Friday, April 27, 2012

The Wisdom of Milton Friedman

1. The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.

2. With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.

3. The free man will ask neither what his country can do for him nor what he can do for his country.

4. The case for prohibiting drugs is exactly as strong and as weak as the case for prohibiting people from overeating.
  
5. If you put the federal government in charge of the Sahara Desert (MP: Or domestic energy resources), in five years there’d be a shortage of sand (MP: Oil, and high oil prices).

6. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.

~From "Remembering Milton" by Allen R. Sanderson, who reflects on the contributions of Milton Friedman on the 100th anniversary of his birth in 1912 and the 50th anniversary of the publication of Friedman's classic "Capitalism and Freedom."  

120 Comments:

At 4/28/2012 12:49 AM, Blogger PeakTrader said...

"The case for prohibiting drugs is exactly as strong and as weak as the case for prohibiting people from overeating."

Are the social costs of drugs equal to the social costs of overeating?

And what about the social benefits, including a free high from marijuana second hand smoke?

 
At 4/28/2012 12:52 AM, Blogger PeakTrader said...

Also, how many people OD from overeating or kill other people because they're too fat?

 
At 4/28/2012 1:07 AM, Blogger PeakTrader said...

The U.S. has an obesity problem. So, there should be a drug problem too?

 
At 4/28/2012 1:19 AM, Blogger Abir Mandal said...

Benji:
a) Japan was going thru a deflationary phase. Inflation was needed, and inflation is a monetary phenomenon.
b) Gold standard is for idiots. There is not enough gold in the world to support the World GDP. And enforcing the gold standard would interlink all economies of the world. Not a good thing, as the EU failed experiment shows.
c) So? The best tax is a low flat tax with no deductions. The govt should not encourage any sector of the economy but should let the free market decide.
d) Yes. And in a free market, no one would actually discriminate. Since profit is the only motive and if they discriminate against black people that have skills, they are giving an advantage to their competitors who can pick up the skilled minority at a cheaper price.
e) I don't see why this is any worse than the present progressive income tax.
f) It has. Subsidizing anything shields that sector for deadwood removing competition.

 
At 4/28/2012 1:22 AM, Blogger Abir Mandal said...

Peak:

Also, how many people OD from overeating or kill other people because they're too fat?

I agree with the second part of your question, but not the first. Let them kill themselves. It is not the govt's job to save people from their own behaviors.

 
At 4/28/2012 1:32 AM, Blogger PeakTrader said...

Abir, so, it's OK when people OD from drugs, as long as they don't harm other people, right?

 
At 4/28/2012 1:39 AM, Blogger Abir Mandal said...

Peak: I don't think it's OK for people to jump off a bridge and die. But when you jump of a bridge, you do so fully knowing the risks. It is not the government's job to prevent you from indulging in risky behaviour.

 
At 4/28/2012 1:49 AM, Blogger PeakTrader said...

Abir, that sounds like a contradiction. It's not OK, but it is, as long as the government isn't involved.

What about those annoying speed limits imposed by government? Can you say the same thing:

"I don't think it's OK for people to drive 100 MPH and die. But when you drive 100 MPH, you do so fully knowing the risks. It is not the government's job to prevent you from indulging in risky behaviour."

 
At 4/28/2012 1:52 AM, Blogger Abir Mandal said...

the speed limit is ostensibly applied so you cannot harm other people. I never said it was OK for people to die of OD, but it is not the govt's place to stop someone from harming themselves.

 
At 4/28/2012 2:00 AM, Blogger Abir Mandal said...

No Peak. I am not OK with people indulging in risky behavior that can cause death. However, it is not the government's job to prevent such actions. Speed limits are because if you have an accident, you are putting the lives of others at risk too.

 
At 4/28/2012 2:01 AM, Blogger Abir Mandal said...

I am also not OK with people indulging in unprotected sex, which is risky in these times of AIDS, but... you get the drift.

 
At 4/28/2012 2:08 AM, Blogger PeakTrader said...

Abir says "I am not OK with people indulging in risky behavior that can cause death. However, it is not the government's job to prevent such actions."

Whose job is it? The person "indulging in risky behavior that can cause death?"

Also, government has to scrape you off the pavement when you kill yourself.

 
At 4/28/2012 2:14 AM, Blogger Abir Mandal said...

Peak: "Whose job is it? The person "indulging in risky behavior that can cause death?""

Yes.

And society already pays trash removal fees to local govts.

 
At 4/28/2012 2:16 AM, Blogger Abir Mandal said...

Whose job is it? The person "indulging in risky behavior that can cause death?"

Yes.

 
At 4/28/2012 3:42 AM, Blogger Jet Beagle said...

Friedman: "businessmen favor free enterprise in general but are opposed to it when it comes to themselves."

Definitely true in my industry. As an example, the airline industry funded lobby group Airlines for America is calling for strict limits on energy futures speculation Airline CEO's who have spoken out against speculators include Southwest's Gary Kelly. Southwest has greatly benefitted, of course, from the liquidity which energy speculators provided for the airline's fuel hedgin program.

 
At 4/28/2012 3:56 AM, Blogger Jet Beagle said...

Friedman: "businessmen favor free enterprise in general but are opposed to it when it comes to themselves."

Following deregulation, American Airlines' Bob Crandall exploited the opportunities presented to him. He introduced revenue management, hub-and-spoke route structures, and other tactics not possible during the regulated period. Crandall led American Airlines to the top of the industry. Incredibly, Crandall, still a spokesman for the industry, has in recent years advocated re-regulation of the U.S. airline industry

 
At 4/28/2012 7:32 AM, Blogger Ed R said...

One of Milton Friedman's main themes that he preached for decades was that macroeconomic fluctuations would be smoothed out and GDP utopia achieved by a rigid and predetermined growth rate in the 'money supply'. A constant 4% annual increase was his magic number. The Fed would be put on cruise control and locked in the back room.

He did not (- - - even refused to) recognize that financial markets left to themselves are unstable, and he could not define 'money supply' any better than anyone else. Even Nixon recognized Friedman's limitations and would not put him on the Federal Reserve.

His book 'A Monetary History of the USA' is a good history, but very limited as a macroeconomic policy guide. He barely mentions the stimulative effects of going off the gold standard in 1931 (GB) and 1933 (USA). Keynes is infinitely better on all aspects of the causes of and remedies for economic depressions. Let the arrows fly.

Friedman's book (and the TV series) "Free to Choose" got (and still gets) hosannas from libertarians; but it is merely a simplistic restatement of the workings of competitive markets and (what he saw as) the evils of government.

His students and the right wing may love him but Milton Friedman does not belong on any list of the great economists of any era.

 
At 4/28/2012 8:11 AM, Blogger Methinks said...

Oh, I'll say it, Peak!

Yes, it's fine if people kill themselves by jumping off bridges, in front of trains or Overdosing on heroin. It's all very sad, but "we" have not been able to stop people hurting themselves ever in human history. It's as impossible as making time stand still and it's time do-gooders learn to live with that reality.

And, hey, why no love for the alcoholics who drink themselves to death?

