Tuesday, July 20, 2010

High Stakes Test: Can Big Government Successfully Organize the Dynamic, Information Age Economy?

David Brooks in today's NY Times:

"When historians look back on the period between 2001 and 2011, they will be amazed that a nation that professed to hate bureaucracy produced so much of it.

First, Democrats passed a health care law. This law created 183 new agencies, commissions, panels and other bodies.  Democrats also passed a financial reform law. The law that originally created the Federal Reserve was a mere 31 pages. The Sarbanes-Oxley banking reform act, passed in 2002, was only 66 pages. But the 2010 financial reform law was 2,319 pages, an intricately engineered technocratic apparatus. As Mark J. Perry of the American Enterprise Institute noted, the financial reform law is seven times longer than the last five pieces of banking legislation combined.

Once again, government experts were told to take a complex, decentralized system — in this case the financial markets — and impose rules, rationality and order. The law creates one über-panel, the Financial Stability Oversight Council. It directs government experts to write rules in 243 separate areas.

This progressive era amounts to a high-stakes test. If the country remains safe and the health care and financial reforms work, then we will have witnessed a life-altering event. We’ll have received powerful evidence that central regulations can successfully organize fast-moving information-age societies.

If the reforms fail — if they kick off devastating unintended consequences or saddle the country with a maze of sclerotic regulations — then the popular backlash will be ferocious. Large sectors of the population will feel as if they were subjected to a doomed experiment they did not consent to. They will feel as if their country has been hijacked by a self-serving professional class mostly interested in providing for themselves.

If that backlash gains strength, well, what’s the 21st-century version of the guillotine?"

59 Comments:

At 7/20/2010 10:44 AM, Blogger Junkyard_hawg1985 said...

I think the backlash hits November 2. Based on the shift in voting patterns between the 2008 election and the governors races in VA & NJ and the Senate race in MA, the 2010 electorate should be 34.7% D, 35.5% R, and 29.8% I (Sean Trende methodology from 12/31/09). Based on the crosstabs of the Rasmussen generic ballot polling of likley voters, the two-party vote would be split as 58.4% R and 41.6% D. This would give Republicans a net pick-up of around 110 seats.

 
At 7/20/2010 10:47 AM, Blogger Cabodog said...

Junkyard, let's just pray that you're correct so an end can be put to the current insanity.

 
At 7/20/2010 11:07 AM, Blogger Benjamin said...

Well, nice rhetoric from Brooks, to be sure. But ultimately, cheap grandstanding.

And by this reasoning, an "unintended consequence" of Bush era oversight was a complete collapse of our financial system, and a rapidly deepening economic seizure.

If the system we had in place in the Bush era completely failed--and it did--what then should our course of action be? What proposals have we from Brooks on that score? Steady as she goes?

According to this draft of the financial reform act, it is "only" 1136 pages: http://banking.senate.gov/public/_files/AYO09D44_xml.pdf

At 1136 pages, it is about the same page-count as the combined Defense Department authorizations and appropriations bills for fiscal 2010.

Besides all that, I don't see any hysterical howling about the length of the DoD bills. The right-wing sppears to be insistent on marginalizing itself behind purile rhetoric.

So, my brave libertarian friends, do you propose we abolish the FDIC? Wipe out the SEC? Should we insure deposits and then trust in the free markets entirely?

 
At 7/20/2010 11:17 AM, Blogger Chris said...

I agree that regulation is definitely necessary, but I feel like 2000 pages is going to create a lot of red tape that will eventually just slow us down.

 
At 7/20/2010 12:17 PM, Blogger tom said...

Democrats like Dodd and Frank truly believe, the more government red tape there is, the better. More regulation = more fairness = more efficiency. Don't ask me WHY they believe that, but I do not speak their language of progressive redistribution.

 
At 7/20/2010 12:32 PM, Blogger Benjamin said...

Tom-
Proper regulation of financial institutions has nothing to do with redistribution, except perhaps avoiding the redistribution upwards that happens when we taxpayers have to bail out banks and Wall Street and AIG.

Dudes, the system we had in place collapsed--you have any plans to fix that? Failure was an unintended consequnce of the Bush era. Abject, complete and total collapse. We even had a classic bank run on Indy Bank and some depositors never got all thier money back--they were literally standing in the street! That scene typified the Bush era--a scene I hope I never see again.

 
At 7/20/2010 1:10 PM, Blogger Don Culo said...

I agree we have to much bureaucracy !!!!!!!!!!!

***********************

From the Washington Post Series, we have


* Some 1,271 government organizations and 1,931 private companies work on programs related to counterterrorism, homeland security and intelligence in about 10,000 locations across the United States.

* An estimated 854,000 people, nearly 1.5 times as many people as live in Washington, D.C., hold top-secret security clearances.

* In Washington and the surrounding area, 33 building complexes for top-secret intelligence work are under construction or have been built since September 2001. Together they occupy the equivalent of almost three Pentagons or 22 U.S. Capitol buildings – about 17 million square feet of space.

* Many security and intelligence agencies do the same work, creating redundancy and waste. For example, 51 federal organizations and military commands, operating in 15 U.S. cities, track the flow of money to and from terrorist networks.

* Analysts who make sense of documents and conversations obtained by foreign and domestic spying share their judgment by publishing 50,000 intelligence reports each year – a volume so large that many are routinely ignored.

 
At 7/20/2010 1:19 PM, Blogger Paul said...

Benji,

"If the system we had in place in the Bush era completely failed--and it did--what then should our course of action be? "

Well, you've been telling us all we need are some more monetary gimmicks from the Fed.

