclusion is that a government can have a positive effect on the private sector if it focuses on process rather than outcomes. If it focuses on outcomes, a government may create more problems than it solves.
Let’s just looking at the first of these problems today, the problem of incentives: the basic incentive for government is to “improve” something…make something better…or less bad. (On January 10, 2009, I wrote a post called “Improvers” to discuss the topic a little more deeply.) The government doesn’t have a lot of specific incentives…except in cases like the military…win wars…keep the peace…and so forth. So the primary goal is to “improve” things.
The problem with this is that in trying to “improve” things, the government can often create other incentives that have undesirable results or results that are the exact opposite of what they would like to achieve. (To see some specific cases please refer to the popular book…and blog…called “Freakonomics” developed by Steven D. Levitt and Stephen J. Dubner.) The difficulty occurs when people attempt to focus outcomes and state their objectives in specific goals. Setting the specific goals can then create other incentives that can harm or destroy the purpose of the whole effort the government has undertaken to “improve” things.
This often happens in situations involving the government’s monetary and fiscal policies. For example, the goal to avoid recessions can create government policies that send out messages to the private sector that can totally destroy the initial goal of the government. When Alan Greenspan, chairman of the Board of Governors of the Federal Reserve System became so concerned about the possibilities of an extended recession following the bursting of the stock market bubble in the early 2000s that he kept the target interest rate of the Fed excessively low for an extended period of time, lower than the rate of inflation the economy was experiencing.
The result…excessive borrowing took place because the real rate of interest was negative…it paid people to borrow…a bubble in asset prices occurred in housing markets…this was passed into the capital markets through securitization…and this funneled into other areas of the capital market, especially more and more exotic derivative instruments…and as people continued to create credit at an exponential rate and as people continued to leverage up their balance sheets…the financial markets…and the whole economy…became more and more fragile.
Why did people…even sensible people…do these things?
The incentives created in the credit expansion distorted things. If, for example, I run a hedge fund and I want to earn a slightly better return on my portfolio than you I can, say, try one of two things. For one I can increase the riskiness of the assets I hold…maybe purchase securities backed by subprime loans rather than corporate bonds. Or, I can increase the leverage on my balance sheet to stimulate higher net returns on my portfolio. In either case I am increasing the riskiness of my portfolio in order to gain an advantage over you.
And, how can I get away with this. Well, I know that Alan Greenspan is so worried about avoiding a recession that he will continue to support the credit expansion even in the face of riskier asset portfolios or greater use of leverage in the system. And if this continues on for two or three years, the competitive pressure to do well and outperform my competitors will grow and grow. I will continue to increase the risk of my portfolios and to increase how much leverage I introduce to my balance sheet.
And, if I don’t do it? Suppose I am a relatively conservative portfolio manager and I don’t believe that I should either increase the riskiness of my asset portfolio or raise the amount of leverage on my balance sheet…what happens? Over time, as my competitors earn, even a few more basis points on the return on their portfolio…my clients will start withdrawing money from my funds and placing it with my competitor. If this environment is sustained by the government, I will either have to close my fund or capitulate and change my beliefs and become more aggressive. And, if I don’t have that choice and work for someone else…I will be replaced with someone that is more aggressive.
Is this outright greed that is driving this scenario? Are these people “bad” or “excessively crass” in their behavior?
These people want to perform well…that is true…but, I don’t believe that they are addicted to avarice any more or less than most people. The incentives changed on them and they just responded to the competitive pressures that were present in the market place. In my estimation…these incentives were set up by the government in following the incentive they placed high on their priority list…government officials wanted to improve things…they wanted to keep a recession from happening.
Government is going to have its incentives; and the private sector is going to have its incentives. The problem is not one of whether or not the government is big. The problem is related to how the government is going to implement its actions to achieve the goals it sets for itself. Often, as in the example I have given, the “good intentions” of the government can be translated into actions that create the “wrong” incentives for the private sector. If the private sector responds to these “wrong” incentives…and they will…the ultimate result may be totally the opposite of what the government was trying to achieve in the first place.
The problem is that the ultimate results occur at such a distance from the cause that the two are not tied together. Do people tie Greenspan’s attempt to avoid recession early in this decade with the current financial collapse?
Has anyone been to Washington, D. C. lately?
Tell me what someone means when they say…”small government”?
It’s all relative…right?
To me the talk about “Big Government” or “small government” is so much wasted energy. The United States government IS big! It is going to STAY big! There is no way that I can see it becoming smaller. And, this doesn’t even take into account that we are faced, throughout the world, with dealing with other BIG governments.
The question to me is not about the size of the government. I would even argue that the size and complexity of other organizations within the country and the problems that must be dealt with require that the government be big. To me the question is about how this government goes about its business…that is how the public sector interacts with the private sector.
Last February, I put up a post on this site titled “More on Hamiltonian Government” (2/27/2008). In this post I argued that government faces three problems that put a limit on its power. These problems relate to the creation of incentives, the lack of sufficient information, and the speed at which events are taking place in the modern world. These limits, as I saw the situation, restricts what a government can achieve and directs us to those things a government can do that are actually helpful. The conclusion is that a government can have a positive effect on the private sector if it focuses on process rather than outcomes. If it focuses on outcomes, a government may create more problems than it solves.
Let’s just looking at the first of these problems today, the problem of incentives: the basic incentive for government is to “improve” something…make something better…or less bad. (On January 10, 2009, I wrote a post called “Improvers” to discuss the topic a little more deeply.) The government doesn’t have a lot of specific incentives…except in cases like the military…win wars…keep the peace…and so forth. So the primary goal is to “improve” things.
The problem with this is that in trying to “improve” things, the government can often create other incentives that have undesirable results or results that are the exact opposite of what they would like to achieve. (To see some specific cases please refer to the popular book…and blog…called “Freakonomics” developed by Steven D. Levitt and Stephen J. Dubner.) The difficulty occurs when people attempt to focus outcomes and state their objectives in specific goals. Setting the specific goals can then create other incentives that can harm or destroy the purpose of the whole effort the government has undertaken to “improve” things.
This often happens in situations involving the government’s monetary and fiscal policies. For example, the goal to avoid recessions can create government policies that send out messages to the private sector that can totally destroy the initial goal of the government. When Alan Greenspan, chairman of the Board of Governors of the Federal Reserve System became so concerned about the possibilities of an extended recession following the bursting of the stock market bubble in the early 2000s that he kept the target interest rate of the Fed excessively low for an extended period of time, lower than the rate of inflation the economy was experiencing.
The result…excessive borrowing took place because the real rate of interest was negative…it paid people to borrow…a bubble in asset prices occurred in housing markets…this was passed into the capital markets through securitization…and this funneled into other areas of the capital market, especially more and more exotic derivative instruments…and as people continued to create credit at an exponential rate and as people continued to leverage up their balance sheets…the financial markets…and the whole economy…became more and more fragile.
Why did people…even sensible people…do these things?
The incentives created in the credit expansion distorted things. If, for example, I run a hedge fund and I want to earn a slightly better return on my portfolio than you I can, say, try one of two things. For one I can increase the riskiness of the assets I hold…maybe purchase securities backed by subprime loans rather than corporate bonds. Or, I can increase the leverage on my balance sheet to stimulate higher net returns on my portfolio. In either case I am increasing the riskiness of my portfolio in order to gain an advantage over you.
And, how can I get away with this. Well, I know that Alan Greenspan is so worried about avoiding a recession that he will continue to support the credit expansion even in the face of riskier asset portfolios or greater use of leverage in the system. And if this continues on for two or three years, the competitive pressure to do well and outperform my competitors will grow and grow. I will continue to increase the risk of my portfolios and to increase how much leverage I introduce to my balance sheet.
And, if I don’t do it? Suppose I am a relatively conservative portfolio manager and I don’t believe that I should either increase the riskiness of my asset portfolio or raise the amount of leverage on my balance sheet…what happens? Over time, as my competitors earn, even a few more basis points on the return on their portfolio…my clients will start withdrawing money from my funds and placing it with my competitor. If this environment is sustained by the government, I will either have to close my fund or capitulate and change my beliefs and become more aggressive. And, if I don’t have that choice and work for someone else…I will be replaced with someone that is more aggressive.
Is this outright greed that is driving this scenario? Are these people “bad” or “excessively crass” in their behavior?
These people want to perform well…that is true…but, I don’t believe that they are addicted to avarice any more or less than most people. The incentives changed on them and they just responded to the competitive pressures that were present in the market place. In my estimation…these incentives were set up by the government in following the incentive they placed high on their priority list…government officials wanted to improve things…they wanted to keep a recession from happening.
