Friday, January 16, 2009

Quote of the Day: Treating Incompetent As Victims

The current economic strategy is right out of "Atlas Shrugged":

The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers.

With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

~Stephen Moore in the Wall Street Journal

16 Comments:

At 1/16/2009 8:51 AM, Anonymous Machiavelli999 said...

The more incompetent you are in business, the more handouts the politicians will bestow on you.

Stephen Moore should be familiar with that. The more incompetent he appears to be and the more ridicilous and off-base his forecasts are the more space he gets on the WSJ op-ed page.

Its actually kinda sad to hear such ideologically charged language coming from a supposed trained economist. I mean you would expect this kind of talk coming from a layman or a politician, but a trained economist should know better. Maybe someone should sit Stephen Moore down and explain to him such concepts as: "systemic risk" and "lender of last resort" and why we have a Fed.

 
At 1/16/2009 9:02 AM, Blogger Jeff Lehner said...

Interesting take, Machiavelli.

Perhaps you'd benefit from a talk with somebody about the concepts of 'moral hazard' and 'subsidizing failure'...

 
At 1/16/2009 9:03 AM, Anonymous Anonymous said...

The government should not be deciding which failed businesses survive and which are relegated to history. The decisions are being made in a political and not economic basis. Inevitably, when trillions of dollars are spent by politicians to promote political aims, the money is wasted in its entirety.

 
At 1/16/2009 9:34 AM, Anonymous Anonymous said...

Machiavelli999: Just because you don't like the guy doesn't mean he's wrong. BTW, you hold "trained economists" in too high regard. Also BTW, the U.S. Fed has essentially no idea what it's doing. They are taking an absolute vicious pounding on the "assets" they have been buying. They are the world's worst trader; bailed out for the moment only by their lack of having to produce a P&L statement and outright illegal secrecy. The situation isn't solvable with more government interference, only less.

 
At 1/16/2009 11:46 AM, Blogger misterjosh said...

I'm a purty smart feller, and I just couldn't slog through Atlas Shrugged - even though I mostly enjoyed the Fountainhead and agree with many egoist principles.

I don't hate the fed bailing out folks, but I am awfully irritated that we have not forced banks et al. to write down their "toxic" assets before assistance. From what I've read recently, Sweden "... extracted pounds of flesh from bank shareholders before writing checks." and I think I remember reading that Japan did something similar.

Incompetent business must experience some sort of failure or else the market will learn nothing, and the "magic hand" will keep scratching our nether regions instead of doing anything useful.

 
At 1/16/2009 12:20 PM, Anonymous Anonymous said...

Sweden "... extracted pounds of flesh from bank shareholders before writing checks."


Interesting. Did Sweden also threaten private lenders with legal and regulatory action if they did not lend to unqualified borrowers? Did they set up a GSE, with lower borrowing costs and reduced regulatory constraints, to compete with private lenders?

And while we're talking about "treating the incompetent as victims", what about the borrowers? Where is their responsibility? This was a one way bet as far as they were concerned. They lied to get a mortgage on a property they couldn't afford. If the property appreciates, they keep the capital gain. If the bottom falls out, they walk away leaving the lender with a capital loss. And of course, the news media and every liberal politician paints them out the victim. What a deal.

 
At 1/16/2009 12:55 PM, Blogger bobble said...

agree that incompetency is being rewarded.

further, if we are to go down that cruddy road there are a few changes i'd like to see:

1. throw out the management, and the directors. no severance no nuthin' (ok, maybe a trip to federal court on fraudulent accting charges). they are the ones who made the bad decisions. why are we allowing (rewarding) them to stay and fly around in their corp jets?

2. what is this crap with taxpayers getting preferred stock and warrants? the taxpayers should own these entities 100%. wipe out the stockholders and bondholders. they are idots too. after the takeover, make plans to dismantle these 'too big to fail' atrocities and sell them off as times get better.

don't get me started . . . .

 
At 1/16/2009 1:24 PM, Blogger Michael Smith said...