 
At 7/20/2010 1:37 PM, OpenID Sprewell said...

Benjamin, cheap grandstanding how? Oh, that's right, you can't back it up. How was the financial crisis a consequence of the "Bush era"? If anything, it was a consequence of the Frank-Dodd era, who kept pushing Fannie and Freddie to pump more money into bad loans up to the last minute. It is hilarious how many morons there are in this country who think the President is some sort of king who is responsible for everything that happens during his term. As for alternate proposals, there are many that far predate the crisis and anticipated it, I suggest you look them up. Yes, we should get rid of the FDIC, which by its own measures cannot insure what it claims to insure. Why wouldn't we wipe out the SEC, that was so incompetent that it didn't even understand the evidence against Madoff when shown it? The recent crisis had two parents, out of control gambling by Wall street investment banks and many other big banks and idiotic govt institutions and regulations like Fannie and Freddie. The difference between the free market and govt is that the free market learns: those banks that made the biggest mistakes largely went out of business or were taken over. Whereas what's the result of Dodd and Frank's incompetence? They get to write a huge new bill that further imposes their stupidity on us. The only good news is the coming backlash that Brooks and Junkyard_hawg highlight, that is about to sweep Democrats out of Congress, overturn all the idiotic legislation Obama and his cronies have passed, and further down the road, sweep Obama out of office, as he's now obviously the second coming of Jimmy Carter, an incompetent but seemingly nice "face" that the populace rushes to in times of anxiety but that they immediately reject when the truth of his incompetence is found out.

 
At 7/20/2010 3:09 PM, Blogger Benjamin said...

Sprewell-

BTW, there is a book, "Panic," writen by ultra hardcore right-wingers Redleaf/Vigilante, and they say the housing bust was not caused by lending to lower-income people, but rather lending to upper-income hohomebuyers, and a system in which bond buyers literally do not know what they own (the complicated RMBS and CMBS markets).

And if Fannie and Freddie caused the housing bust, then why are we enduring an equal commercial real estate bust?

You may wish to recondier doing away with the FDIC. People who hoard money in mattresses--well, it leads to disintermediation.

 
At 7/20/2010 3:38 PM, Blogger Hydra said...

"More regulation = more fairness = more efficiency. Don't ask me WHY they believe that, but I do not speak their language of progressive redistribution."

Total Cost = Production Cost + External Cost + Government Cost.


Increasing Government Cost (more regulation, more enforcement, more monitoring) MIGHT actually lead to more efficiency (lower TOTAL COST) AS LONG AS the cost of government intervention lowers external costs sufficiently to offset both the increased production cost and the increased government cost.

Production entities have no one to blame for the specter of government oversight but themselves. Had they not treated they customers, their workers, and their environment so egregiously there would have been no need for "liberals" of "big government" to keep them honest.

 
At 7/20/2010 3:43 PM, Blogger Hydra said...

If anything, it was a consequence of the Frank-Dodd era,

=========================

Um Let's see now. If something bad happens in the Obama adminsitration it is Obamas fault, because he is an incompetent, and probably corrupt to boot..

But if something bad happens in the Bush adminsitration it is because a couple of highly successful, low level Democrats were able to subvert all his noble efforts to ride herd on risky behavior.

 
At 7/20/2010 3:44 PM, Blogger Hydra said...

This comment has been removed by the author.

 
At 7/20/2010 3:52 PM, Blogger Hydra said...

"those banks that made the biggest mistakes largely went out of business or were taken over."

And their managers still walked away with millions.

The losers in this deal were NOT the ones that caused the problems. That is what the average Joe who saw half his life savings disappear is pissed off about.

If we actually had the kind of accountability you suggest (both in governemtn and out) that would be lovely, but we don't. What we have is a bunch of high level ass kissers, each protecting his ass (golden parachutes, government revloving door) in such a way that it is more likely to be kissed.

 
At 7/20/2010 4:14 PM, OpenID Sprewell said...

Benjamin, Fannie and Freddie backed loans to both lower-income and upper-income homebuyers, with their jumbo loan provisions, not sure why you think that makes a difference. Agreed that the MBS markets got too complex and allowed the investment banks to take more risks, which is why Warren Buffett got out in 2002. As for commercial real estate, I haven't looked into that much, but I suspect it was a secondary consequence of the residential bubble that Fannie/Freddie helped inflate, ie a rising tide floats all boats. As for the FDIC, there's nothing to reconsider, it has been a dumb idea from its inception. You simply assume that private mechanisms wouldn't take its place, there's no reason depositors can't insist on private insurance instead. People haven't hoarded money in mattresses for 70 years, those times are long gone and are never coming back.

 
At 7/20/2010 4:17 PM, OpenID Sprewell said...

Hydra, Obama is responsible for all the dumb legislation he has tried to pass, I haven't pinned anything else on him. In fact, I think it's shameful how the same Republicans who will disclaim Bush's responsibility for the financial crisis are now trying to pin the BP mistakes directly on Obama, which his administration is only secondarily responsible for for pushing BP so far out into the ocean in the first place. Dodd and Frank are low-level Democrats? I guess that must be why they can't seem to pass any legislation these days. ;) As for your silly calculations of total cost, we've run that experiment many times and the govt ALWAYS raises total costs because the morons in govt have no incentive to do anything other than pander to the most ignorant voters. And it doesn't matter what "production entities" do, the giant parasites in govt will always try to find a way to suck more money off taxpayers, but with this new election bringing Tea Partiers who actually talk about cutting spending, hopefully enough voters have finally learnt that lesson.