Government is going to have its incentives; and the private sector is going to have its incentives. The problem is not one of whether or not the government is big. The problem is related to how the government is going to implement its actions to achieve the goals it sets for itself. Often, as in the example I have given, the “good intentions” of the government can be translated into actions that create the “wrong” incentives for the private sector. If the private sector responds to these “wrong” incentives…and they will…the ultimate result may be totally the opposite of what the government was trying to achieve in the first place.
The problem is that the ultimate results occur at such a distance from the cause that the two are not tied together. Do people tie Greenspan’s attempt to avoid recession early in this decade with the current financial collapse?
Tuesday, January 27, 2009
A Modern Liberal and Free-Market Capitalism
Milton Friedman always claimed that he was a liberal…but, that he was a “classical” liberal. By that he meant that in terms of economics and liberty he was more like a liberal in the 18th century and the early 19th century. Liberalism shifted on him…or as Ronald Reagan said about the Democratic Party…he didn’t leave the Democratic Party…the Democratic Party left him. Friedman felt the say way about the policies and programs proposed by 20th century…and early 21st century liberals.
I am in this dilemma as well. I tried to lay out my position in my last essay, posted o January 24. In that post I claimed that I was an Information Libertarian. This meant that on the side of the cultural wars and civil rights I tend to come down with the modern Liberal…I am for openness, transparency, and liberty. However, on the side of capitalism and the role of government in the economy, I tend to come down on the side of free-market capitalism and minimal government intrusion into economic affairs. My liberalism…as it were…is split…right down the middle.
Liberalism, as Friedman argued, used to include free-market capitalism as one of its components. What happened? Why did free-market capitalism move from support on the left of the political spectrum and land on the right? Good questions.
Currently, I am reading the book titled “The Ascent of Money” by Niall Ferguson. In the Introduction to his book Ferguson makes several observations about how the world looks at finance and financiers that carry some relevance for the questions asked in the previous paragraph.
Ferguson writes: “Throughout the history of Western civilization, there has been a recurrent hostility to finance and financiers, rooted in the idea that those who make their living from lending money are somehow parasitical on the ‘real’ economic activities of agriculture and manufacturing.” He cites three causes of these attitudes:
• Debtors have tended to outnumber creditors and the form have seldom felt very well disposed towards the latter;
• Financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty rather than prosperity, volatility rather that stability;
• For centuries, financial services in countries all over the world were disproportionately provided by member of ethnic or religious minorities, who had been excluded from land ownership or public office.
Furthermore, in terms of business, in general, there have been wide disparities in income distribution and this can be highlighted by the earnings of corporate executives in recent history and the increases they kept receiving over the years, far exceed what individual workers receive, the including small increases that they have received in recent years.
Ferguson goes on to say that one of the real paradoxes of the ‘liberal’ or ‘radical’ prescription for the elimination of the use of money is that one of the major constraints on economic development and growth is the LACK of financial institutions, the absence of banks…not the presence of them. And, this not only applies to nations, or regions, but also to neighborhoods and areas within cities. That is, for economic development to take place there must be some kind financial services present or development is not going to happen or be constricted.
However, Ferguson also says that “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like.” For example, behavioral finance has shown that “money amplifies our tendency to overreact.” Also, the financially knowledgeable can use their talents and skills to multiply opportunity whereas those that are not can be severely hurt. Financial presence can accelerate mobility…both upward and downward. “The rewards for ‘getting it’ have never been so immense. And, the penalties for financial ignorance have never been so stiff.”
What Ferguson seems to be saying is that the presence of free-market capitalism and modern financial institutions and markets are like financial leverage…they can magnify both positive results and negative results. The way this seems to work is that ‘the few’ get very great benefits from capitalism whereas the ‘many’ end up with only meager results. That is the distribution of benefits is very skewed with smaller numbers at the top with a substantial number at the bottom.
The thing that doesn’t get mentioned as much is that, on average, countries that are democratic, capitalistic, with a great amount of liberty have much higher living standards than do countries that don’t offer these things to their citizens. The income distributions may be very skewed and unequal in the former countries but even those that are nearer the bottom are much better off than many of the citizens in these other countries. This doesn’t make the skewed income distribution right…but the fact that there are higher living standards relative to those in other countries is relevant.
The point is free-market capitalism can create wealth, it can create inequalities in income distribution, and since the inequalities can be quite substantial and magnified. Given these results, people can focus on the issue of fairness, not only of relative results at one particular time but also over time in terms of economic fluctuations. Thus, criticism can be leveled at financial capitalism because of these outcomes and because the people further down the pyramid outnumber the people at the top, discussions and debates about the validity of capitalism can be dominated or, at least, forcefully engaged in.
I would like to make three points in response to this. First, there does need to be oversight and regulation existing side-by-side in a capitalistic system…it cannot just be an open, do-as-you-will environment. This would include greater openness and transparency within the business and financial system. The capitalistic system can run better. Second, there does have to be safety nets, insurance programs, education, financial institutions to serve poor areas and other forms of help to reduce some of the risks and extreme results that can come about in free-market capitalism.
Finally, the government must not be too active in attempting to fine-tune the economy. The government can set up incentive systems that drive people and businesses to take excessive risks and make unwise decisions. The most recent eight years is a case-in-point. Through its monetary and fiscal policies the Bush43 administration created an environment that incented executives to take on more and more risk, to assume higher and higher leverage, and to bring new and untested innovations into the market place. The financial…and economic…system became more and more fragile. The collapse came. And, who got the majority of the blame…the executives running these institutions…those running the government escaped without the fingers being pointed at them at all…or, very little.
What I would like to emphasize is that small, entrepreneurial businesses provide most of the dynamism of a free-market capitalistic system, most of the new jobs created, large amounts of wealth that is relatively well distributed, and it adds substantially to the upward mobility in a country. This system thrives on information, trying new things, gathering more new information, innovating, learning, and growing. This part of the system…even the modern liberals like. It is the big, set-in-their-ways organizations, who create much of the unhappiness and the inequality.
I, of course, like this breed of entrepreneurs that exists below the horizon covered by the large, clumsy behemoth. It is also consistent with my support of liberty in the culture wars and civil rights. It is also consistent with support of the “new” in art and literature and music and life style. It is consistent with what being an Information Libertarian is all about…at least, I believe it is.
I am in this dilemma as well. I tried to lay out my position in my last essay, posted o January 24. In that post I claimed that I was an Information Libertarian. This meant that on the side of the cultural wars and civil rights I tend to come down with the modern Liberal…I am for openness, transparency, and liberty. However, on the side of capitalism and the role of government in the economy, I tend to come down on the side of free-market capitalism and minimal government intrusion into economic affairs. My liberalism…as it were…is split…right down the middle.
Liberalism, as Friedman argued, used to include free-market capitalism as one of its components. What happened? Why did free-market capitalism move from support on the left of the political spectrum and land on the right? Good questions.
Currently, I am reading the book titled “The Ascent of Money” by Niall Ferguson. In the Introduction to his book Ferguson makes several observations about how the world looks at finance and financiers that carry some relevance for the questions asked in the previous paragraph.
Ferguson writes: “Throughout the history of Western civilization, there has been a recurrent hostility to finance and financiers, rooted in the idea that those who make their living from lending money are somehow parasitical on the ‘real’ economic activities of agriculture and manufacturing.” He cites three causes of these attitudes:
• Debtors have tended to outnumber creditors and the form have seldom felt very well disposed towards the latter;
• Financial crises and scandals occur frequently enough to make finance appear to be a cause of poverty rather than prosperity, volatility rather that stability;
• For centuries, financial services in countries all over the world were disproportionately provided by member of ethnic or religious minorities, who had been excluded from land ownership or public office.
Furthermore, in terms of business, in general, there have been wide disparities in income distribution and this can be highlighted by the earnings of corporate executives in recent history and the increases they kept receiving over the years, far exceed what individual workers receive, the including small increases that they have received in recent years.
Ferguson goes on to say that one of the real paradoxes of the ‘liberal’ or ‘radical’ prescription for the elimination of the use of money is that one of the major constraints on economic development and growth is the LACK of financial institutions, the absence of banks…not the presence of them. And, this not only applies to nations, or regions, but also to neighborhoods and areas within cities. That is, for economic development to take place there must be some kind financial services present or development is not going to happen or be constricted.
However, Ferguson also says that “If the financial system has a defect, it is that it reflects and magnifies what we human beings are like.” For example, behavioral finance has shown that “money amplifies our tendency to overreact.” Also, the financially knowledgeable can use their talents and skills to multiply opportunity whereas those that are not can be severely hurt. Financial presence can accelerate mobility…both upward and downward. “The rewards for ‘getting it’ have never been so immense. And, the penalties for financial ignorance have never been so stiff.”