I don't know if you've noticed, but we already have a drug "problem" and drugs are illegal. Yet, in my tony high school, I knew no fewer than three drug dealers. Now, because of the ridiculous drug war, we also have a violence problem. And the cops are using the drug war as a pretext for seizing assets under civil asset forfeiture.

Your drug war is a bigger menace to society than any strung out druggie.

 
At 4/28/2012 8:19 AM, Blogger Methinks said...

Jet Beagle,

I knew that historically producers and companies for whom the commodity was an input railed against the speculators and sometimes, as in the case of onions, managed to get government to ban futures markets. Most of my experience outside of the oil producers has been with the actual traders who execute the hedges for them, so I had no idea that this ignorant thinking persists until you told me a few threads ago.

Of course the established players want regulation. There is no better way to reduce competition.

You must be thoroughly frustrated, my friend. Like you, I'm always fighting an uphill battle in my industry. When we presented to our regulator an argument for why some of the regulation will severely damage the market, the regulator agreed and said (and I quote) "we don't care".

 
At 4/28/2012 8:43 AM, Blogger VangelV said...

One of Milton Friedman's main themes that he preached for decades was that macroeconomic fluctuations would be smoothed out and GDP utopia achieved by a rigid and predetermined growth rate in the 'money supply'. A constant 4% annual increase was his magic number. The Fed would be put on cruise control and locked in the back room.

Fridman's problem was that he was a moral relativist. He believed in utility as being the sole justification for various policies proposed and implemented by governments. As such he became an enabler of statists who saw nothing wrong with government taking away individual liberty. The sad part was that he was very good on a number of issues but his worst area of competence was monetary policy, which is where the received the most accolades.

That said, his superficial treatment of many issues in his series is excellent and I have my kids watch various of the programs that he put together. As long as they are taught of Milton's shortcomings as an economist the program is highly recommended.

 
At 4/28/2012 8:44 AM, Blogger VangelV said...

Following deregulation, American Airlines' Bob Crandall exploited the opportunities presented to him. He introduced revenue management, hub-and-spoke route structures, and other tactics not possible during the regulated period. Crandall led American Airlines to the top of the industry.

But in the end AA still wound up in bankruptcy because it could not deal with competition effectively.

 
At 4/28/2012 9:15 AM, Blogger Prof J said...

The important thing to remember vis-a-vis any type of prohibition is that regulation cannot eliminate peoples' desires for certain products/services.

Prostitution is illegal - people still want and pay for sexual services.

Drugs are illegal - people still get high.

When booze was illegal - people still drank liquor.

Government can't eliminate demands - it can only drive them underground and compound the harm. It's ostrich-like to think otherwise.

 
At 4/28/2012 9:26 AM, Blogger juandos said...

"Also, how many people OD from overeating or kill other people because they're too fat?"...

How many is to many PT?

Police: Obese relative may have crushed boy

LA JOYA, Texas (AP) -- A 2-year-old boy who died with a fractured skull might have been accidentally crushed by a morbidly obese relative, authorities say.

Investigators believe that the woman fell on the child, who was pronounced dead Tuesday, said Bobby Contreras, Hidalgo County justice of the peace.

 
At 4/28/2012 9:40 AM, Blogger juandos said...

"Also, government has to scrape you off the pavement when you kill yourself."...

Why should the government have to PT?

Litter?

Public health nuisance?

Passers by with weak stomachs?

Unsightly mess?

I'm playing devil's advocate here PT and like you I don't think allowing reefer to have free reign is all that good of an idea...

Where does it stop?

Why not meth, heroin, or LSD?

Maybe the use of these drugs in private spaces 'might' have some reasonable arugments supporting it but I've yet to see any for having any drugs in the public spaces...

Still if the majority of the citizens want to allow it (via a public referendum), should we continue to fight against it?

 
At 4/28/2012 10:45 AM, Blogger Che is dead said...

"Now, because of the ridiculous drug war, we also have a violence problem." -- Methinks

The origins of federal drug laws were a response to disastrous drug and violence epidemics when virtually every family had access to opiate- and cocaine-based remedies around the end of the 19th century. Drugs were available without penalty. Addiction was rampant, with an estimated 250,000 opiate addicts in the U.S. population of 76 million. -- WSJ


"The philosophic argument is that, in a free society, adults should be permitted to do whatever they please, always provided that they are prepared to take the consequences of their own choices and that they cause no direct harm to others. The locus classicus for this point of view is John Stuart Mill’s famous essay On Liberty: “The only purpose for which power can be rightfully exercised over any member of the community, against his will, is to prevent harm to others,” Mill wrote. “His own good, either physical or moral, is not a sufficient warrant.” This radical individualism allows society no part whatever in shaping, determining, or enforcing a moral code: in short, we have nothing in common but our contractual agreement not to interfere with one another as we go about seeking our private pleasures ... Mill came to see the limitations of his own principle as a guide for policy and to deny that all pleasures were of equal significance for human existence. It was better, he said, to be Socrates discontented than a fool satisfied."

"The idea that freedom is merely the ability to act upon one’s whims is surely very thin and hardly begins to capture the complexities of human existence; a man whose appetite is his law strikes us not as liberated but enslaved. And when such a narrowly conceived freedom is made the touchstone of public policy, a dissolution of society is bound to follow. No culture that makes publicly sanctioned self-indulgence its highest good can long survive: a radical egotism is bound to ensue, in which any limitations upon personal behavior are experienced as infringements of basic rights. Distinctions between the important and the trivial, between the freedom to criticize received ideas and the freedom to take LSD, are precisely the standards that keep societies from barbarism." -- City Journal

 
At 4/28/2012 10:57 AM, Blogger Che is dead said...

"He did not (- - - even refused to) recognize that financial markets left to themselves are unstable ..." -- Ed R.

As opposed to the stability imposed as a result of the near countless pages of regulation written over the last five plus decades?

Financial markets allocate capital, the freer they are the more efficiently they perform that task. "Stability" is not the goal.

 
At 4/28/2012 1:36 PM, Blogger PeakTrader said...

Juandos, yes, fat people are potentially dangerous to some, and yes, government doesn't necessarily have to clean up "road kill."

The war on drugs, like the war on tobacco, may have prevented millions of drug addicts.

And what about MADD (Mothers Against Drunk Driving):

"The death rate from alcohol-related traffic accidents has declined since the 1980s. According to statistics from the National Highway Traffic Safety Administration, alcohol related deaths per year have declined from 26,173 in 1982 to 16,885 in 2005."

 
At 4/28/2012 2:04 PM, Blogger Methinks said...

Peak,

There is zero evidence that addicts were prevented. If they were prevented, at what price?

How many tens of thousands of people die every year in your drug war? And, unlike your "fewer addicts" claim, this is an observable fact.

How many innocent people's assets were seized by a corrupt government in your drug war?

I don't understand what lame argument you're trying to make with MADD.

Nobody who is for decriminalizing drugs is against laws criminalizing operating heavy machinery while under the influence.

So, if MADD is so successful, wonderful. Let them take on driving while drugged (like that doesn't happen now). It'd be a hell of a lot cheaper.