As for the "millions" that bank managers walked away with, the head of Bear Stearns was worth a billion dollars, half of that made by 2000 before all the moves that led to his bank's failure, and he lost 90+% of it with its collapse. How much more should he have lost? Should he be relegated to the salt mines of Siberia? Bankers often lost far more than the "average Joe" you're crying for, they just had more to begin with. In fact, without the average Joes idiotically sinking their life savings into houses they couldn't afford so that they could flip it in a year for a tidy 30% profit that came out of nowhere, this bubble would never have inflated, so you're wrong about that too. The only reason we don't have accountability is because of people like you, who always see govt as the solution, despite centuries of proven government failure.

Hmm, I originally wrote these last two comments as one comment but then it wouldn't go through the system, guess this shitty blogger.com site must have some word limit.

 
At 7/20/2010 4:18 PM, OpenID Sprewell said...

Hydra, Obama is responsible for all the dumb legislation he has tried to pass, I haven't pinned anything else on him. In fact, I think it's shameful how the same Republicans who will disclaim Bush's responsibility for the financial crisis are now trying to pin the BP mistakes directly on Obama, which his administration is only secondarily responsible for for pushing BP so far out into the ocean in the first place. Dodd and Frank are low-level Democrats? I guess that must be why they can't seem to pass any legislation these days. ;) As for your silly calculations of total cost, we've run that experiment many times and the govt ALWAYS raises total costs because the morons in govt have no incentive to do anything other than pander to the most ignorant voters. And it doesn't matter what "production entities" do, the giant parasites in govt will always try to find a way to suck more money off taxpayers, but with this new election bringing Tea Partiers who actually talk about cutting spending, hopefully enough voters have finally learnt that lesson.

As for the "millions" that bank managers walked away with, the head of Bear Stearns was worth a billion dollars, half of that made by 2000 before all the moves that led to his bank's failure, and he lost 90+% of it with its collapse. How much more should he have lost? Should he be relegated to the salt mines of Siberia? Bankers often lost far more than the "average Joe" you're crying for, they just had more to begin with. In fact, without the average Joes idiotically sinking their life savings into houses they couldn't afford so that they could flip it in a year for a tidy 30% profit that came out of nowhere, this bubble would never have inflated, so you're wrong about that too. The only reason we don't have accountability is because of people like you, who always see govt as the solution, despite centuries of proven government failure.

 
At 7/20/2010 4:29 PM, Blogger sethstorm said...

You're asking one thing and speaking about something else.

 
At 7/20/2010 4:38 PM, Blogger juandos said...

"BTW, there is a book, "Panic," writen by ultra hardcore right-wingers Redleaf/Vigilante, and they say the housing bust was not caused by lending to lower-income people"...

Per his usual style (tenuous grip on reality) and his inability to ferret out the simple, easily obtained fact pseudo benny misstates his spin again...

To Redleaf and Vigilante the crisis was authored by both parties, or, in their articulate prose, "Crony capitalists on the right and socialists on the left united as always behind their most fundamental belief, that wealth is to be captured by power and pull rather than created in the minds of men."...

 
At 7/20/2010 4:47 PM, Blogger PeakTrader said...

The huge fiscal spending spree the past 1 1/2 years didn't generate enough growth (or perhaps offset the Fed's quantitative easing). So, what will government do for an encore? The longer this weak recovery goes on, the worse it gets (and it's even weaker, perhaps till mid-'11).

 
At 7/20/2010 4:49 PM, Blogger QT said...

Don Culo,

Thanks for some interesting facts.

My concern with this legislation is that the new agencies will be empowered to create new rules. There are different estimates regarding the number of rules (have also read over 500).

Not only will there be little oversight, this "process" approach creates regulatory uncertainty which makes it virtually impossible for businesses to invest and create jobs. The effect of Dodd-Frank may well be a very slow recovery or at worse, capital may be invested in other countries like Canada.

Benji, Hydra, Sprewell,

Some interesting comments amongst the flying fur ;)

 
At 7/20/2010 5:09 PM, Blogger Benjamin said...

Juandos-

Before you defecate on yourself yet again, read the book. Especially page 140.

 
At 7/20/2010 5:22 PM, Blogger Marko said...

People won't know what caused the problems and hardly blame the regulations. In fact, liberal people and the media will blame the free market and demand more regulation!

 
At 7/20/2010 5:26 PM, Blogger Hydra said...

"The only reason we don't have accountability is because of people like you, who always see govt as the solution, despite centuries of proven government failure."

You do not read very well. The equation clearly indicates that government cans ALSO cause total costs to be higher than the optimum amount. Therefore it cannot be said that I ALWAYS see government as the solution.

As for centuries of proven government failure, during those centuries we have had far more incidences of business failure, despite the fact that business cannot operate without some kind of government protection.

Totally fee and unfettered individuwal enterprise without government is anarchy. Totally free and unfettered organized enterprise without government is organized crime.

Government is NOT the solution, but it is a REQUIRED counterbalance.

At least until such time as we have totally honest and ethical business enterprises that want only to provide a fair product for a fair price.

It is not a question of government being a solution but a question of free markets: how much government is the right amount before demand causes the price to go out of control.

And what causes the demand for government? Enterprises that cannot control themselves. Can we have too much government? Absolutely, unfortunately enterprise is so far unable to allow us the luxury of finding that sweet spot.

 
At 7/20/2010 5:31 PM, Blogger Hydra said...