What Ferguson seems to be saying is that the presence of free-market capitalism and modern financial institutions and markets are like financial leverage…they can magnify both positive results and negative results. The way this seems to work is that ‘the few’ get very great benefits from capitalism whereas the ‘many’ end up with only meager results. That is the distribution of benefits is very skewed with smaller numbers at the top with a substantial number at the bottom.
The thing that doesn’t get mentioned as much is that, on average, countries that are democratic, capitalistic, with a great amount of liberty have much higher living standards than do countries that don’t offer these things to their citizens. The income distributions may be very skewed and unequal in the former countries but even those that are nearer the bottom are much better off than many of the citizens in these other countries. This doesn’t make the skewed income distribution right…but the fact that there are higher living standards relative to those in other countries is relevant.
The point is free-market capitalism can create wealth, it can create inequalities in income distribution, and since the inequalities can be quite substantial and magnified. Given these results, people can focus on the issue of fairness, not only of relative results at one particular time but also over time in terms of economic fluctuations. Thus, criticism can be leveled at financial capitalism because of these outcomes and because the people further down the pyramid outnumber the people at the top, discussions and debates about the validity of capitalism can be dominated or, at least, forcefully engaged in.
I would like to make three points in response to this. First, there does need to be oversight and regulation existing side-by-side in a capitalistic system…it cannot just be an open, do-as-you-will environment. This would include greater openness and transparency within the business and financial system. The capitalistic system can run better. Second, there does have to be safety nets, insurance programs, education, financial institutions to serve poor areas and other forms of help to reduce some of the risks and extreme results that can come about in free-market capitalism.
Finally, the government must not be too active in attempting to fine-tune the economy. The government can set up incentive systems that drive people and businesses to take excessive risks and make unwise decisions. The most recent eight years is a case-in-point. Through its monetary and fiscal policies the Bush43 administration created an environment that incented executives to take on more and more risk, to assume higher and higher leverage, and to bring new and untested innovations into the market place. The financial…and economic…system became more and more fragile. The collapse came. And, who got the majority of the blame…the executives running these institutions…those running the government escaped without the fingers being pointed at them at all…or, very little.
What I would like to emphasize is that small, entrepreneurial businesses provide most of the dynamism of a free-market capitalistic system, most of the new jobs created, large amounts of wealth that is relatively well distributed, and it adds substantially to the upward mobility in a country. This system thrives on information, trying new things, gathering more new information, innovating, learning, and growing. This part of the system…even the modern liberals like. It is the big, set-in-their-ways organizations, who create much of the unhappiness and the inequality.
I, of course, like this breed of entrepreneurs that exists below the horizon covered by the large, clumsy behemoth. It is also consistent with my support of liberty in the culture wars and civil rights. It is also consistent with support of the “new” in art and literature and music and life style. It is consistent with what being an Information Libertarian is all about…at least, I believe it is.
Saturday, January 24, 2009
Being an Information Libertarian and Its Conflicts
I have claimed over the past several years that I am an Information Libertarian. I have defined an Information Libertarian as one who believes in the free flow of information, complete access to information, and the eventual triumph of information over all those that attempt to hide, control, or in anyway manipulate the use and access to information…for whatever purpose. I believe in openness and transparency in all activities.
I put this last sentence into the paragraph because it is hard to say that there are cases where perhaps some secrecy is necessary and still call oneself an Information Libertarian. Yet, I will admit, there are some situation where, perhaps, some information should be controlled…like in situations of national security…or, in the case of the hurt or harm that might be imposed on someone, say, who is dying.
But, this then gets back into the argument for balance…something that I dealt with in my post of January 19, 2009. Because we work in a world of incomplete information we can only say that there may be some situations that we have to deal with in which the “best” (whatever that means) decision we make is to keep some information “under wraps”…keep it secret. Still, to me, to argue that one is an Information Libertarian means that one should, in reaching a balance, always err on the side of openness and transparency. One should always lean to the side that argues for the release and spread of information…whatever that information is about.
It is difficult to be an Information Libertarian in the political world that exists today. On the one side, an Information Libertarian tends to side with what would be considered to be the left, or the progressive, side of the political spectrum. In other issues, an Information Libertarian would tend to side with what would be considered the right, or the free-market capitalistic, side.
This conflict puts the Information Libertarian in a conundrum because, taking one’s beliefs seriously, one feels constantly ill-at-ease with the wide chasm that seems to exist between these two extreme positions. Wouldn’t it be much nicer if one could one could find one location on the political spectrum where all that an Information Libertarian supports would be located?
On the left side of the spectrum, the Information Libertarian supports a free press, no censorship, freedom to publish anything, freedom to produce anything in the theater, movies, and so on, freedom to compose anything, paint anything, sculpt anything, and basically freedom to create, compose, write, or perform any kind of information one feels compelled to. Obviously, this refers to political as well as cultural efforts.
It also refers to individual thinking, individual decision making and so forth. These, of course, are all generally associated with those ideas, laws, and rules that are looked on as “liberal” as the way of thinking. Of course, all of these must be incorporated within the legal and social structure of groups, organizations, governments, and other cultural arrangements so that people can live and work and thrive together. One thinks of the idea of a “civil” society…one in which people can get along with each other and not harm one another. The fundamental concept here is the idea that a person cannot be allowed to yell “fire” in a movie theater filled with people. Where one can, one leans to the side of as much freedom of expression as is reasonable.
On the left side of the spectrum, the Information Libertarian supports free-market capitalism. Of course, as with the other side, a societal balance must be achieved between unfettered markets and regulation or oversight. One can argue, and I do, that the freedom of markets enhances the living standards and effectiveness of a society through the greatest encouragement of information exchange, innovation and progress. This kind of a society encourages the mobility and fluidity of people, the breakdown of exclusiveness and discrimination, and the spread of wealth, and, consequently, power throughout the society so a truly democratic form of government can exist.
It refers to investigation, exploration, discovery, debate, dialogue, collaboration, and scientific advancement in all forms. It produces an environment where ideas can go from just thought to creation to application to consumption. The world of free-market capitalism, because of the fact that it supports meritocracy rather than aristocracy, should provide the environment for all that produces openness and transparency within the whole society. Therefore, a society that supports free-market capitalism should support the spread of information, the enhancement of education, and the existence of the public forum where anything and everything can be discussed. But, again, I add the caveat that there are limits or boundaries that people or groups cannot go beyond except to the detriment of the society. Yet, one still needs to err on the side of liberty and freedom in contemplating the constraints that might be imposed on the society.
This last side of the argument may draw some skepticism from many readers at this particular time in history. With the collapse of the financial markets throughout the world and with many economies in recession or expecting something worse, a lot of analysts have pointed to the failure of free-market capitalism to operate without sufficient oversight and regulation.
I have two responses to these charges. First, with a greater flow of information in the business world…more openness and transparency…there would be much less for today’s more progressive thinker to be concerned about. If businesses had to reveal what they were doing in all areas of their operations, then people, groups, and markets would be able to respond to the information and the “bad” conditions, etc., for which the progressive thinkers condemn free-market capitalism. I argue that greater information availability and dissemination would lessen discrimination and bias, create greater mobility in markets, which I believe would reduce inequities and inequalities, reduce risk taking and other things that people contend create crises.
The second point has to do with how effective government or oversight or regulation is in overcoming the problems of free-market capitalism. It is my belief that government, or oversight organizations or regulatory bodies often create an environment in a free-market economy that can lead to the subsequent behavior that come to be criticized in the future as the “problems” with free-market capitalism. To me the current financial crisis is a perfect example of this type of situation.
I don’t have time to go into this in this post but my belief is that government actions can lead to the creation of incentives for business people and organizations to act in a self-destructive way. On top of this the government counters the consequences of their initial actions thereby creating moral hazard with respect to banks, investment banks, financial companies, business manufacturers, retail organizations and so on, who then enter into competitive behavior that makes themselves riskier and riskier finally leading to a point where the system becomes so fragile that it collapses of its own weight.
I would put the theory that the “government is the cause of the problem” up in opposition to the theory that “the problem with the world is the behavior of greedy business people and speculative financiers.” If anyone needs a quick bit of evidence that government activity, in this case “Conservative” government activity, can be harmful to the economy and the society, I submit the example of the eight years of the Bush 43 administration.