Yes, events are playing out exactly as depicted in Atlas Shrugged, and for exactly the same reasons as depicted in the book.

The crooked and dishonest businessmen in Atlas invoked the same claims about "systemic risk":

"We must preserve the steel industry as a whole! We don't dare let a major steel company go bankrupt in the middle of an economic crises! It will dislocate the whole economy!"

And the government planner/looters used each successive crises to expand their power:

"My hands are tied! I must have wider powers to deal with this crises! We must have greater controls to get us through this economic emergency!"

And the producers -- who are made to pay for the errors of the incompetent and the dishonest -- are chained, throttled, and choked by an ever-tightening noose of government rules, regulations, controls, quotas and taxes -- until one man shows them how to bring down the whole rotten structure.

 
At 1/16/2009 1:27 PM, Anonymous Anonymous said...

@Machiavelli999 -

Ah yes, you're going to get us with the "ideology" dig! I agree. There is nothing worse than someone with a consistent and principled system of reasoning. Notice I didn't say infallible. I'm not arguing content of ideology, but mere presence of one.

In my personal experience, what people who complain about "ideology" always fail to realize is that they often also subscribe to an ideology. In fact, it's rather difficult to be human and not cling to something. However, the complainers are at a total loss to describe it.

Instead of recognizing their own ideology for what it is: scattered and incoherent, but no less strong than those they oppose, they point fingers at those who baffle them through attempts to collect their thoughts and beliefs that they might understand the world and describe it better.

 
At 1/16/2009 2:43 PM, Anonymous Anonymous said...

Brian Wesbury I think said it would be cheaper and more beneficial to cut government spending and cut tax rates by 50% than the current bail out plan. People could spend their own money where it is needed.

 
At 1/16/2009 3:57 PM, Anonymous Machiavelli999 said...

In fact, it's rather difficult to be human and not cling to something.

You can cling to facts and evidence when making your arguments instead of unsubstantiated claims. Such as...

...it would be cheaper and more beneficial to cut government spending and cut tax rates by 50% than the current bail out plan. People could spend their own money where it is needed.

People wouldn't spend that money. They would save it. No businesses are cutting spending right now because of high taxes. They are cutting it because of falling demand. Tax cuts will not stimulate demand.

Also, the first part of your claim about tax cuts being cheaper is also false. Cutting spending in the current economy would eliminate jobs and contract the economy even further. This would reduce tax revenue creating an even bigger defecit. And cutting taxes won't stimulate spending in the current economy, it too would do nothing but bring about a bigger defecit.

 
At 1/16/2009 4:23 PM, Blogger NoWhining said...

People wouldn't spend that money. They would save it.

Yep...but not in their mattresses. It would be in a bank where it could be used to capitalize other projects, thereby stimulating the economy. You know...jobs and such.

 
At 1/16/2009 4:38 PM, Anonymous Machiavelli999 said...

Yep...but not in their mattresses. It would be in a bank where it could be used to capitalize other projects, thereby stimulating the economy. You know...jobs and such.

Usually, yes, but this time nope. Banks aren't lending and putting money into a bank now is not the most effective way to stimulate demand. Also, if your goal is to recapitalize the banks then do it directly like the TARP is doing now instead of going through the taxpayer.

 
At 1/17/2009 6:44 AM, Blogger Michael Smith said...

You can cling to facts and evidence when making your arguments instead of unsubstantiated claims.

Really? When do you plan to begin providing facts and evidence to substantiate your claims? You certainly have not done so anywhere that I've seen.

Here are your claims from this post:

Stephen Moore should be familiar with that. The more incompetent he appears to be and the more ridicilous and off-base his forecasts are the more space he gets on the WSJ op-ed page.

Evidence please?

No businesses are cutting spending right now because of high taxes. They are cutting it because of falling demand.

Substantiation please?

Tax cuts will not stimulate demand.

Proof?

Also, the first part of your claim about tax cuts being cheaper is also false.

Evidence?

Cutting spending in the current economy would eliminate jobs and contract the economy even further. This would reduce tax revenue creating an even bigger defecit.