Fannie and Freddie backed loans to both lower-income and upper-income homebuyers, with their jumbo loan provisions,

=================================

How many low income buyers actually got jumboo loans?

Even if Fannie and Freddie backed those loans, who made such a dumb deal in the first place? Mortgage brokers who will now be regulated.

And who made it possible, bankers that packaged and resold the loans without sufficient scrutiny, also now to be regulated.

It is their own damn fault they got more big government breating down their neck.

 
At 7/20/2010 5:43 PM, Blogger Hydra said...

"As for the "millions" that bank managers walked away with, the head of Bear Stearns was worth a billion dollars, half of that made by 2000 before all the moves that led to his bank's failure, and he lost 90+% of it with its collapse."


Well, lets see, a billion is a thousand million, if he lost 90% of it he still walked away with 10 million.

I stand by my statement that they walked away with millions and you seem to agree with me.




A million is more money than most average joes can imagine, outside a lottery ticket, and ten million is enough to make them thoroughly pissed off, which they are.

He led Bear Sterns into total collapse, like the Titanic hitting an iceberg, he should have gone down with the ship, especially if you believe in free enterprisea, individual liberty and personal responsibility.

That said, someone at SEC was responsible for not investigating Madoff, and he should suffer the same fate as the head of Bear Stearns. You think its OK if that guy walks away with a few million while others lost everything?

 
At 7/20/2010 6:18 PM, OpenID Sprewell said...

Juandos, sounds like an interesting book.

Hydra, glad to hear you understand that total costs CAN go up through govt intervention, now you need to do some reading and realize they almost always have gone up. Of course, there have been business failures, that's how markets work: the incompetent are weeded out by the competent, that's one of the main benefits of markets. Business can't operate without govt protection? Please, business far predates the modern bureaucratic govt. As an anarchocapitalist, I welcome some anarchy. :) Organized enterprise is organized crime? What does that make Cuba then, organized rape? Govt has never counterbalanced anything, all it is is another conman looking to scam the dumb populace, by promising to protect them from the other conmen out there. "Fair product for a fair price," "demand causes the price to go out of control?" I think your grasp of economics is very limited, I suggest you actually learn something before you spout off about stuff you don't understand.

The demand for govt comes from dumb voters who look for prophets like Obama and his secular priesthood of economists like Summers and Romer to protect them from the real world, only their "saviors" are screwing them much worse in the meantime. Did anyone say low-income buyers got jumbo loans? I think a reading lesson is in order. ;) Do you think mortgage brokers weren't regulated before? Fannie and Freddie had a whole govt agency devoted to regulating them, the FHFA, didn't make a difference in their losing hundreds of billions of dollars, all while Frank and Dodd were pushing them to lend more. The SEC had thousands of employees and a billion-dollar yearly budget, yet they couldn't even understand the evidence against Madoff when Markopolos brought it to them. Government regulation doesn't work, crazy that this even has to be pointed out in this day and age.

 
At 7/20/2010 6:24 PM, OpenID Sprewell said...

Continuing last comment here cuz of dumb word limit:

10% of a billion is 100 million, Cayne probably made out with half that, or 5% of his former net worth. He was one of the richest to begin with, so of course he still had some left, many bankers didn't. The guy lost even the half a billion he had in 2000, before all his mistakes with Bear this decade, he had plenty of incentive to make better decisions but he failed and he's paid his price. What price are the congressional dimwits who pushed Fannie/Freddie paying? I don't much care what average joes can imagine, obviously if you're a billionaire you can afford to make more mistakes, because you have more money to begin with. How did Cayne not go down with the ship? He lost 95% of his net worth, far more than the average joes you're crying crocodile tears for. Whatever Cayne was left with was probably somewhere around the market worth of what Bear was worth, just like the average joes who lost their houses but not every shred of personal property they had. Why the hell would anyone at the SEC have a few million to begin with? Those dummies couldn't understand financial instruments, let alone make money off them.

 
At 7/20/2010 6:33 PM, Blogger juandos said...

"Before you defecate on yourself yet again, read the book. Especially page 140"...

I already did you dumb@$$!...

 
At 7/20/2010 6:40 PM, Blogger PeakTrader said...

Hydra, I doubt "most average joes" add-up how much they actually pay in taxes and how much regulations actually cost them. Then estimate how much more they're destined to pay in the future.

And then stop to think that if it weren't for private businesses offsetting part of the high price of government, they would've joined something like the Tea Party long ago.

 
At 7/20/2010 7:03 PM, Blogger juandos said...

"Juandos, sounds like an interesting book"...

sprewell Andrew Redleaf and Richard Vigilante did an excellent job with that book...

Not only did I find it educational but I also thought is was fine read...

Good writers, timely topic, can't go wrong...

I checked the book out at my local county library just after it came out...

 
At 7/20/2010 7:07 PM, Blogger PeakTrader said...

juandos, already did which one? :) (time 6:33)

 
At 7/20/2010 7:50 PM, Blogger Hydra said...

Ghegis Khan offered prrotection to traders and exacted tribute in return. If it wasn't worthwhile (offered lower total cost) then trade would have ceased under his modern bureaucratic rule. The equation holds true and it is proof by itself that govt cost does not always increase total cost. Focusing o ly on cost ignores the benefit side of the equation (negative cost).

 
At 7/20/2010 8:03 PM, Blogger Hydra said...

Most average Joe's don't have to add up anything to understand that they can't wreck their jobsite and walk away with millions. Personal responsibility is fine when directed at the poor or unemployed, but a different standard applies to the minions of capitalism. That is why more regulation is demanded to enforce equal rights and common decency.