The apparent contradictions in policy prescriptions in today’s world that come from claiming to be an Information Libertarian can present a real hornet’s nest of problems. In today’s post my effort is to begin to get these problems out into the air in order to start a discussion of how these contradictions might be resolved.
I put this last sentence into the paragraph because it is hard to say that there are cases where perhaps some secrecy is necessary and still call oneself an Information Libertarian. Yet, I will admit, there are some situation where, perhaps, some information should be controlled…like in situations of national security…or, in the case of the hurt or harm that might be imposed on someone, say, who is dying.
But, this then gets back into the argument for balance…something that I dealt with in my post of January 19, 2009. Because we work in a world of incomplete information we can only say that there may be some situations that we have to deal with in which the “best” (whatever that means) decision we make is to keep some information “under wraps”…keep it secret. Still, to me, to argue that one is an Information Libertarian means that one should, in reaching a balance, always err on the side of openness and transparency. One should always lean to the side that argues for the release and spread of information…whatever that information is about.
It is difficult to be an Information Libertarian in the political world that exists today. On the one side, an Information Libertarian tends to side with what would be considered to be the left, or the progressive, side of the political spectrum. In other issues, an Information Libertarian would tend to side with what would be considered the right, or the free-market capitalistic, side.
This conflict puts the Information Libertarian in a conundrum because, taking one’s beliefs seriously, one feels constantly ill-at-ease with the wide chasm that seems to exist between these two extreme positions. Wouldn’t it be much nicer if one could one could find one location on the political spectrum where all that an Information Libertarian supports would be located?
On the left side of the spectrum, the Information Libertarian supports a free press, no censorship, freedom to publish anything, freedom to produce anything in the theater, movies, and so on, freedom to compose anything, paint anything, sculpt anything, and basically freedom to create, compose, write, or perform any kind of information one feels compelled to. Obviously, this refers to political as well as cultural efforts.
It also refers to individual thinking, individual decision making and so forth. These, of course, are all generally associated with those ideas, laws, and rules that are looked on as “liberal” as the way of thinking. Of course, all of these must be incorporated within the legal and social structure of groups, organizations, governments, and other cultural arrangements so that people can live and work and thrive together. One thinks of the idea of a “civil” society…one in which people can get along with each other and not harm one another. The fundamental concept here is the idea that a person cannot be allowed to yell “fire” in a movie theater filled with people. Where one can, one leans to the side of as much freedom of expression as is reasonable.
On the left side of the spectrum, the Information Libertarian supports free-market capitalism. Of course, as with the other side, a societal balance must be achieved between unfettered markets and regulation or oversight. One can argue, and I do, that the freedom of markets enhances the living standards and effectiveness of a society through the greatest encouragement of information exchange, innovation and progress. This kind of a society encourages the mobility and fluidity of people, the breakdown of exclusiveness and discrimination, and the spread of wealth, and, consequently, power throughout the society so a truly democratic form of government can exist.
It refers to investigation, exploration, discovery, debate, dialogue, collaboration, and scientific advancement in all forms. It produces an environment where ideas can go from just thought to creation to application to consumption. The world of free-market capitalism, because of the fact that it supports meritocracy rather than aristocracy, should provide the environment for all that produces openness and transparency within the whole society. Therefore, a society that supports free-market capitalism should support the spread of information, the enhancement of education, and the existence of the public forum where anything and everything can be discussed. But, again, I add the caveat that there are limits or boundaries that people or groups cannot go beyond except to the detriment of the society. Yet, one still needs to err on the side of liberty and freedom in contemplating the constraints that might be imposed on the society.
This last side of the argument may draw some skepticism from many readers at this particular time in history. With the collapse of the financial markets throughout the world and with many economies in recession or expecting something worse, a lot of analysts have pointed to the failure of free-market capitalism to operate without sufficient oversight and regulation.
I have two responses to these charges. First, with a greater flow of information in the business world…more openness and transparency…there would be much less for today’s more progressive thinker to be concerned about. If businesses had to reveal what they were doing in all areas of their operations, then people, groups, and markets would be able to respond to the information and the “bad” conditions, etc., for which the progressive thinkers condemn free-market capitalism. I argue that greater information availability and dissemination would lessen discrimination and bias, create greater mobility in markets, which I believe would reduce inequities and inequalities, reduce risk taking and other things that people contend create crises.
The second point has to do with how effective government or oversight or regulation is in overcoming the problems of free-market capitalism. It is my belief that government, or oversight organizations or regulatory bodies often create an environment in a free-market economy that can lead to the subsequent behavior that come to be criticized in the future as the “problems” with free-market capitalism. To me the current financial crisis is a perfect example of this type of situation.
I don’t have time to go into this in this post but my belief is that government actions can lead to the creation of incentives for business people and organizations to act in a self-destructive way. On top of this the government counters the consequences of their initial actions thereby creating moral hazard with respect to banks, investment banks, financial companies, business manufacturers, retail organizations and so on, who then enter into competitive behavior that makes themselves riskier and riskier finally leading to a point where the system becomes so fragile that it collapses of its own weight.
I would put the theory that the “government is the cause of the problem” up in opposition to the theory that “the problem with the world is the behavior of greedy business people and speculative financiers.” If anyone needs a quick bit of evidence that government activity, in this case “Conservative” government activity, can be harmful to the economy and the society, I submit the example of the eight years of the Bush 43 administration.
The apparent contradictions in policy prescriptions in today’s world that come from claiming to be an Information Libertarian can present a real hornet’s nest of problems. In today’s post my effort is to begin to get these problems out into the air in order to start a discussion of how these contradictions might be resolved.
Monday, January 19, 2009
Balance
Every leader must reach some sort of balance in the areas in which they are trying to lead. These leaders must also reach some sort of balance between the areas in which they are trying to lead.
I am not arguing that the leader should not have his or her own position within a given area. I am not arguing for wishy-washy compromise. I am not arguing for an un-grounded pragmatism.
What I am arguing for is for a leader to strike an appropriate balance of competing forces not only within a given area of interest but also between areas of interest. Notice too that I said “an” appropriate balance…not “the” appropriate balance. In addition, there is another point of contention as well. The balance that is achieved in various areas and between various areas will change over time…a balance cannot be held onto indefinitely.
The problem is that in any important area (or even not-so-important areas) of interest within the scope of a leader’s responsibility there will be competing positions…even within the group of people that are the leader’s closest allies. The same will be true when it comes to discussing priorities between areas of interest. There will be many competing positions…and those that may be allies in one area may be opponents in another…and so on.
And, within such an environment it is so important to remember that you may have to count on someone on a very, very important issue even though you fought tooth-and-nail against that person on the last thing you worked on. Even though people may oppose you there is a very good chance that sometime soon in the future you will be working with the very same person.
Achieving balance is important even if there are only two competing ideas within an area of interest. It is very seldom a winner-take-all situation. In many cases, you will be working with the “other side” in some capacity in order to carry out the goal that has been decided upon. Whether it be in government, or business, or in friendships, or in families…once a plan of action has been decided upon…it is necessary for those involved in the discussions to bind together in order to make something happen. The “winning” side is not the one that must move forward and execute the plan.
It, of course, becomes that much more difficult in the usual situation when there are multiple positions that have to be reconciled. People still have to go forward. They have to act and must avoid some form of paralization that could occur if some of the parties involved decide to opt out of the effort. Balance must be achieved so that people feel that even though they may not have gotten all they wanted in this situation that there is a good chance they may achieve more of what they want in another one.
Furthermore, as mentioned, care must be achieved in reaching a balance between different areas of interest. Here there may be more a notion of priority setting…we can do this now…but, we can only work on that thing partially at the present time…and we will have to wait a year or so before we can get to the other thing. Again, balance has to be achieved because you want to achieve a whole portfolio of objectives and not all of them can be attained at the same time. Thus, plans must be made for how the different areas will be addressed in what order and so forth.
Again, the leader will have to deal with shifting sand in terms of those that they are working or will work with on some issues, who will not be so warm to other areas and to those that they will be working with on different areas in the future. Everyone is a potential ally…and everyone is a potential foe. But, in one way or another, all of these individuals must work together in some form, on some issues, at some time in the future.
Having written this, I must go ahead and strongly emphasize two very, very important things. First of all, arguing as I have does not mean that you don’t have strong feelings about the different issues that you will be dealing with. On the contrary, it is very important that the leader have strong ideas…and it is crucial that the leader have a strong sense of who they are…and it is also a requirement that the leader feel comfortable within their own skin. That is, not only does the leader know what he or she stands for but it is also important that they know themselves and are unified and whole within their own person.