 
At 4/28/2012 2:06 PM, Blogger Pulverized Concepts said...

the standards that keep societies from barbarism

Nothing barbaric about a gang of cops breaking down somebody's door and starting a gunfight with the occupants, is there?

 
At 4/28/2012 2:42 PM, Blogger Abir Mandal said...

Well said methinks. Plus, MADD is also a citizens' program. Feel free to prevent drug abuse in your neighborhood and to create a nationwide program. It is, however, stupid to waste jail space and tax dollars on an Occutard smoking pot in his parents' basement.

 
At 4/28/2012 2:44 PM, Blogger Abir Mandal said...

Ed: Stability is not a promise made by free markets. In fact, I argue, socialism is extremely stable.

 
At 4/28/2012 2:48 PM, Blogger PeakTrader said...

Abir, if people like you didn't promote drugs, resources wouldn't be wasted to contain them:

DEA History Book, 1970 - 1975

"Prior to the 1960s, Americans did not see drug use as acceptable behavior, nor did they believe that drug use was an inevitable fact of life. Indeed, tolerance of drug use resulted in terrible increases in crime between the 1960s and the early 1990s, and the landscape of America has been altered forever.

By the early 1970s, drug use had not yet reached its all-time peak, but the problem was sufficiently serious to warrant a serious response. Consequently, the Drug Enforcement Administration (DEA) was created in 1973 to deal with America's growing drug problem."

 
At 4/28/2012 2:58 PM, Blogger Abir Mandal said...

Peak: STFU. I do not promote drugs and have never done them in my life. I hate potheads and the hippie culture that condones drug use. However, I do not want my taxpayer money wasted to prevent people from doing what they want to their bodies. The DEA, like most branches of the government, are a bunch of thugs looking to line their own pockets, no matter what movies like Bad Boys may have told you.

 
At 4/28/2012 3:07 PM, Blogger PeakTrader said...

Abir, it's naive, and dishonest based on your value judgement, to believe there's no difference between 10 million or 100 million "potheads."

 
At 4/28/2012 3:08 PM, Blogger PeakTrader said...

An economy can have a quick and massive creative-destruction process in a mild recession (see early 2000s).

Maintaining sustainable growth is optimal growth, because economic boom-bust cycles use resources inefficiently, both in the boom and bust phases.

Monetary policy either preempts or reacts to positive and negative shocks to the economy, e.g. Y2K, 9-11, an oil shock, technology shocks, and a financial crisis, to cite some recent examples.

 
At 4/28/2012 3:12 PM, Blogger Benjamin said...

Abir-

Thanks for responding, but my commentary is missing!

Add on: Friedman believed in taxing pollution.

I don't know if Friedman regarded property rights as absolute--for example, if a rancher did not want the Keystone pipeline to cross his land, could he say no?

What do you say, Abir?

Add on pollution: Do you have the right to pollute my land? If not, can I stop you? And if you own a factory that is polluting my land, can I stop you?

 
At 4/28/2012 3:18 PM, Blogger Abir Mandal said...

This comment has been removed by the author.

 
At 4/28/2012 3:20 PM, Blogger Abir Mandal said...

Peak: Boom and bust cycles are part of the creative destruction process. I believe letting them occur is better than discretionary fiscal policies enacted by the federal government to prevent such cycles, a process that leads only to less freedom.

I am sure potheads are diverse. I just don't like people that do drugs. But I don't want the Feds coming after them.

 
At 4/28/2012 3:23 PM, Blogger Abir Mandal said...

Ben: You should tax pollution as it is an externality. (CO2 is not a pollutant). And I believe pipeline developers should be able to negotiate themselves with landowners for right of way.

 
At 4/28/2012 3:50 PM, Blogger Che is dead said...

Yes, yes, we know. Drug related violence will stop once all drugs are legal. Their will no longer be any cause, related to the use of drugs, for the police to secure warrants that require them to "break down somebody's door". There will be no increase in addiction and society will incur no additional drug related expenses. In fact, society will save money and those innocents, who were simply looking for an escape when they were caught up in the misguided "war on drugs", will go on to lead incredibly productive lives as doctors and accountants. Everyone will accept the consequences of their own actions. Kum-bay-a.

Why do all of these arguments have the stench of utopianism?

It couldn't possibly be that fullest realization of liberty is dependent upon virtue, as John Adams and others of the founding generation argued. It couldn't possibly be that the societal dissolution brought on by drug use - as in the 19th century when opiates and other drugs were legal - invites the intervention of the state at the expense of our liberty. No, you must be right, none of that could possibly be true.

 
At 4/28/2012 4:02 PM, Blogger Jon said...

Among Friedman's achievements are the dismantling of democracy in Chile and rule of the military dictatorship, with concentration camps and torture. Also an economy that totally collapsed, requiring state bail out. It was on to Argentina, Bolivia, and Brazil sending places that were on a decent path straight down the crapper.

All of Africa is Milton Friedman land. Russia and the former Soviet states were managed by Chicago Boys. Millions would die.

Basically the third world is the world of Milton Friedman. Places that succeeded did so violating his recommendations. Germany, Japan, South Korea. Even the US and Britain. It's such a colossal failure it's amazing anyone still clings to these theories, but it actually makes sense. These policies make the presently rich much more rich, while making the bottom 90% of the population much worse off. When rich people like your policies their accomplices in the media and in politics promote the ideas.

Also of course think tanks like AEI which make money serving the interests of wealthy corporations are of course going to promote these things because they are concerned first and foremost with their rich backers, not the majority of people in the world.

Read about Friedman's trail of destruction in Klein's "The Shock Doctrine." In fact there's a movie on Youtube.

http://www.youtube.com/watch?v=7iW1SHPgUAQ

 
At 4/28/2012 4:07 PM, Blogger Abir Mandal said...

Wow. Just when I think that liberals cannot be more deluded, here comes Jon with his insanity. Put down that pipe. You need help, bro.

 
At 4/28/2012 4:19 PM, Blogger PeakTrader said...

Methinks, marijuana is the only illegal drug that had increased usage in recent years, because of decriminalization.

Also:

"The consequences of legalization became evident when the Alaska Supreme Court ruled in 1975 that the state could not interfere with an adult’s possession of marijuana for personal consumption in the home. The court’s ruling became a green light for marijuana use. Although the ruling was limited to persons 19 and over, teens were among those increasingly using marijuana. According to a 1988 University of Alaska study, the state’s 12 to 17-year-olds used marijuana at more than twice the national average for their age group. Alaska’s residents voted in 1990 to recriminalize possession of marijuana, demonstrating their belief that increased use was too high a price to pay."

Moreover:

"By 1979, after 11 states decriminalized marijuana and the Carter administration had considered federal decriminalization, marijuana use shot up among teenagers. That year, almost 51 percent of 12th graders reported they used marijuana in the last 12 months. By 1992, with tougher laws and increased attention to the risks of drug abuse, that figure had been reduced to 22 percent, a 57 percent decline."

 
At 4/28/2012 4:39 PM, Blogger Abir Mandal said...