As an anarchocapitalist you wouldn't understand.

 
At 7/20/2010 8:16 PM, OpenID Sprewell said...

Hahaha, Genghis Khan "offered protection?" That's hilarious, I'm sure he demanded it just like every govt since. Of course it wasn't worthwhile, just like the govt waste today, but I'm not sure how you then jump to the conclusion that trade would have ceased otherwise. "Modern bureaucratic rule?" You think that's what could be practiced back then? This is funny shit, Hydra, keep going. :D Your "equation" says nothing of the sort, as you yourself said- do you even understand math?- and the evidence has shown that govt always increases total cost, even when one includes the supposed benefits. Most average joes can't walk away with millions because they never had millions to begin with. But if you started with a billion like Cayne and lose 95% of it, its pretty crazy of you to demand more for no apparent reason, nor is it any of your business. Yes, as an anarchocapitalist, I don't understand your crazy desire to be robbed more by politicians, who simply offer more scams about how this time they'll get it right, just give us more money. However, it doesn't much matter what you or I think as technology is rendering government extinct, where email and FedEx are killing off the USPS and online learning and medicine are about to kill off the two largely publicly-funded sectors, education and medicine. So don't look now, but the future's heading my way. :)

 
At 7/21/2010 8:06 AM, Blogger juandos said...

"juandos, already did which one?"...

Hey PT, read the book Panic by Redleaf and Vigilante...

If you've not read it and if you have the time you might find it a very good read also...

 
At 7/21/2010 10:37 AM, Blogger Hydra said...

Hahaha, Genghis Khan "offered protection?" That's hilarious, I'm sure he demanded it just like every govt since.

================================

I'm glad you picked up on the sarcasm.

Sorry you missed the point was that business has always required government as a protector. This is not an issue of the modern government bureaucracy.

Without that government protection, why should i buy anything from you? I'll just take it.

No doubt you will claim that every business can hire its own private army and defend itself more efficiently than government can.

 
At 7/21/2010 11:04 AM, Blogger Hydra said...

"and the evidence has shown that govt always increases total cost, even when one includes the supposed benefits. "


What evidence?



The GAO states that there is no reason to institute any policy that does not provide a net social benefit.

The government, then, agrees with your basic premise tha government should not be involved if the result is ONLY increased cost.

There is no disagreement there, I don't think, among liberals or conservative or Republicans or Democrats, or religious groups, or environmentalists or anyone. Why do it, if that is the ONLY result?


"When historians look back on the period between 2001 and 2011, they will be amazed that a nation that professed to hate bureaucracy produced so much of it."

There must be some driving force. the driving force is that many people conclude, or at least convince themselves, that the benefits outweigh the costs.

That, in my opinion is the source of the problem. Our measurements of costs and benefits are often wrong. One reason is that we place an inordinately high value on decreasing risk.

The answer, is not less government necessarily, but instead to have and design government controls that are modified automatically or periodically by market forces. And to make sure people understand that is exactly what will happen.

The problem isn't too much government control, the problem is no effective feedback loop so we can tell when we have enough control. Or as I sida abve, what evidence?

Recently the value of a statistical human life was lowered, based on new information. Environmental groups howled bloody murder because they thought it was a stricly political calculation whish would lead to less money being available for their pet projects.

A better way to look at it would be less money wasted on some lives with more being avaialable for others.

Or you can forget the whole thing and let the lead back in gasoline. I'd suggest that the evidence in that case is pretty clear, the reduction in lead based damage was well worth the cost of the regulation.

You might argue with that. But the problem isn't the governemnt regulation, it is that we have no way to agree on what the proper most cost effective regulation is.

Market forces are the best way to decide, so we may as well make it explicit and write that into the rules.

 
At 7/21/2010 11:41 AM, Blogger Hydra said...

"But if you started with a billion like Cayne and lose 95% of it, its pretty crazy of you to demand more for no apparent reason,..."


Let's see. Cayne got a billion dollars over several or many years as a reward for growing his company. Subsequently we discover that the way he grew his company was by planting fast growing mushrooms under it. The growth was a fraud and the company failed as a result of his doings. But he still gets to keep his earnings based on previously misleading company performance.

The stockholders got zero, lost their entire investment and he still had millions. The apparent reason to demnd full accountability is parity. You know, personal responsibility and all that econo-anarchist stuff.

Beyond that, his actions affected many people who otherwise had no association with Bear Steans whatsoever. Some of them wound up out on the street, and not because they were stupid and accepted a bad loan to begin with.

OK, so lets argue that they should have taken more responsibility and had more reserve assets to begin with, to cover unseen risks and contingencies.

Isn't the same thing true of Cayne, and isn't that what the new regs would require?

Cayne is still living very comfortably, and the people who were hurt as a result of his actions are not. To them, that is very apparent, and reason enough to go after him.

My Mom tells the story of when her local bank failed during the depression. The very next day she saw the former bank president driving around in a brand new car, while the bank depositors had nothing.

Does the bank president have the right to get paid? Of course. Does he have the right to save his money for a new car? Of course. So why wasn't his money saved in his own bank?

I'm in favor of eco-anarchy too. I think the mob of investors ought to go find that SOB and get back every cent they can, right down to his shorts.

Or you can have rules that work: that don't protect one person better than another. Regulations should not be there to stifle or to protect business, they should be there to provide equal individual protection.

Whenever you hear a business, or any other organiation, complain about stifling regulations, what is usually going on is a campaign for unequal property rights.