The further the leader is from this ideal the less confident they are in their ability to lead. And, the further they are from this ideal, the more they seek certainty of opinion and control over the chaos that is swirling around them. A leader with this shortcoming wants only people around them that agree with them and demand that these people be loyal through thick and thin.
A leader like this is not really a leader and will, in almost every case, fail in what they set out to do.
Second, it is not a weakness to work for balance. Reaching an appropriate balance is a secret of success. Achieving an appropriate balance is the way to build strong teams that can accomplish what they set out to accomplish. And, even though different combinations of individuals or groups may make up the team the sets out to attain another objective, the balance that is achieved within each team and between teams is vital to gaining more successes than fewer ones.
It takes a strong person who knows who they are to achieve an appropriate balance within a given area…and also between areas. Strong because they have to combine people and groups that also have strong wills. Strong because they have to lead people to work together. Strong because they have to convince people to postpone something they believe is very important until some time in the future in order to work on something right now that these people do not feel is as important as the other thing.
Barack Obama has said that he has learned quite a few things from President Ronald Reagan. I believe that one of the things that he learned from Reagan was the ability to attain balance when striving for various and sometimes contradictory goals. I don’t think anyone around would argue with the claim that Reagan had very strong views. But, he compromised to achieve balance. He sought supporters from all different positions of thought. And, he maintained friendships so that he could reach out to individuals in the future even though they might have had substantial differences on given issues in the present. In this way Reagan got a lot of what he wanted…not everything…but a large amount. By starting out with strong positions he was able to keep the balance in many areas tilted to his end of the spectrum…but, he gave in to many in order to keep the doors open and the discussions continuing. Reagan knew who he was, what he believed in, and was very comfortable in his own skin.
It is easy to pick on Bush 43 as the one at the other extreme. Bush 43 I would not call a leader. Bush 43 wanted certainty. He never worked for balance. And, he also demanded loyalty of those on his “team” above all else. I really never got a sense that he was really comfortable with himself. He wasn’t the “star” that his father was. He had very little intellect or talent. He “forced” himself to stop drinking and this effort of will was constantly in front of him as he “forced” his way through life. Objectives were either acceptable…or unacceptable…no in-between. And, he failed…with miserable incompetence…and almost everyone that surrounded him was tarnished in some way by the failure of his administration.
The main goal of a real leader is to achieve a sufficient balance in all that he or she is doing and with all the people that he or she is working with. Achieving such a balance is necessary if one is to be a successful leader…and achieving such a balance is a sign of personal strength…and inner wholeness.
I am not arguing that the leader should not have his or her own position within a given area. I am not arguing for wishy-washy compromise. I am not arguing for an un-grounded pragmatism.
What I am arguing for is for a leader to strike an appropriate balance of competing forces not only within a given area of interest but also between areas of interest. Notice too that I said “an” appropriate balance…not “the” appropriate balance. In addition, there is another point of contention as well. The balance that is achieved in various areas and between various areas will change over time…a balance cannot be held onto indefinitely.
The problem is that in any important area (or even not-so-important areas) of interest within the scope of a leader’s responsibility there will be competing positions…even within the group of people that are the leader’s closest allies. The same will be true when it comes to discussing priorities between areas of interest. There will be many competing positions…and those that may be allies in one area may be opponents in another…and so on.
And, within such an environment it is so important to remember that you may have to count on someone on a very, very important issue even though you fought tooth-and-nail against that person on the last thing you worked on. Even though people may oppose you there is a very good chance that sometime soon in the future you will be working with the very same person.
Achieving balance is important even if there are only two competing ideas within an area of interest. It is very seldom a winner-take-all situation. In many cases, you will be working with the “other side” in some capacity in order to carry out the goal that has been decided upon. Whether it be in government, or business, or in friendships, or in families…once a plan of action has been decided upon…it is necessary for those involved in the discussions to bind together in order to make something happen. The “winning” side is not the one that must move forward and execute the plan.
It, of course, becomes that much more difficult in the usual situation when there are multiple positions that have to be reconciled. People still have to go forward. They have to act and must avoid some form of paralization that could occur if some of the parties involved decide to opt out of the effort. Balance must be achieved so that people feel that even though they may not have gotten all they wanted in this situation that there is a good chance they may achieve more of what they want in another one.
Furthermore, as mentioned, care must be achieved in reaching a balance between different areas of interest. Here there may be more a notion of priority setting…we can do this now…but, we can only work on that thing partially at the present time…and we will have to wait a year or so before we can get to the other thing. Again, balance has to be achieved because you want to achieve a whole portfolio of objectives and not all of them can be attained at the same time. Thus, plans must be made for how the different areas will be addressed in what order and so forth.
Again, the leader will have to deal with shifting sand in terms of those that they are working or will work with on some issues, who will not be so warm to other areas and to those that they will be working with on different areas in the future. Everyone is a potential ally…and everyone is a potential foe. But, in one way or another, all of these individuals must work together in some form, on some issues, at some time in the future.
Having written this, I must go ahead and strongly emphasize two very, very important things. First of all, arguing as I have does not mean that you don’t have strong feelings about the different issues that you will be dealing with. On the contrary, it is very important that the leader have strong ideas…and it is crucial that the leader have a strong sense of who they are…and it is also a requirement that the leader feel comfortable within their own skin. That is, not only does the leader know what he or she stands for but it is also important that they know themselves and are unified and whole within their own person.
The further the leader is from this ideal the less confident they are in their ability to lead. And, the further they are from this ideal, the more they seek certainty of opinion and control over the chaos that is swirling around them. A leader with this shortcoming wants only people around them that agree with them and demand that these people be loyal through thick and thin.
A leader like this is not really a leader and will, in almost every case, fail in what they set out to do.
Second, it is not a weakness to work for balance. Reaching an appropriate balance is a secret of success. Achieving an appropriate balance is the way to build strong teams that can accomplish what they set out to accomplish. And, even though different combinations of individuals or groups may make up the team the sets out to attain another objective, the balance that is achieved within each team and between teams is vital to gaining more successes than fewer ones.
It takes a strong person who knows who they are to achieve an appropriate balance within a given area…and also between areas. Strong because they have to combine people and groups that also have strong wills. Strong because they have to lead people to work together. Strong because they have to convince people to postpone something they believe is very important until some time in the future in order to work on something right now that these people do not feel is as important as the other thing.
Barack Obama has said that he has learned quite a few things from President Ronald Reagan. I believe that one of the things that he learned from Reagan was the ability to attain balance when striving for various and sometimes contradictory goals. I don’t think anyone around would argue with the claim that Reagan had very strong views. But, he compromised to achieve balance. He sought supporters from all different positions of thought. And, he maintained friendships so that he could reach out to individuals in the future even though they might have had substantial differences on given issues in the present. In this way Reagan got a lot of what he wanted…not everything…but a large amount. By starting out with strong positions he was able to keep the balance in many areas tilted to his end of the spectrum…but, he gave in to many in order to keep the doors open and the discussions continuing. Reagan knew who he was, what he believed in, and was very comfortable in his own skin.
It is easy to pick on Bush 43 as the one at the other extreme. Bush 43 I would not call a leader. Bush 43 wanted certainty. He never worked for balance. And, he also demanded loyalty of those on his “team” above all else. I really never got a sense that he was really comfortable with himself. He wasn’t the “star” that his father was. He had very little intellect or talent. He “forced” himself to stop drinking and this effort of will was constantly in front of him as he “forced” his way through life. Objectives were either acceptable…or unacceptable…no in-between. And, he failed…with miserable incompetence…and almost everyone that surrounded him was tarnished in some way by the failure of his administration.
The main goal of a real leader is to achieve a sufficient balance in all that he or she is doing and with all the people that he or she is working with. Achieving such a balance is necessary if one is to be a successful leader…and achieving such a balance is a sign of personal strength…and inner wholeness.
Thursday, January 15, 2009
Deliberative Government
President-elect Obama is pushing hard to formulate his economic stimulus plan and have it enacted at the earliest possible date. First, he was shooting for January 20, 2009, the day of his inauguration as President of the United States. Then he was aiming for President’s Day in February. Now…there is a good deal of uncertainty.
The idea of an economic stimulus plan is popular with the people of the United States. It is also popular in Congress. But, Congress is a deliberative body…and…this raises the level of uncertainty of when the package will be passed and signed into law.
We have just experienced this past fall when Congress was stampeded to act…we even had a panicked Federal Reserve Chairman Bernanke tell Congress on a Friday evening in September that the bailout package had to be passed the next Monday or “all hell would break loose.” And, so Congress gave up some of its deliberative power and moved quickly…although not as quickly as the pale and frightened Bernanke called for.