Again Peak, so what? I am sure even alcohol use has increased. But if people want to destroy their own bodies, let them! Why should I pay for saving their lives? And what right do I have to save their lives if they don't want to live?

 
At 4/28/2012 5:33 PM, Blogger Benjamin said...

Abir-

If a single rancher could block the Keystone pipeline---by refusing right-of-way---would you still want to preserve property rights?

If I open a factory, and pollutants come onto your property, do you have the right to shut down my factory, or, barring that, proven it from being built in the first place?

Does anyone have the right to pollute private property? Why or why not?

 
At 4/28/2012 6:11 PM, Blogger AIG said...

One of Milton Friedman's main themes that he preached for decades was that macroeconomic fluctuations would be smoothed out and GDP utopia achieved by a rigid and predetermined growth rate in the 'money supply'. A constant 4% annual increase was his magic number. The Fed would be put on cruise control and locked in the back room.

Except that none of this is true.

If I open a factory, and pollutants come onto your property, do you have the right to shut down my factory, or, barring that, proven it from being built in the first place?
Does anyone have the right to pollute private property? Why or why not?


Benji, you probably don't realize this, but you are asking really silly questions that have been answered centuries ago. Nuisance laws, as far as I can tell, aren't a new thing.

So there is absolutely nothing contradictory, or anti-free market, in saying that pollutants should be priced.

The problem becomes when you try and define things that you can't identify, or quantity, as pollutants, like CO2 etc. If you can't identify that CO2 is even an externality, or quantify the cost it imposes on anyone else, then you can't pretend that it is an economic externality.

 
At 4/28/2012 6:14 PM, Blogger AIG said...

All of Africa is Milton Friedman land. Russia and the former Soviet states were managed by Chicago Boys. Millions would die.

Wow you're silly!

Fridman's problem was that he was a moral relativist. He believed in utility as being the sole justification for various policies proposed and implemented by governments. As such he became an enabler of statists who saw nothing wrong with government taking away individual liberty.

Wow, you're even sillier.

 
At 4/28/2012 6:27 PM, Blogger Methinks said...

Peak, oh Peak, oh come on.

Self reported pot use went up when it was decriminalized. REALLY? Almost as shocking as discovering water is wet.

Have you ever been a teenager? Do you remember how many teens drank back then? Wanna guess how many do now? Yet, alcohol is legal.

Want to get high and marijuana is illegal and hard to get? No problem. Start smoking potpourri or huffing glue.

Don't kid yourself. You're not stopping people who are a danger to themselves, you're just pushing them into more dangerous activities in a more dangerous environment.

I understand the distaste for drugs. Neither my husband nor I have tried drugs ever. Not any drug. And you and I both know that this makes us extremely rare. We also know that most of the people who have tried drugs tried them for the first time wen they were teenagers....and drugs were illegal. But, when you were a teen, were YOU going to admit that you did drugs?

That the majority of the population doesn't understand this is not a reason to keep destructive legislation around. Most of the country would like to outlaw short selling and speculators too and throw Zimmerman in jail tried only in the media by race baters. That's why mob rule is such a bad idea.

 
At 4/28/2012 6:47 PM, Blogger Abir Mandal said...

Ben: I just told you. Pollution should be taxed as an externality. The government, as your agent and that of others that are being affected by the pollution, is the right entity to pass laws against that. And the pipeline owner can negotiate with the land owner. There is always an equilibrium price and let's see how many people want to hold on to land next to oil installations.

 
At 4/28/2012 8:31 PM, Blogger VangelV said...

Peak: Boom and bust cycles are part of the creative destruction process. I believe letting them occur is better than discretionary fiscal policies enacted by the federal government to prevent such cycles, a process that leads only to less freedom.

I am sure potheads are diverse. I just don't like people that do drugs. But I don't want the Feds coming after them.


Boom and bust cycles are primarily created by central banks and government meddling with the supply of money and credit. The fact that I might not like potheads does not give me the right to tell them what they may or may not ingest. Every competent individual should be entitled to decide what to consume on his own. If you like pot it is your business, not mine.

 
At 4/28/2012 8:48 PM, Blogger VangelV said...

Yes, yes, we know. Drug related violence will stop once all drugs are legal.

No, but a lot of the violence that comes from the competition for market share will go away, just as the alcohol related violence between competing gangs went away when alcohol was legalized. When managers at Wal-Mart and Target sell their own marijuana brands they will compete on price and quality, not by shooting up each other's sales people.

Their will no longer be any cause, related to the use of drugs, for the police to secure warrants that require them to "break down somebody's door".

Mostly true. How many warrantless raids are there for people who are consuming alcohol in their own homes?

There will be no increase in addiction and society will incur no additional drug related expenses.

But if we look at historical data we did not find many addicts when drugs were legal. Alcoholism rates did not change substantially when prohibition ended. While consumption fell to around 70% of the level before prohibition binge drinking exploded as did deaths from bad quality alcohol. If you went to a dark alley, gave a password at the door, and paid a lot of money for a drink you did not limit yourself to a beer or two. You went to get loaded.

In fact, society will save money and those innocents, who were simply looking for an escape when they were caught up in the misguided "war on drugs", will go on to lead incredibly productive lives as doctors and accountants.

Doctors, dentists, cops, and accountants use drugs too. That is not the issue. The issue is that if you want to consume heroin and it is legal you will be able to consume it without having to go out and steal. A low paying service job should be more than sufficient for your fix and for your usual living expenses. Instead of paying $100 for a day's use you will pay $5 to your local pharmacy, which will take its $0.50 profit and pay the rest to the producers and the distributors of the product. The $95 of profit that currently goes to gangs, terrorists, corrupt judges and cops, smugglers, etc., will go away.

Everyone will accept the consequences of their own actions. Kum-bay-a.

People will do what people do. We live in a human world where human nature matters. It is only fools who believe that behaviour will be regulated by a few rules without the use of force and unintended consequences.

Why do all of these arguments have the stench of utopianism?

You have it backwards. It is prohibitionists who believe in utopia. To them all that is needed to turn men into angels are a few laws and a few men with guns to enforce them. Well, that may work in your fantasy but not in the real world of humans.

 
At 4/28/2012 9:03 PM, Blogger VangelV said...

It couldn't possibly be that fullest realization of liberty is dependent upon virtue, as John Adams and others of the founding generation argued.

Liberty is based on self ownership. You have no right to tell others what to drink, smoke, or eat because that is their own business, not yours. And I do not believe that being a busybody who minds everyone's business is a virtue.

It couldn't possibly be that the societal dissolution brought on by drug use - as in the 19th century when opiates and other drugs were legal - invites the intervention of the state at the expense of our liberty.

Are you on meth or something? Society was thriving in the 19th century. Addiction rates were not any higher than they are today and people tended to take far more responsibility for their own actions than they do today.

 
At 4/28/2012 10:24 PM, Blogger PeakTrader said...

Abir says "Why should I pay for saving their lives?"

It's possible, if the U.S. spends an additional $1 billion on the war on drugs, U.S. social costs may be reduced by much more than $1 billion.