The kind that let Cayne ride off into the sunset with a few million, while the people he got it from walk to the poorhouse.

 
At 7/21/2010 2:46 PM, OpenID Sprewell said...

Hydra, yeah, cuz your silly Genghis Khan example was dripping with sarcasm when you went on to earnestly state that he lowered "total cost." Nobody missed your silly point about govt "protection," but it is funny that you think that without that protection, thiefs would proliferate. The truth is that the govt is the biggest thief of all: they were the first mafia demanding protection money or some knees would be broken, which is why they get so pissed when new mafias form to compete with them. Even if you want that govt mafia to provide some basic protection against foreign enemies, this is an issues of modern govt bureaucracy, as they have far exceeded that "protection" mandate, their stolen take going from 8% to 40% of the economy over the last century (even more once you include all the foregone revenue from their dumb laws), as they expanded into all kinds of new rackets like medical racketeering and education graft. And yes, without that "protection," private enterprise can always hire more private security, just as they do today.

 
At 7/21/2010 4:04 PM, OpenID Sprewell said...

You are really ignorant of the mountain of evidence that more govt equals worse outcomes? I've seen charts showing that the more socialist a country is, ie the larger and more regulatory its govt is, the more percentage points they knock off their growth rate. This is why the poorest US states are on par with the richest European countries. An agency or two in the govt may talk about only pursuing "net social benefit" but that's belied by their constant dumb laws. The driving force for more govt is that there is a large minority of govt workers and cronies that want to steal more money from taxpayers. The reason its allowed to happen is because taxpayers don't want to spend their lives fighting these thieves so they pay up, just like with the mafia. The answer is simple: less govt, much less, not fantasies of new "feedback loops" that "are modified automatically or periodically by market forces," whatever that means. We have feedback loops right now, they're called elections and they're about to throw the bums out, who think like you do. :) You assume that consumers wouldn't have stopped buying leaded gasoline and killed it on their own, I don't. So no, regulation isn't worth it. We have a great way to figure out the best regulation, consumer preference. You might not buy from Wal-Mart or avoid imported vegetables, while I might be okay with my clothes being produced by child labor in Bangladesh. We can each "regulate" what we want by our purchases, that's how the market works. There's no need for us to "agree" on a single regulation.

 
At 7/21/2010 4:10 PM, OpenID Sprewell said...

Cayne wasn't given a "reward" of anything, he earned it by buying Bear stock and growing the company. Bear may have made bad decisions this decade but the half a billion Cayne had by 2000 was based off a presumably solid company, I don't think anyone was questioning the balance sheet of Bear in 2000. He then bet that $500 million of his on Bear's future growth, a bet which initially paid off by doubling with the housing boom before he lost most of it in the bust. Calling that growth a "fraud" is a bit much, I doubt you even understand what they were doing so you're certainly not competent to judge that. Bear didn't fail because of "his doings," he was simply in charge and so takes more blame than others. He didn't keep his "earnings," as has been pointed out repeatedly, he lost 95% of his net worth, including most of the $500 million he had earned long before the housing boom. Wow, you're really talking out of your ass, the "stockholders got zero?" Read the above link, the only reason he got anything was because of his large stock holdings, that paid him along with other stock holders when Bear was sold to Chase. Personal responsibility demands that Barney Frank and Chris Dodd also lose 95% of their wealth and power, so let's "demand" that? No, because we have to go on a witch hunt against Wall Street instead, even though they already paid a heavy price. Anyone who ended up on the street was stupid and didn't plan their financial future properly, period. I'm sure you're entirely ignorant of what the new financial regulation signed today require, so no point talking about that, suffice to say they're horrible.

 
At 7/21/2010 4:19 PM, OpenID Sprewell said...

These stupid word limits are getting annoying, I could have just combined all these comments as one:

Cayne lives comfortably because he's a very smart dude who made a billion dollars, what he managed to keep is none of your business. The people "who were hurt" by "his actions" are entirely deluded and by and large looking for a scapegoat for their own idiotic mistakes. If your mom's bank president was smart enough to avoid problems during the Depression, good for him. Anarcho-capitalism doesn't imply angry mobs doing whatever they want, they would get shot in the face by private security agencies if they tried such a thing, just like with the cops today. If you don't want to protect one person better than another, you need to decry govt bailouts, that protected creditors of Bear and other Fed-assisted banks and their depositors. You can fantasize about what govt regulations should be for, but they are only there to steal from taxpayers. I'll broaden what you say about businesses complaining about stifling regulations: whenever anyone, whether businesses, unions, or consumers, complains about how regulations should be changed, it is because they are campaigning for unequal property rights for themselves. It is obvious you have no idea how Cayne made his money, so your fantasies of people in the poorhouse who he stole it from are laughable. :)

 
At 7/22/2010 1:38 AM, Blogger juandos said...

hydra says: "What evidence?"...

Well sir the evidence has been around for decades and its been painfully obvious...

May I suggest you read the following: 2009 - 10 Thousand Commandments - An Annual Snapshot of the Federal Regulatory State

Crushing, Hidden Tax of Federal Regulation Soars

 
At 7/22/2010 10:25 AM, Blogger Hydra said...

Cayne lives comfortably because he's a very smart dude who made a billion dollars by wrecking a good business and all of its investors.

He and the board of directors responsible for him should be just as broke as the investors.

Had Cayne made a billion dollars impoving things, then he would be a paragon of capitalistic virtue. As it is, he skated on his responsibilities and got paid for work that never really happened.

This wasn't a question of him being smart, but him having control of assymetric information.