And, Congress has been regretting the quickness with which they passed the bailout bill ever since. Basically, Congress gave Hank Paulson, Secretary of the Treasury, and the Treasury Department a blank check with not controls and no oversight…at least for only $350 billion of the package. And, Congress…and apparently the Treasury Department…has no idea where the $350 billion has gone and how it has been used. It is, apparently, just gone!
Action like this is expected when there is a royal head of state or a dictator. That is, a dictator or a tyrant can change his or her mind on the spot and move this way or that way on a whim. The founders of the United States did not believe that this was a good idea. The policies and programs of a government should be discussed and debated and lingered over…and not just rushed into. There should be some “conservative” element within the government so slow down the process and get all sides of the issue a chance to be resolved. The founders created Congress to slow things down and muddy the waters.
Of course, there are times when decisions must be made in relative quick fashion…but, even issues that require relatively quick action can stand some time for reflection. Obviously, a balance has to be reached between rapid decision making and deliberation, but the general idea of the founders was that a country should err on the side of deliberation rather than on the side of hasty decision…frustrating though it may be.
Coming back to the present, I believe that the United States government, Congress, should err on the side of deliberation on the stimulus package. We are talking about a lot of money…and for a relatively long time frame.
We are talking about federal deficits of $1.0 trillion or more, not only this year…but next year…and the year after that…and so on…
We are talking about how much of this debt will be monetized…this year…next year…and so on.
Some are even talking about the United States becoming, financially, like a banana republic.
Yes, there are potentially real dangers on the other side. The economic slowdown could become an economic collapse…a second Great Depression.
But, there is no indication that the stimulus package will do what many are saying it will do. There is uncertainty about the combination…increasing spending or producing tax cuts. There is uncertainty about the speed at which programs can be implemented. There is uncertainty about whether the proposed spending will even have the desired effect of stimulating other spending. There are further questions about the ability of the financial system to support the large package.
Deliberation must take place! Even though the situation is serious…we cannot be rushed into this without discussion, debate, and contention. Yes, we want the result to be supported in a bi-partisan way…but this may not be fully possible. However, we want those that are not in favor of the stimulus program to be able to fully express their concerns.
There are too many concerns surrounding the whole situation to move precipitously.
Bernanke panicked the Congress in September to move hastily on the bailout package. There are many, many regrets about this. And, the feeling is that maybe Congress really did not have to move so quickly.
In my experience, many decisions that seem so urgent at the time they occur can really be reasonably postponed. Again, this is a judgment call so the answer is not cut and dried. Still, I have found that it is good to slow down and discuss things in most cases. This leads to a consideration of more alternatives and results in better decisions in the end.
I believe that the founders of the United States were correct in their wish to have this “conservative” element built into the structure of government. We need to take some time to examine issues and the potential solution to the problems the issues contain. We need a deliberative body that will do its work…deliberatively.
Let’s give Congress some time to consider the Obama stimulus plan. Let’s not be rushed into a program that has been hastily conceived and forced through into law by the new administration.
As that world famous philosopher Winnie-the-Pooh said, “A thought may sound very thingish when it is inside your heard, but it may not sound thingish at all when it gets out into the air.”
Let’s follow the advice of Winnie-the-Pooh and get these ideas about the stimulus plan out into the air and see if it is thingish or not!
The idea of an economic stimulus plan is popular with the people of the United States. It is also popular in Congress. But, Congress is a deliberative body…and…this raises the level of uncertainty of when the package will be passed and signed into law.
We have just experienced this past fall when Congress was stampeded to act…we even had a panicked Federal Reserve Chairman Bernanke tell Congress on a Friday evening in September that the bailout package had to be passed the next Monday or “all hell would break loose.” And, so Congress gave up some of its deliberative power and moved quickly…although not as quickly as the pale and frightened Bernanke called for.
And, Congress has been regretting the quickness with which they passed the bailout bill ever since. Basically, Congress gave Hank Paulson, Secretary of the Treasury, and the Treasury Department a blank check with not controls and no oversight…at least for only $350 billion of the package. And, Congress…and apparently the Treasury Department…has no idea where the $350 billion has gone and how it has been used. It is, apparently, just gone!
Action like this is expected when there is a royal head of state or a dictator. That is, a dictator or a tyrant can change his or her mind on the spot and move this way or that way on a whim. The founders of the United States did not believe that this was a good idea. The policies and programs of a government should be discussed and debated and lingered over…and not just rushed into. There should be some “conservative” element within the government so slow down the process and get all sides of the issue a chance to be resolved. The founders created Congress to slow things down and muddy the waters.
Of course, there are times when decisions must be made in relative quick fashion…but, even issues that require relatively quick action can stand some time for reflection. Obviously, a balance has to be reached between rapid decision making and deliberation, but the general idea of the founders was that a country should err on the side of deliberation rather than on the side of hasty decision…frustrating though it may be.
Coming back to the present, I believe that the United States government, Congress, should err on the side of deliberation on the stimulus package. We are talking about a lot of money…and for a relatively long time frame.
We are talking about federal deficits of $1.0 trillion or more, not only this year…but next year…and the year after that…and so on…
We are talking about how much of this debt will be monetized…this year…next year…and so on.
Some are even talking about the United States becoming, financially, like a banana republic.
Yes, there are potentially real dangers on the other side. The economic slowdown could become an economic collapse…a second Great Depression.
But, there is no indication that the stimulus package will do what many are saying it will do. There is uncertainty about the combination…increasing spending or producing tax cuts. There is uncertainty about the speed at which programs can be implemented. There is uncertainty about whether the proposed spending will even have the desired effect of stimulating other spending. There are further questions about the ability of the financial system to support the large package.
Deliberation must take place! Even though the situation is serious…we cannot be rushed into this without discussion, debate, and contention. Yes, we want the result to be supported in a bi-partisan way…but this may not be fully possible. However, we want those that are not in favor of the stimulus program to be able to fully express their concerns.
There are too many concerns surrounding the whole situation to move precipitously.
Bernanke panicked the Congress in September to move hastily on the bailout package. There are many, many regrets about this. And, the feeling is that maybe Congress really did not have to move so quickly.
In my experience, many decisions that seem so urgent at the time they occur can really be reasonably postponed. Again, this is a judgment call so the answer is not cut and dried. Still, I have found that it is good to slow down and discuss things in most cases. This leads to a consideration of more alternatives and results in better decisions in the end.
I believe that the founders of the United States were correct in their wish to have this “conservative” element built into the structure of government. We need to take some time to examine issues and the potential solution to the problems the issues contain. We need a deliberative body that will do its work…deliberatively.
Let’s give Congress some time to consider the Obama stimulus plan. Let’s not be rushed into a program that has been hastily conceived and forced through into law by the new administration.
As that world famous philosopher Winnie-the-Pooh said, “A thought may sound very thingish when it is inside your heard, but it may not sound thingish at all when it gets out into the air.”
Let’s follow the advice of Winnie-the-Pooh and get these ideas about the stimulus plan out into the air and see if it is thingish or not!
Saturday, January 10, 2009
Improvers
I have just finished the book “Empire of Debt” by William Bonner and Addison Wiggin. I won’t focus on much of the content of this book for I am doing a book review on it for Speaking Alpha and the reader should go there for a discussion of the book, itself, and its major thesis. What I want to concentrate on in this post is the authors disdain for people they refer to as “improvers” and the problems these people can create within a democratic form of government.
An “improver”, as defined by the authors, is someone who wants to make improvements to the world…wants to impose his or her view of how the world should run on all of the rest of us. Of course, politics within a democracy is a perfect venue for “improvers” to show their wares.
One can get a taste of what is meant by an “improver” by checking out Bonner and Wiggin’s “Hall of Shame” as well as their “Hall of Heroes.” To them, the stars of the United States Presidents they list as villains are Lincoln, Wilson, Franklin Roosevelt, Nixon, and Bush 43 and so on. The heroes that stand tall in their book are James Garfield, Chester Harding, Calvin Coolidge, Millard Fillmore, and their personal favorite Warren Harding.
Just waiting to enter into this “Hall of Shame” is Barack Obama…just his proposals, even before taking the oath of office, are enough to bring down the abuse and ridicule of these two authors. President-elect Obama wants to make the world better for others. What a joke! What a crock of …well, you name it.
And, it is just this attitude that is walking…no, now, running…no, now, sprinting…down the path to the doom of the empire. In short, the American empire has been built upon the shaky premise that foreigners will continue to finance the debt of the United States forever and will continue, through thick and thin, to keep faith in the strength of the almighty United States dollar.
How much debt is the Obama administration going to add to the total United States debt outstanding?