 
At 4/28/2012 10:30 PM, Blogger PeakTrader said...

VangelV says "Boom and bust cycles are primarily created by central banks and government meddling with the supply of money and credit."

There were more economic boom-bust cycles, and they were more severe, before the Fed than after the Fed.

Since the Great Depression, the Fed has increasingly improved in smoothing-out business cycles, including long-wave business cycles.

Periods of economic strain and economic slack are suboptimal. Sustainable growth is optimal growth.

 
At 4/28/2012 11:28 PM, Blogger Abir Mandal said...

This comment has been removed by the author.

 
At 4/28/2012 11:29 PM, Blogger Abir Mandal said...

Peak: What social costs? And why do I get to pay them?

 
At 4/29/2012 12:15 AM, Blogger Abir Mandal said...

What are these large social costs? And why am I responsible for them?

 
At 4/29/2012 12:22 AM, Blogger Jet Beagle said...

vange: "But in the end AA still wound up in bankruptcy because it could not deal with competition effectively."

I guess so. But why could they not compete effectively with Delta, UnitedContinental, and U.S. Airways? I think AA was the only U.S. international airline which had not shed its legacy pension obligations and union wage rates via bankruptcy. If they get through this bankruptcy and remain an independent company, I expect them to be lean and mean and extremely competitive.

 
At 4/29/2012 12:27 AM, Blogger Jet Beagle said...

methinks: "You must be thoroughly frustrated, my friend."

I would be if I were facing many more years in this industry. But I'm much older than the photo I display. My industry's problems will very soon be someone else's problems, and I'll be free to openly criticize anyone I wish.

 
At 4/29/2012 2:34 AM, Blogger PeakTrader said...

Abir, the social costs of drug abuse retard living standards.

Social costs include lost productivity, traffic & work accidents, health problems & drug treatment, mental illness, unemployment, crime, domestic violence, child abuse, and other social services.

 
At 4/29/2012 5:32 AM, Blogger juandos said...

"The war on drugs, like the war on tobacco, may have prevented millions of drug addicts"...

Well pt the so called war on tobacco and the MADD agenda were nothing but political extortion scams run by the individual states and the federal government...

The 'alledged' results are questionable at best...

Then again what should one expect from a political regulation racket gone wild?

 
At 4/29/2012 5:48 AM, Blogger juandos said...

"If they get through this bankruptcy and remain an independent company, I expect them to be lean and mean and extremely competitive"...

Well jet b since AA is my third airline I can tell you what will happen if they come out of bankruptcy and shed those 'legacy pension plans' that had contractual obligations, obligations that Crandall readily agreed to back in the eighties, the taxpayer will pick up the tab and the employess if lucky will see something like seven to thirteen cents on the dollar regarding pensions...

BTW in case you're curious jet b this is supposedly what Arpey received on his way out the door last November...

I also don't believe that with the present corporate and operational management in place AMR/AA will ever be 'lean and mean and extremely competitive'...

 
At 4/29/2012 8:00 AM, Blogger Methinks said...

There were more economic boom-bust cycles, and they were more severe, before the Fed than after the Fed.

According to Selgin, Lastrapes and White, while the Fed has prevented deflation common to the period before the Fed, it's not prevented inflatio. The Fed has devalued the dollar (which rarely changed before the Fed) over 99% since inception.

Preventing deflation is good, right? Except there isn't a singular cause for deflation. What Selgin, Lastrapes, and White call "benign deflation" is deflation resulting from improvements in aggregate supply. Think of the price of the price of technology. And THAT deflation is far more common than the "bad" deflation associated with depressions.

And what about stabilizing output and unemployment? The Fed has failed there as well.

A lot of positives you and other Fed proponents would like to attribute to the Fed can easily be attributed to other factors.

It seems, Peak, that central planning doesn't work after all.

 
At 4/29/2012 8:08 AM, Blogger Methinks said...

Jet Beagle,

I know you're older than this photo (and certainly older than your photo on facebook :). To me, this kind of thinking is not just a problem of your industry, but a problem in general and it still frustrates me. I guess that's why I'm such a fan of Don Boudreaux's letters to the editor and Carpe Diem. Voice of reason in the darkness.

 
At 4/29/2012 8:35 AM, Blogger PeakTrader said...

Methinks, what matters is real income or output growth, not deflation or inflation (of course, large economies, similar to large firms, expand at slower rates than smaller economies).

Obviously, the Fed has smoothed-out business cycles. The four longest expansions in U.S. history took place since the 1960s, recessions were shorter and less severe, and the Fed also smoothed-out long-wave business cycles, including the 1973-82 bust, which resulted in higher real growth.

The Fed doesn't micromanage the economy. It directs the macroeconomy, in a crude way, using crude tools. Periods of feast and famine are suboptimal, because resources are either overemployed or idle, which leads to lower overall growth (like wind energy, it's better to have a steady wind than a strong wind one day and no wind the next day).

 
At 4/29/2012 8:40 AM, Blogger Jet Beagle said...

Juandos: “the taxpayer will pick up the tab and the employess if lucky will see something like seven to thirteen cents on the dollar regarding pensions...”

United Airlines bankruptcy pension settlement was greater than 13 cents on the dollar:

Randy Canale, president of District 141 of the International Association of Machinists and Aerospace Workers, which represents United ground workers. “Future retirees can expect to see their benefits cut by up to 27 percent.”

U.S. Airways employees got much more than that also

”With the U.S. Airways pension plan, retired pilots ended up receiving more than 90 percent of the benefits they were originally promised”

Why do you believe American Airlines employees will only get 13 cents on the dollar?

 
At 4/29/2012 8:52 AM, Blogger Methinks said...

Well, Peak, since you seem to respond only to the very rigorous and highly "scientific" methods of aggressive assertion and conflation of correlation and causation, I'll simply respond this way:

No, the Fed has not clearly smoothed out business cycles. The Fed is an expensive failure.

 
At 4/29/2012 8:54 AM, Blogger juandos said...

jon says: 'Read about Friedman's trail of destruction in Klein's "The Shock Doctrine."'...

Naomi Klein?!?!

Are you serious jon?!?!

A clueless, leftist, Canadian hack who is dumb enough to believe in the fairy tale of man made global warming and she should be taken seriously?!?!

Let Johan Norberg educate you out of your naive world view...

 
At 4/29/2012 9:07 AM, Blogger juandos said...

"United Airlines bankruptcy pension settlement was greater than 13 cents on the dollar"...

The link didn't work jet b but none the less I know that United IAM people did not get more than 13 cents on a dollar...

I used to be a shop steward with the IAM while I was at TWA and had more than enough information come my way from District 141...

jet b if you're thinking about the IAM's Tilton comment about the 27% cut you need to rethink that...

That only works if the employees get all their principle (with interest considering some had been in a long time) back on their own contributions...

Those folks got well and truly screwed...

I would no more believe Titlton than I would Obama (who Tilton supported BTW)...

 
At 4/29/2012 9:10 AM, Blogger VangelV said...

There were more economic boom-bust cycles, and they were more severe, before the Fed than after the Fed.