 
At 7/22/2010 10:29 AM, Blogger Hydra said...

Not every one hurt by his actions are looking for a scpaegoat for their own mistakes. Some of them did nothing wrong and had no direct interest in Cayne or his company. What you are saying is like blaming them for being on a public highway when Cayne rear ended them at 500 MPH, and then applauding him because he was smart enough to have an ejection seat.

 
At 7/22/2010 10:33 AM, Blogger Hydra said...

What he managed to keep is none of my business, but I don't have to like it and I am free to encourage the government to move to prevent that sort of thing in the future.

 
At 7/22/2010 10:53 AM, Blogger Hydra said...

The truth is that the govt is the biggest thief of all: they were the first mafia demanding protection money or some knees would be broken, which is why they get so pissed when new mafias form to compete with them.

Isn't that pretty much what the equation says?

When government costs go up more than the benefits proovided then total costs go up. The equation agrees with you on that point.

But as you point out by claiming government is the biggest thief OF ALL, there are other thiefs. With insufficient government they will increase thier take (or avoid their true costs) and total costs go up.

It's not my equation, but the truth of it is evident to me. The goal is to minimize TOTAL costs and there is zero evidence that this happens by eliminating government.

Your claim of reducing total costs by reducing government costs only holds true if you eliminate the other parts of the equation, as if they did not interact. But you cannot make that claim because you freely admit that government affects business.

We might have too much or too little governmnet now, but the proof comes frome whether total costs go up or down. We have very little reliable data on that, and no one really looking.

MJP has noted over and over that we now pay a smaller proportion of our income than ever for basic necessities like food, shelter, and transportation. Our total costs, including government, are lower than the were a century ago, except that we now have a lot more things to spend on.

 
At 7/22/2010 11:15 AM, Blogger Hydra said...

"Firms generally pass along the costs of some taxes to consumers. Likewise, some regulatory
compliance costs that businesses shoulder find their way into consumer prices."

CEI Institute


Well, absolutely.

And why do we have those regulatory compliance costs? Because otherwise businesses would not comply and the costs of those things that are being regulated would be passed along to others who may or may not be customeprs or consumers of the businesses product.

It is not in the consumers interest to pursue government regulation that winds up costing them more than it saves them. Which is exactly what the equation says.

Why do we have so much regulation then? Because the consumer and voter PERCIEVES that the savings is greater than the cost. And also because businesses DEMAND more regulation when the regs are helpful to themselves.

Either the consumer / voter is correct and we enjoy lower total costs in spite of the regulations, or else we are doing a bsd job of understanding total costs. But as you would point out, the market is pretty efficient at inding the lowest cost, and lowest cost for this product is no different.

As CEI puts it:

"A problem with costbenefit
analysis, however, is that it largely amounts to agency self-policing; agencies that perform “audits” of their own rules
would rarely admit that a rule’s benefits do not justify the costs involved. At the least, some third-party review is needed."

So it isn't that regulations don't have benefits, but we (government) may be overselling them. And it is just as likely that business is underselling them.

The CEI document, for example, mentions regulatory costs 188 times and benefits only 21 times.

 
At 7/22/2010 11:34 AM, Blogger Hydra said...

"I'll broaden what you say about businesses complaining about stifling regulations: whenever anyone, whether businesses, unions, or consumers, complains about how regulations should be changed, it is because they are campaigning for unequal property rights for themselves. "

I'll agree entirely that this is generally true. Greed being what it is every entity is likely to try to twist the regulations to their own benefit.

That's why we need more property rights and stronger property rights, which does not translate into less regulation but more: in order to define, codify, deed and protect all that new property.

Indeed the argument that CEI nakes about cost benefit analysis doesn't go far enough. A regulation that provides a net benefit is insufficient as long as it causes losers in the process. We need a Kaldor Hicks efficiency requirement, such that the winners from any proposal have to be willing to pay off the losers.

When that is the case it will eliminate many people campaigning for unequal property rights because they would have to prove both a net gain and compensate the losses.

In theory that already exists in the law: EPA regs state that no person or group should bear an undue burden due to passage, enforcement or lack of enforcement of environmental regs.

That and other similar regulations are ones you should like. Unfortunately the Supreme Court has been running in the opposite direction, minimizing the situations in which government owes compensation for property destroyed, devalued, or taken by regulatory intrusion.

If we have a better system for enforcing that, then we have a better system for avoiding bad regulations.

I simply put Cayne on an equal footing with government, which owes compensation for property destrpoyed, devalued or taken.

 
At 7/22/2010 12:46 PM, Blogger Hydra said...

"The self-interested behavior behind the advocates of occupational licensing is evident. Partial evidence of this is that most licensure laws are the result of intense lobbying, not by consumers, but by incumbent practitioners. When incumbents in an unlicensed trade lobby for licensing, or when the already existing incumbents in a licensed activity lobby for higher entry requirements, they virtually
always seek a grandfather clause that exempts them from meeting all the requirements of the licensing. The burden of higher entry costs is borne by new entrants. The violation of licensing codes by practitioners, such as price cutting and extra hours, are nearly always reported to a licensing board by incumbent practitioners-not by irate customers complaining about too low a price."

==================================

A lot of regulation is requested by business.

 
At 7/22/2010 1:32 PM, OpenID Sprewell said...

Juandos, thanks for the links, some good data.