Trillions and trillions of dollars!
But, this is not the focal point of this post. The focal point is on Bonner and Wiggin’s definition of “improvers” and the role that “improvers” play within a democratic framework of empire. Empires, to Bonner and Wiggin, keep their people happy and distracted by giving the masses “enemies and circuses”. That is, the thing that keeps an empire going is the diversion of its people. And, a democracy, according to the authors, is just perfect for the exploitation of the people.
Empires have always existed upon imperial interests, which mean that there are always wars on the periphery. The twist of the modern day imperialist is that they “pretend all manner of selfless and world-improving motives, every one of which is either an obvious fraud or a monumental bamboozle.” The authors go on to say that “The gist of the modern empire builder’s creed is that he has a duty to make the world a better place, and he can only do it by telling other people what to do.”
Empires need enemies…and isn’t it just convenient that when the modern empire takes on an enemy it is often done to bring liberty and democracy to the people it is fighting for. Perhaps, Bonner and Wiggin argue, one of the most difficult periods for the American empire came after the fall of the Berlin wall and the collapse of Communism because it left the United States government with no “bad guy”…no enemy. Thank goodness, they continue, for 9/11 because it gave the empire a vague, world wide enemy, the terrorist, that it could combat endlessly and without constraint on cost. Just what the empire needed to continue.
But, just as the empires of the past, these excursions cost lots and lots of money. In the past the empires extracted the funds to pay for their adventures from the defeated. The modern empire, the wealthy, prosperous empire, the empire that does not do its own saving, borrows from the poor of the world…those nations in which their people actually save.
So much for wars…now for circuses. The modern day circus, to Bonner and Wiggin, has to do with the promises and dream worlds which politicians in a democracy offer to the electorate. These promises and dream worlds can never be achieved and many attempts at attaining them leave those whose votes are solicited by the politicians worse off. To get elected, therefore, the politicians engage in lies and outright fraud. But that is the way of the modern world.
And, what is promised? Full employment. No financial pain. A home of their own for everybody. And, so on and so forth.
And, who is going to pay for the delivery of all these programs and policies?
Bonner and Wiggin tell us…China, India, Brazil, countries in the Middle East…and others in the less developed world…who save some of their income.
I keep getting off-the-point. Democracy gives “do-gooders” (those that want to make the world a better place to live based upon the knowledge the “do-gooders” have about how the world works and what should be done to make the world a better place to live in) the opportunity to make the world a better place to live in. And, so we get the modern empire…America in the 21st century.
The obvious thesis of Bonner and Wiggin is that the world would be a lot better place if there were fewer “improvers” or if the “improvers” were taken for what they are, in the authors words, frauds and cheats. They believe that people need to stick to their own business, be humble, and work hard. They believe that grandiose ideals and plans can only lead to trouble. They believe that the United States did pretty well until that incompetent fake, Woodrow Wilson became President.
Europe knew that Wilson was a fraud and laughed at him. They used him and then abandoned him and his ideals on how the world should be built. Yet, Wilson became the model for the many activist Presidents that came after him starting with Franklin Roosevelt. And, as they say, the rest is history…the history of the American Empire.
As we stand here on January 10, 2009 on the edge of financial chaos we need to develop an answer for the criticisms of Bonner and Wiggin or we need to be very afraid. The debt of the United States is going to expand dramatically over the next few years.
Who is going to finance all these trillions and trillions of dollars of American debt? Is the only way to finance this debt to monetize it? To print paper money or to electronically generate money?
Who is going to want to hold the United States dollar? The dollar lost 40% of its value between the start of 2001 and August, 2008. Will it lose 40% more? Or, 80% more? Or, 100% more?
Is this where the “improvers” have brought us?
Bonner and Wiggin believe so.
An “improver”, as defined by the authors, is someone who wants to make improvements to the world…wants to impose his or her view of how the world should run on all of the rest of us. Of course, politics within a democracy is a perfect venue for “improvers” to show their wares.
One can get a taste of what is meant by an “improver” by checking out Bonner and Wiggin’s “Hall of Shame” as well as their “Hall of Heroes.” To them, the stars of the United States Presidents they list as villains are Lincoln, Wilson, Franklin Roosevelt, Nixon, and Bush 43 and so on. The heroes that stand tall in their book are James Garfield, Chester Harding, Calvin Coolidge, Millard Fillmore, and their personal favorite Warren Harding.
Just waiting to enter into this “Hall of Shame” is Barack Obama…just his proposals, even before taking the oath of office, are enough to bring down the abuse and ridicule of these two authors. President-elect Obama wants to make the world better for others. What a joke! What a crock of …well, you name it.
And, it is just this attitude that is walking…no, now, running…no, now, sprinting…down the path to the doom of the empire. In short, the American empire has been built upon the shaky premise that foreigners will continue to finance the debt of the United States forever and will continue, through thick and thin, to keep faith in the strength of the almighty United States dollar.
How much debt is the Obama administration going to add to the total United States debt outstanding?
Trillions and trillions of dollars!
But, this is not the focal point of this post. The focal point is on Bonner and Wiggin’s definition of “improvers” and the role that “improvers” play within a democratic framework of empire. Empires, to Bonner and Wiggin, keep their people happy and distracted by giving the masses “enemies and circuses”. That is, the thing that keeps an empire going is the diversion of its people. And, a democracy, according to the authors, is just perfect for the exploitation of the people.
Empires have always existed upon imperial interests, which mean that there are always wars on the periphery. The twist of the modern day imperialist is that they “pretend all manner of selfless and world-improving motives, every one of which is either an obvious fraud or a monumental bamboozle.” The authors go on to say that “The gist of the modern empire builder’s creed is that he has a duty to make the world a better place, and he can only do it by telling other people what to do.”
Empires need enemies…and isn’t it just convenient that when the modern empire takes on an enemy it is often done to bring liberty and democracy to the people it is fighting for. Perhaps, Bonner and Wiggin argue, one of the most difficult periods for the American empire came after the fall of the Berlin wall and the collapse of Communism because it left the United States government with no “bad guy”…no enemy. Thank goodness, they continue, for 9/11 because it gave the empire a vague, world wide enemy, the terrorist, that it could combat endlessly and without constraint on cost. Just what the empire needed to continue.
But, just as the empires of the past, these excursions cost lots and lots of money. In the past the empires extracted the funds to pay for their adventures from the defeated. The modern empire, the wealthy, prosperous empire, the empire that does not do its own saving, borrows from the poor of the world…those nations in which their people actually save.
So much for wars…now for circuses. The modern day circus, to Bonner and Wiggin, has to do with the promises and dream worlds which politicians in a democracy offer to the electorate. These promises and dream worlds can never be achieved and many attempts at attaining them leave those whose votes are solicited by the politicians worse off. To get elected, therefore, the politicians engage in lies and outright fraud. But that is the way of the modern world.
And, what is promised? Full employment. No financial pain. A home of their own for everybody. And, so on and so forth.
And, who is going to pay for the delivery of all these programs and policies?
Bonner and Wiggin tell us…China, India, Brazil, countries in the Middle East…and others in the less developed world…who save some of their income.
I keep getting off-the-point. Democracy gives “do-gooders” (those that want to make the world a better place to live based upon the knowledge the “do-gooders” have about how the world works and what should be done to make the world a better place to live in) the opportunity to make the world a better place to live in. And, so we get the modern empire…America in the 21st century.
The obvious thesis of Bonner and Wiggin is that the world would be a lot better place if there were fewer “improvers” or if the “improvers” were taken for what they are, in the authors words, frauds and cheats. They believe that people need to stick to their own business, be humble, and work hard. They believe that grandiose ideals and plans can only lead to trouble. They believe that the United States did pretty well until that incompetent fake, Woodrow Wilson became President.
Europe knew that Wilson was a fraud and laughed at him. They used him and then abandoned him and his ideals on how the world should be built. Yet, Wilson became the model for the many activist Presidents that came after him starting with Franklin Roosevelt. And, as they say, the rest is history…the history of the American Empire.
As we stand here on January 10, 2009 on the edge of financial chaos we need to develop an answer for the criticisms of Bonner and Wiggin or we need to be very afraid. The debt of the United States is going to expand dramatically over the next few years.
Who is going to finance all these trillions and trillions of dollars of American debt? Is the only way to finance this debt to monetize it? To print paper money or to electronically generate money?
Who is going to want to hold the United States dollar? The dollar lost 40% of its value between the start of 2001 and August, 2008. Will it lose 40% more? Or, 80% more? Or, 100% more?
Is this where the “improvers” have brought us?
Bonner and Wiggin believe so.