And Obama is not going to create a bigger deficit?

Banks aren't lending and putting money into a bank now is not the most effective way to stimulate demand..

Facts, reasons, evidence? You present none. You simply make unsupported assertions.

The fact of the matter is, Obama's plans are a laundry list of aggressively anti-business, anti-profit legislation that promises to cripple our economy -- if not outright destroy it. Obama has promised the following:

- To raise the top income tax rate
- To raise the corporate tax rate
- To raise the dividend tax rate
- To raise the capital gains tax rate
- To create a new tax on businesses that outsource jobs overseas
- To seize a portion of the oil industry's profits to fund an "energy rebate"
- To seize a portion of the pharmaceutical company's profits to lower drug prices.
- To set up a government agency that will determine what constitutes "reasonable" profits and then seize any that are above this arbitrarily determined level.
- To "spread the wealth around"
- To eliminate the secret ballot and allow union organizers to bring intimidation and threats to bear directly on anyone who dares to oppose a union.
- To raise the minimum wage by 50%
- To impose "cap and trade" limits on CO2 emissions that will, in his words, "cause electricity rates to soar" and "bankrupt anyone who builds a coal-fired power plant".
- To force all businesses to pay 100% of their employee's healthcare costs
- To complete the nationalization of the healthcare industry
- To impose protectionist trade restrictions by "renegotiating" existing free trade agreements.
- To commit America to funding U.N. anti-poverty programs, so that American taxpayers are not only bled to fund our home-grown bums and deadbeats, but the who world’s as well.
- To raise a “civilian defense force” which, in his words is just as strong and well-funded as our military.

I can't think of a better way to discourage all rational investors and consumers -- to encourage them to pull back on all expenditures in an effort to survive this all-out assault on our wealth and our freedom -- than to threaten them with massive tax increases, enormous increases in their cost of living, coercive new obstacles to doing business and promises to seize the profits of entire industries coupled with promises to bankrupt others.

And, in the face of all that, you cling to the notion that if government will only steal another trillion dollars from us to spend as it sees fit, this will somehow cancel the effects of Obama's assault on profits and production.

Enjoy your time in the soup line, provided you can find one.

 
At 1/17/2009 10:05 PM, Blogger bobble said...

michael smith: "Obama's plans are a laundry list of aggressively anti-business, anti-profit legislation that promises to cripple our economy -- if not outright destroy it. Obama has promised the following:

- To raise the top income tax rate
- To raise the corporate tax rate
- To raise the dividend tax rate
- To raise . . . . etc, etc, etc "

didn't Bush and the Republicans implement pretty much the opposite of those policies? and, yet, here we are with a crippled if not outright destroyed economy.

 
At 1/18/2009 7:44 AM, Blogger Jeff said...

bobble,
nice straw man. Other than the tax cuts (which no one implies have led to the current situation), the Bush administration hasn't seriously addressed any of the other issues on the proposed agenda. And on one of the things that might have helped the situation (reigning in the marketplace-warping practices of Fannie Mae and Freddie Mac), they got opposition from the same Congress critters who now claim there wasn't enough oversight (which was their job), and who now claim to know how to fix things (then why'd you let them fall apart in the first place?).

I'd agree with your 2 earlier points about wiping out those responsible for the problems at the companies (directors and stockholders) before allowing a bailout, but I'd add a 3rd condition:
3. All of the Congressional "leadership" that opposed steps to stop the madness at Fannie and Freddie, and participated in it with sweetheart mortgages from the industry and accepting campaign contributions in exchange for looking the other way should be summarily removed from any committee memberships, if not Congress altogether.

When Obama said during a debate that to him the fact that lowering the capital gains tax led to increased revenue didn't matter, that raising the tax was about "fairness," I knew we were doomed if he won.

He claims to be open to any idea that can be shown to work, but I haven't seen any evidence that he's looked to history and seen what has worked -- tax RATE cuts, not more government wealth transfers disguised as tax cuts.

 

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