Hydra, you are entirely ignorant of how Cayne lives or what he does, even though you have been pointed at links and data that should have cleared up your ignorance, so I suggest you stop talking about him, as you simply look dumber the more you do. "Asymmetric information"? Hahaha, that's hilarious, funny how you lefties throw around terms you don't even understand. It's so funny how you create these fantasies of Cayne bearing down the highway when you have no idea what Bear even did. :) You can encourage the govt all you want, they will simply steal more from you and everyone else. Where does your "equation" include mafias and thieves? That's some magical equation, that can spew out so much meaning. ;) First we get rid of the biggest thief, govt, then we can hire private cops and security agencies to deal with the small fry, simple. There is zero evidence of everything for you, because you are entirely ignorant of evidence even when its pointed out to you. Yes, govt affects business, external and production costs would go way down without govt artificially raising them.

Haha, "we have very little reliable data," next you'll say we have very little reliable data on gravity or that the moon is a globe! XD Every one of those items you list, food, shelter, transportation, went down in cost solely through private efficiencies, imagine how much better off we'd be today if govt hadn't been fucking with them the whole time. It may not be in the consumers' interest to have costly govt regulation, but it certainly is in the regulators' interest. Hence a bloated and worthless SEC that can't even do the basic functions of its job, ie understanding new financial instruments. The consumer and the voter have been largely ignorant of everything, that's the only reason the "regulators" have been able to get away with it. Market? What market is there for finding the lowest cost of regulation? Hilarious how you magically insert markets where they don't exist. Regulations don't have benefits because even the few that fall out by blind luck, since even a broken clock is right twice a day, are outweighed a hundred times by all the huge costs.

 
At 7/22/2010 1:34 PM, OpenID Sprewell said...

Haha, yeah, the solution to everyone trying to bribe politicians to influence "regulations" is more regulations, wow, that's stupid. Hilarious that you think imposing some "efficiency requirement" will magically make things better, hilarious to see the naivete and ignorance of liberals. :) As for the supposed EPA mandate you state, it is such stupid, vague language that is the epitome of the bureaucratic state. Lure in the suckers with such language- that's you- then do whatever you want, cuz the suckers are too dumb to recognize the difference. The Supremes are far from the problem, granted that Kelo was a mistake, they've generally been doing a good job these days, as with Citizens United, Bilski, and McDonald. The problem is Congress and those bums are all getting thrown out in 3 months, :) and Obama's next. The best system for avoiding bad govt regulation is no govt regulation. :D Yes, regulations are often requested by business too, that's news to you? As I said before, everybody's going to try and pay off the govt regulator, that's why govt regulations don't work.

 
At 7/22/2010 10:20 PM, Blogger Hydra said...

Sprewell: you attack me while ignoring the ideas.

It is not about Cayne, it is about equal protection so that equal opportunity can work. However,that is not to say that equal opportunity means equal results.

As I said the equation isn't mine, but it illustrates that government cost is not the only driver of total cost and it shows that market forces ultimately control both business and government

 
At 7/22/2010 10:27 PM, Blogger juandos said...

The CEI document, for example, mentions regulatory costs 188 times and benefits only 21 times"...

Yeah, the CEI is giving the government a lot more credit that its due...

Everywhere you look you can see rank government incompetence...

Government regulation is the fecal touch of death for business in this country due to the sad fact that people working for the government aren't smart enough (or honest enough?) to make a living in the private sector...

 
At 7/23/2010 1:25 AM, OpenID Sprewell said...

Hydra, ideas? You have ideas? Sounds like a lot of ignorant blather to me, as I have painstakingly pointed out. If you could make any semblance of an argument for how Cayne received unequal protection, you would, but you clearly can't. You must not understand how equations work if you think market forces are encapsulated anywhere in that one. Anyone with a brain knows that market forces don't control govt, which is precisely why govt fails repeatedly.

 
At 7/23/2010 2:55 AM, Blogger sethstorm said...


Government regulation is the...

Nobody is obligated to support a business model based on fraud and circumvention. If the few die, they die. The rest carry on.


Anarcho-capitalism doesn't imply angry mobs doing whatever they want, they would get shot in the face by private security agencies if they tried such a thing, just like with the cops today

...until the security agency runs out of things to fire at people. Your budget mistake just became fatal, spending it mostly on bribes.

Oh, and they will enjoy beating the living crap out of those folks, not caring if there's a pulse.

 
At 7/23/2010 9:13 PM, OpenID Sprewell said...

seth, "If the few die, they die. The rest carry on." Wow, Stalin-esque. The point is that govt regulation kills off perfectly viable businesses, often snuffing entrepreneurs out before they can grow big, because they don't have the huge capital to fulfill all the regs yet. That's actually one of the reasons for large corporations and their unequal power as employers, which you often deride but are too blindered to understand the reasons for. Rather, you pin your hope on the conmen called politicians who simply pander to you, all the while getting paid much more by corrupt businessmen to do what they want. Why would any security agency run out of ammo? I can't make any sense of your mumbo jumbo about budget mistakes and bribes, suffice to say that's a govt problem usually. And current govt cops don't enjoy beating the crap out of people, not caring what happens? On the contrary, private security would be subject to massive lawsuits just like any other currently private company, unlike the current govt monopoly that protects their own.

 
At 7/24/2010 2:09 PM, Blogger juandos said...

"Whenever you hear a business, or any other organiation, complain about stifling regulations, what is usually going on is a campaign for unequal property rights"...

Now personally I find that to be a rather bizzare statement and of course there's nothing credible from hydra to back it up...

Reuglation = Taxation...

From the Institute for Research on the Economics of Taxation: THE COST OF GOVERNMENT REGULATION:
BEYOND THE INITIAL IMPACT

 

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