This is not exactly true. While state regulations and political pressure on banks created a few booms they were nothing in comparison to what we have today because prior to the Fed banks were constrained by the gold standard. Banks that loaned out too much of their deposits risked losing everything and the absence of a monopoly on money creation governments were constrained by their ability to borrow money in the markets.

I suggest that your problem is a lack of knowledge of finance or banking. You might try learning a few things that are true rather than repeat Keynesian mythology that was discredited a long time ago.

Since the Great Depression, the Fed has increasingly improved in smoothing-out business cycles, including long-wave business cycles.

But that is not true. All the Fed has improved is the way it robs savers by devaluing the purchasing power of the currency.

Periods of economic strain and economic slack are suboptimal. Sustainable growth is optimal growth.

Suboptimal? How do you know what is optimal? How does the Fed know?

Let me remind you that the Fed minutes show Bernanke and the Fed governors clueless about the housing bubble even as those who understood monetary history were warning of the inevitable crash. If they missed the bubble in housing and the tech bubble that they blew up in the first place why am I supposed to trust them to know what is optimal?

 
At 4/29/2012 9:12 AM, Blogger VangelV said...


I guess so. But why could they not compete effectively with Delta, UnitedContinental, and U.S. Airways? I think AA was the only U.S. international airline which had not shed its legacy pension obligations and union wage rates via bankruptcy. If they get through this bankruptcy and remain an independent company, I expect them to be lean and mean and extremely competitive.


Once transportation was deregulated the airlines had to fail because their structures were too bloated and inefficient to keep competitors from taking market share. The trouble was that the bankruptcy rules allowed the same inefficient managers to gain advantage over the new players by repudiating their debts. In a true free market the assets would have been fully liquidated.

 
At 4/29/2012 9:14 AM, Blogger VangelV said...

Naomi Klein?!?!

Are you serious jon?!?!


This may be an attempt at sarcasm.

 
At 4/29/2012 9:16 AM, Blogger juandos said...

"Why do you believe American Airlines employees will only get 13 cents on the dollar?"...

Well jet b those are the initial guesstimates sent out by the PBGC...

My own track record thus far is 11 cents on the dollar from my Ozark time, 9 cents on the dollar from my TWA time, and this latest guesstimate makes me rolling in the dough...

 
At 4/29/2012 9:17 AM, Blogger Methinks said...

No, Vange, Jon is dead serious. I know it's so insane that it seems like it should be sarcasm, but it isn't.

 
At 4/29/2012 9:17 AM, Blogger juandos said...

"This may be an attempt at sarcasm"...

From jon murphy maybe vangeIV but not from jon I don't believe...

 
At 4/29/2012 9:41 AM, Blogger PeakTrader said...

Federal Reserve Bank of New York
Financial Stability and Economic Growth
William C. Dudley, President and Chief Executive Officer
September 23, 2011

"Empirical observation makes it clear that financial markets are inherently unstable.

Although it is impossible to attribute the instability of financial markets to any one single driving force...in many cases innovation plays an important role...innovations that initially create real value generate feedback mechanisms that often fuel the development of excessive expectations—a boom that eventually reverses when the basic belief system that sustained it is contradicted by events.

Early on in the cycle, an innovation can lead to changes in fundamental valuations or the creation of new markets and financial products. Examples of this might include the technology boom that followed the creation of the Internet or the subprime lending and the associated structured finance innovations that supported the housing boom.

As market participants respond to the innovation, this may cause a surge in business activity...This surge in activity drives up profits and prices, which in turn sustains the boom. As part of this process, feedback mechanisms work to reinforce beliefs in the importance and sustainability of the innovation...These feedback mechanisms reinforce the sustainability of the boom, often extending the boom far beyond activity levels or valuations justified by how the innovation has changed the “fundamentals.”

The process often comes to an abrupt end, and generally does so when the basic belief system that underpinned the boom is contradicted by events. In the tech boom, prices fell when earnings didn’t materialize...In the subprime mortgage episode, loss experience climbed sharply once the options of selling or refinancing at higher prices was no longer available. With the benefit of hindsight, the inherent contradictions supporting the boom are exposed."

 
At 4/29/2012 9:47 AM, Blogger PeakTrader said...

VangelV says "I suggest that your problem is a lack of knowledge of finance or banking."

I passed the comp exams in Money & Central Banking, and worked in commercial banking and mutual funds for two decades.

 
At 4/29/2012 9:49 AM, Blogger Methinks said...

I'm sorry, Peak, I didn't realize you were labouring under the erroneous assumption that the Fed is tasked with stabilizing the financial markets.

It is not.

The Fed's dual mandate is to maintain price stability and "promote" maximum employment. There is no mandate to reduce volatility in financial markets.

And how has the Fed done in executing its mandate?

Selgin, Lastrapes, White:

Available research does not support the view that the Federal Reserve System has lived up to its original promise. Early in its career, it presided over both the most severe inflation and the most severe (demand-induced) deflations in post-Civil War U.S. history. Since then, it has tended to err on the side of inflation, allowing the purchasing power of the U.S. dollar to deteriorate considerably. That deterioration has not been compensated for, to any substantial degree, by enhanced stability of real output. Although some early studies suggested otherwise, recent work suggests that there has been no substantial overall improvement in the volatility of real output since the end of World War II compared to before World War I. Although a genuine improvement did occur during the sub-period known as the ―Great Moderation,‖ that improvement, besides having been temporary, appears to have been due mainly to factors other than improved monetary policy. Finally, the Fed cannot be credited with having reduced the frequency of banking panics or with having wielded its last-resort lending powers responsibly. In short, the Federal Reserve System, as presently constituted, is no more worthy of being regarded as the last word in monetary management than the National Currency System it replaced almost a century ago.

 
At 4/29/2012 9:53 AM, Blogger Methinks said...

Shouldn't that have been on your tests, Peak? If not, shouldn't you know that after so long in the industry?

 
At 4/29/2012 10:02 AM, Blogger juandos said...

methinks says: "Now, because of the ridiculous drug war, we also have a violence problem. And the cops are using the drug war as a pretext for seizing assets under civil asset forfeiture"...

Hmmm, well there's always been this rumor floating around since I was kid in the early sixties that Mexican industrial strength drug pushers had some American politicians in their collective pocket...

Ahhh, the stuff one hears when one's dad worked for the Border Patrol and lives on the Texas-Mexican border at the sametime...

Anyway it still seems that rumor is alive and well even in Russia...:-)

So maybe, just maybe there's more to this 'war on drugs' than meets the eye...

 
At 4/29/2012 10:03 AM, Blogger PeakTrader said...

Methinks, the conclusion is:

"Research does not support the view that the Federal Reserve System has lived up to its original promise."

Yes, their biased research.

 
At 4/29/2012 10:12 AM, Blogger juandos said...

"Yes, their biased research"...

Hmmm, well pt just out of curiosity have you read the document by Selgin, Lastrapes, & White?

I was wondering why you think it might be biased?

Like I said, its merely my curiosity...

 
At 4/29/2012 10:14 AM, Blogger Methinks said...

As apposed to what, Peak?