Wednesday, January 7, 2009
What Conservatives Are Saying Now!
The United States is coming into 2009 having established one of the largest moves to socialization in the world. The prospects for the future do not provide any encouragement for this move to slow down!
The United States has moved into a new era…and who would have thought that it would be the Conservatives in America that created the environment for this to happen.
The Conservatives were always the people who believed in discipline…of not living beyond ones means and capabilities. Yet, it became the Conservatives that led the way to uncontrolled and irresponsible behavior…on the part of the government…and on the part of the private sector.
When did it start?
When Nixon claimed that “We are all Keynesians now!”?
Did this lead to the policies of Ronald Reagan who promoted Supply-Side tax cuts that led to large deficits that went on and on?
And this led to Bush 41 and Bush 43 and their undisciplined fiscal behavior?
The Republican Party…like most parties…is a conglomerate of groups with disparate or even conflicting positions. But, Nixon drew up the new boundaries of the party and created the new culture at the top. And, what were these new boundaries?
I would like to concentrate on three: making the Republican Party the party of the South and the religious conservative; the move to fiscal and monetary irresponsibility; and the emphasis upon loyalty to creed as the primary criteria for membership.
There is no question that the Nixon “Southern Strategy” became the foundation of the ‘new’ Republican Party. Lyndon Johnson basically disenfranchised the South with his policies on civil rights and welfare. These programs completed upset the social stratification of the South and caused many citizens of that part of the country to look for a new home.
Richard Nixon provided them with that new home. But, in doing so the Republican Party had to be open to two things…even if they were sublimated in all discussions concerning the party. These two things were, first, that the party had to accept the racist leanings of the Southerners that were brought in under the ‘big tent’, and, second, the party had to openly support a religious leaning that was more fundamentally orientated. Up until the late sixties, the Republican Party had been the home of the mainline Protestant denominations. That was to be no more…they were ‘too liberal’.
These two themes brought in the South and also appealed to more rural areas of the United States. This provided a background for ascending to the Presidency, but also to provide a strong bloc of support in both the Congress in Washington, D. C., and in state houses throughout the country. It also provided a funnel for future leaders of the Party.
The second boundary had to do with the economic policies of the Federal Government. Nixon was so paranoid about getting re-elected as President that he did whatever was necessary…the rest-of-the-world be damned. Consequently, the conservative policies of ‘hands off’, constraint, and discipline did not appeal to him. This made him susceptible to advisors around him…especially John Connolly…that led him in a totally different direction. That direction included ideas about ‘big government’, deficits in the budget, wage and price controls, and an easy monetary policy. And, the last item there was connected to the withdrawal of the United States from the gold standard that served as the basis for stable economic policies. Even Franklin D. Roosevelt did not dare get rid of this peg during the Great Depression.
Richard Nixon became a “Big Government” President opening the door for a succession of ‘Conservative’ big government presidents…like Ronald Reagan (a former Democrat), Bush 41, and Bush 43. And, “Big Government” for the Republicans included building up the military…for this was the patriotic thing to do. American was the leader of the free world and therefore it needed more and more resources for the military.
The problem with “Big Government” is that taxpayers in the United States will generally not support the taxes needed to run a big government so that the big government will have to be financed by selling bonds…or monetizing the debt. Nixon did both…but, to combat the possibility that inflation could get worse he also froze wages and prices in the economy.
Whoa ! ! !
The third boundary had to do with loyalty. Since the things discussed above became the ‘religious’ beliefs of the Republican leadership, adherence to the ‘religion’ became paramount…no matter how ridiculous the stance one had to take. Loyalty to the line became the most important criteria for membership in the leadership.
And, this loyalty transcended talent, ability, or experience. If you did not believe the way the Party did…you had no chance to help the Party regardless of how good or how successful you were. How else can we explain the incompetence of the Bush 43 administration? How else can we understand the ignoring of facts and of reality? How else can we explain the lies and the cover-ups?
In the past, the Conservatives were always the Party of reality, the Party of discipline, the Party of incremental movement.
I think that these Conservatives can now say…”We told you so!”
I think that these Conservatives can now say…”If you lose your discipline, you will eventually crash!”
I think that these Conservatives can now say…”Once you crash because you have lost your discipline, there are no good choices!”
I think that these Conservatives can now say…”There is only one way to ‘right the ship’ and that is by re-establishing your discipline!”
I think that these Conservatives can now say…”Re-establishing your discipline is VERY, VERY painful!”
The United States has moved into a new era…and who would have thought that it would be the Conservatives in America that created the environment for this to happen.
The Conservatives were always the people who believed in discipline…of not living beyond ones means and capabilities. Yet, it became the Conservatives that led the way to uncontrolled and irresponsible behavior…on the part of the government…and on the part of the private sector.
When did it start?
When Nixon claimed that “We are all Keynesians now!”?
Did this lead to the policies of Ronald Reagan who promoted Supply-Side tax cuts that led to large deficits that went on and on?
And this led to Bush 41 and Bush 43 and their undisciplined fiscal behavior?
The Republican Party…like most parties…is a conglomerate of groups with disparate or even conflicting positions. But, Nixon drew up the new boundaries of the party and created the new culture at the top. And, what were these new boundaries?
I would like to concentrate on three: making the Republican Party the party of the South and the religious conservative; the move to fiscal and monetary irresponsibility; and the emphasis upon loyalty to creed as the primary criteria for membership.
There is no question that the Nixon “Southern Strategy” became the foundation of the ‘new’ Republican Party. Lyndon Johnson basically disenfranchised the South with his policies on civil rights and welfare. These programs completed upset the social stratification of the South and caused many citizens of that part of the country to look for a new home.
Richard Nixon provided them with that new home. But, in doing so the Republican Party had to be open to two things…even if they were sublimated in all discussions concerning the party. These two things were, first, that the party had to accept the racist leanings of the Southerners that were brought in under the ‘big tent’, and, second, the party had to openly support a religious leaning that was more fundamentally orientated. Up until the late sixties, the Republican Party had been the home of the mainline Protestant denominations. That was to be no more…they were ‘too liberal’.
These two themes brought in the South and also appealed to more rural areas of the United States. This provided a background for ascending to the Presidency, but also to provide a strong bloc of support in both the Congress in Washington, D. C., and in state houses throughout the country. It also provided a funnel for future leaders of the Party.
The second boundary had to do with the economic policies of the Federal Government. Nixon was so paranoid about getting re-elected as President that he did whatever was necessary…the rest-of-the-world be damned. Consequently, the conservative policies of ‘hands off’, constraint, and discipline did not appeal to him. This made him susceptible to advisors around him…especially John Connolly…that led him in a totally different direction. That direction included ideas about ‘big government’, deficits in the budget, wage and price controls, and an easy monetary policy. And, the last item there was connected to the withdrawal of the United States from the gold standard that served as the basis for stable economic policies. Even Franklin D. Roosevelt did not dare get rid of this peg during the Great Depression.
Richard Nixon became a “Big Government” President opening the door for a succession of ‘Conservative’ big government presidents…like Ronald Reagan (a former Democrat), Bush 41, and Bush 43. And, “Big Government” for the Republicans included building up the military…for this was the patriotic thing to do. American was the leader of the free world and therefore it needed more and more resources for the military.
The problem with “Big Government” is that taxpayers in the United States will generally not support the taxes needed to run a big government so that the big government will have to be financed by selling bonds…or monetizing the debt. Nixon did both…but, to combat the possibility that inflation could get worse he also froze wages and prices in the economy.
Whoa ! ! !
The third boundary had to do with loyalty. Since the things discussed above became the ‘religious’ beliefs of the Republican leadership, adherence to the ‘religion’ became paramount…no matter how ridiculous the stance one had to take. Loyalty to the line became the most important criteria for membership in the leadership.
And, this loyalty transcended talent, ability, or experience. If you did not believe the way the Party did…you had no chance to help the Party regardless of how good or how successful you were. How else can we explain the incompetence of the Bush 43 administration? How else can we understand the ignoring of facts and of reality? How else can we explain the lies and the cover-ups?
In the past, the Conservatives were always the Party of reality, the Party of discipline, the Party of incremental movement.
I think that these Conservatives can now say…”We told you so!”
I think that these Conservatives can now say…”If you lose your discipline, you will eventually crash!”
I think that these Conservatives can now say…”Once you crash because you have lost your discipline, there are no good choices!”
I think that these Conservatives can now say…”There is only one way to ‘right the ship’ and that is by re-establishing your discipline!”
I think that these Conservatives can now say…”Re-establishing your discipline is VERY, VERY painful!”
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