The irrelevant (to the topic of he effectiveness of the Fed) and "unbiased" research of the Fed itself, from which you quote?

The "unbiased" economists striving to work for the Fed (as was the case for the vast majority of my fellow economics majors)?

So, those in favour of the Fed are "unbiased" while those whose research shows the Fed to be a failure are "biased" merely because their research has shown the Fed to be a failure.

Very even-handed, Peak. Your fact-free assertions have completely flipped me over to your side.

 
At 4/29/2012 10:24 AM, Blogger VangelV said...

I passed the comp exams in Money & Central Banking, and worked in commercial banking and mutual funds for two decades.

So? This does not mean that you understand monetary history or the theory of money and credit. There is a huge disagreement between various schools of economics. Passing a test that teaches the failed teaching of one of those schools does not mean that you understand economics.

 
At 4/29/2012 10:33 AM, Blogger PeakTrader said...

If you want an unbiased conclusion, you need to at least start with an unbiased assumption.

 
At 4/29/2012 10:40 AM, Blogger VangelV said...

If you want an unbiased conclusion, you need to at least start with an unbiased assumption.

But the texts that you read for your tests are biased. They are careful narratives to persuade without much logic and very little empirical evidence.

 
At 4/29/2012 10:40 AM, Blogger Methinks said...

Did you mean for that to be a meaningless statement, Peak, or did it just accidentally come out that way?

 
At 4/29/2012 11:53 AM, Blogger juandos said...

"Empirical observation makes it clear that financial markets are inherently unstable"...

Hmmm, it seems to me at least that William Dudley is grasping for a rationale to stay on the federal gravy train...

Although the institution now commands unquestioning acceptance, its inception was controversial. Richard Timberlake, in his history of monetary policy in the United States, quotes a congressman shortly after the 1913 passage of the law that created the Federal Reserve System: “This act establishes the most gigantic trust on earth, such as the Sherman Antitrust Act would dissolve if Congress did not by this Act expressly create what by that Act it prohibited.”...

 
At 4/29/2012 12:03 PM, Blogger PeakTrader said...

The Fed article is a plausable explanation of one of the causes of asset boom-bust cycles, or financial crises (afterall, economies are made up of people).

However, the Selgin, Lastrapes, & White article asks the ridiculous question "Has the Fed Been a Failure?"

Choosing some and parts of articles and data, while ignoring others is obviously biased. The article doesn't even mention the optimization of U.S. living, working, and environmental standards, thanks to the Fed.

 
At 4/29/2012 12:07 PM, Blogger PeakTrader said...

VangelV says: "But the texts that you read for your tests are biased. They are careful narratives to persuade without much logic and very little empirical evidence."

That's another false assumption. Economics is based on sound mathematical and empirical models.

Of course, there are trade-offs based on value judgements. Nonetheless, that doesn't make the models wrong.

 
At 4/29/2012 12:24 PM, Blogger Methinks said...

Of course, you're right, Peak. Merely wondering whether the Fed experiment is working indicates bias. Selgin, Lastrape and White are probably counter-revolutionaries and enemies of the People and their State.

I obviously wholeheartedly fall for your new assertion that all that is good in this world flows from the central planning (albeit with crude tools - or is it central planning by crude tools?) of the Fed. I know it must be true because you say so.

What parts did SLW ignore? I'm all for holding them to a higher standard than you hold yourself.

 
At 4/29/2012 1:24 PM, Blogger PeakTrader said...

Methinks, to assume monetary and fiscal policies have little or no impact on the economy is a naive view.

Idle resources for long periods of time are unnecessary.

I wrote the following in early 2009 to prevent an annual economic contraction in 2009:

1. Obama should change his stimulus plan to a $5,000 tax cut per worker (or $750 billion for the 150 million workers), along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets, i.e. catch-up on bills, pay-down debt, spur consumption of assets and goods, etc. This plan will have an immediate and powerful effect to stimulate the economy. When excess assets and goods clear the market, production will increase.

2. Shift "toxic" assets into a "bad bank." The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost "animal spirits," and inflate toxic assets.

3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.

 
At 4/29/2012 1:37 PM, Blogger Jet Beagle said...

juandos,

I am skeptical of any claim that any pension picked up by PBGC is paying less than 20% of what was earned. Can you provide any details?

The argument that a company had a contractual obligation to pay a certain amount is not really relevant in the case of bankruptcy, is it? Almost all who have unsecured financial claims against a bankrupt company end upo settling for less than they were owed.

 
At 4/29/2012 1:40 PM, Blogger Methinks said...

Ummm....when did I make such an assumption?

Why so eager to share your opinions about how much better your planning is than the planners in charge and yet so shy when it comes to specifics that will surely nail SLW on their glaring bias? Shine the light, Peak!

 
At 4/29/2012 1:41 PM, Blogger Jet Beagle said...

This comment has been removed by the author.

 
At 4/29/2012 1:57 PM, Blogger Jet Beagle said...

juandos: "jet b if you're thinking about the IAM's Tilton comment about the 27% cut you need to rethink that..."

Not a Tilton comment at all. It's a quote from Randy Canale, president of District 141 of the International Association of Machinists and Aerospace Workers.

 
At 4/29/2012 2:12 PM, Blogger Jet Beagle said...

juandos: "My own track record thus far is 11 cents on the dollar from my Ozark time, 9 cents on the dollar from my TWA time"

I'm currently receiving 100% of the pension promised me by FedEx. I am already vested in all the retirement contributions provided by my other former employers. I'm satisfied with my track record in choosing employers and choosing retirement options.

Organized labor has relied for decades on the judgment of its union bosses in negotiating retirement provisions. Those union leaders could have long ago negotiated for secure, defined contribution retirement plans. But union members didn't want that, did they?

 
At 4/29/2012 2:33 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 4/29/2012 2:37 PM, Blogger PeakTrader said...

This comment has been removed by the author.

 
At 4/29/2012 2:49 PM, Blogger PeakTrader said...

Methinks, so, you believe monetary and fiscal policies are effective in preventing more idle resources and smoothing-out business cycles?

Your article spends a lot of time on inflation and deflation, or losses in purchasing power. However, that's meaningless when you want to maximize economic growth, either through price stability (zero inflation is not necessarily price stability) or avoiding another deep depression, e.g. in the 1970s.

******

The Long Depression

The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879.

At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction.

In the US, from 1873–1879, 18,000 businesses went bankrupt, including hundreds of banks, and ten states went bankrupt, while unemployment peaked at 14% in 1876, long after the panic ended.
Your article states:

"Although some early studies suggested otherwise, recent work suggests that there has been no substantial overall improvement in the volatility of real output since the end of World War II compared to before World War I."

******

The Depression of 1893

The Depression of 1893 was one of the worst in American history with the unemployment rate exceeding ten percent for half a decade.

During this period population grew at about 2% per year, so real GNP per person didn't surpass its 1892 level until 1899.

The depression, which was signaled by a financial panic in 1893, has been blamed on the deflation dating back to the Civil War, the gold standard and monetary policy, underconsumption, a general economic unsoundness, and government extravagance.

 
At 4/29/2012 3:05 PM, Blogger PeakTrader said...

The Selgin, Lastrape and White article states:

"Although some early studies suggested otherwise, recent work suggests that there has been no substantial overall improvement in the volatility of real output since the end of World War II compared to before World War I."

 
At 4/29/2012 3:30 PM, Blogger Methinks said...

No, that's not what I said, Peak. Though, I do find it interesting that you assume that if the Fed has an effect, it must be positive.

That we can't consider bias?

You clearly haven't read SLW and you're not going to. You'll cling to your priors and throw up whatever you can google on the internet to waste time.

In that case, I have more pressing and interesting things to attend to. I'm making cherry clafoutis tonight.

 
At 4/29/2012 3:55 PM, Blogger VangelV said...

That's another false assumption. Economics is based on sound mathematical and empirical models.

Actually, it isn't. That is the claim done by people who assume equilibrium and can't figure out that thinking individuals are not the same things as inanimate objects. As I have written on a number of occasions most of you fools have no clue just how little you really know. People are not buttons to be pushed and levers to be pulled. They will adapt to any silly policy advocated by idiot bureaucrats and what we will see are unintended consequences.

The scary thing is just how clueless these fools really were. The minutes show that the Fed did not understand that there was a collapse going on even after it started. It was still promoting the bubble that it blew even after it became obvious even to the disinterested that that bubble was bursting. Yet these are the same idiots that you want to plan the economy.

Of course, there are trade-offs based on value judgements. Nonetheless, that doesn't make the models wrong.

Of course the models are wrong. People are not like objects moving through a gravitational field whose path is determined by the laws of physics; they react to stimulus. Each regulation is quickly subverted and each good intention gets you closer to bureaucratic hell.

As I said, there is nothing that a good education can't help you. I suggest that you actually look at the economics taught by the people who saw the bubbles as they were blown up, warned about the dangers, and predicted the outcomes.

Here is a perfect example of what I mean. One person understands and can see what is going on while the rest are clueless. The rest were taught the same things that you were for your test.

 
At 4/29/2012 4:37 PM, Blogger VangelV said...

The Depression of 1893

The Depression of 1893 was one of the worst in American history with the unemployment rate exceeding ten percent for half a decade.


Really? How can you have a depression that does not show up in the GDP data?

Even during the pre-Fed panics, from the Civil War to 1907, the bank failure rate was small, as were the losses depositors suffered. Depositor losses amounted to only 0.1 percent of GDP during the Panic of 1893, which was the worst of them all with respect to bank failures and depositor losses. By contrast, in just the past 30 years of the central-bank era, the world has seen 20 banking crises that led to depositor losses in excess of 10 percent of GDP. Half of those saw losses in excess of 20 percent of GDP.

 
At 4/29/2012 4:50 PM, Blogger VangelV said...

In the US, from 1873–1879, 18,000 businesses went bankrupt, including hundreds of banks, and ten states went bankrupt, while unemployment peaked at 14% in 1876, long after the panic ended.

Actually, real GDP grew during this period and the economy was booming. Prices fell as the paper money was taken out of the system. Businesses that could not compete as new markets opened up failed as they should have. While there were bank failures the depositor cost as a percentage of GDP was tiny compared to the insurance that depositors have to pay for today. This is to be expected because bankers used to be personally liable to depositors in the past. Today they get rewarded when their risky bets pay off but are bailed out when they fail.

How many banks would have failed thanks to the Fed's blowing up of the housing bubble this time around? Why is it preferable to save lousy banks and companies instead of letting them fail?

 
At 4/29/2012 4:51 PM, Blogger VangelV said...

"Although some early studies suggested otherwise, recent work suggests that there has been no substantial overall improvement in the volatility of real output since the end of World War II compared to before World War I."

Correct. The Fed has not reduced volatility. But it certainly has wiped out the purchasing power of savers and transferred wealth to the financial system. No wonder the lefties are trying to convince the 99% that they are getting screwed. The system is gamed against them.

 
At 4/29/2012 7:12 PM, Blogger PeakTrader said...

VangelV, people like you rather believe in broken clocks, like Peter Schiff, than proven economic models.

Obviously, international and macroeconomic models are beyond your understanding. So, take a look at microeconomic models, which firms actually use.

Also, anyone can make up data or rewrite history to fit a square peg in a round hole. Long periods of idle resources are unnecessary.

 
At 4/29/2012 7:30 PM, Blogger PeakTrader said...

I've shown above how to facilitate economic growth, which is based on many sound mathematical and empirical models.

It's unnecessary for the U.S. economy to underproduce by $1 trillion a year.

 
At 4/29/2012 8:14 PM, Blogger VangelV said...

VangelV, people like you rather believe in broken clocks, like Peter Schiff, than proven economic models.

A broken clock? His bet on gold has proven to be a very good one for nearly a decade. That is hardly being a broken clock. On the other hand your 'models' failed to see the bubbles in tech stocks, housing, government debt, consumer debt, student loans, etc.

Note that all of the fools with the models were Keynesians or Monetarists who believe that the behaviour of sentient beings can be modeled just as inanimate objects. But they are just empty suits who have typically been wrong.

Obviously, international and macroeconomic models are beyond your understanding. So, take a look at microeconomic models, which firms actually use.

Sure. Let us look at the models used by LTCM as a good start. Or the models used by the Wall Street dealers who were holding mortgage paper that required that people with lousy credit histories and no down payments would be responsible and pay back what they owed.

Also, anyone can make up data or rewrite history to fit a square peg in a round hole. Long periods of idle resources are unnecessary.

I am not making up any data or rewriting history. I am sticking to the facts as they are. Note that the fools with the models have had to be bailed out by the taxpayer time after time while the people who predicted what would happen have been ignored. One group simply cares about ripping off savers and investors while the other is interested in describing what is happening and predicting what will happen. Did you notice the laughter by the stock promoters who relied on models when Schiff pointed out that that the Fed was blowing a huge bubble in housing and that the collapse would take the financial sector down? They were telling investors to buy the shares of insolvent institutions that needed to be bailed out by the taxpayers because their models were giving them an all clear signal. They actually believed that housing and financial stocks were cheap because of the low multiples even though earnings were collapsing and real losses were mounting. You can have your models. I will stick to what I know.

 
At 4/29/2012 8:16 PM, Blogger VangelV said...

I've shown above how to facilitate economic growth, which is based on many sound mathematical and empirical models.

It's unnecessary for the U.S. economy to underproduce by $1 trillion a year.


Nonsense. You have no sound models. And you certainly are not smart enough to know how much the economy should produce.

 
At 4/29/2012 8:30 PM, Blogger PeakTrader said...

VangelV, the productive capacity of an economy is simple to measure. For example, full employment is one measurement.

As I stated above, start with some microeconomic models, that firms use, for an basic understanding of the value of economics.

And Peter Schiff?:

The Emperor Schiff Has No Clothes
Wade W. Slome, CFA, CFP
September 7, 2009

"Let’s take a look at Mr. Schiff’s track record. Certainly Mr. Schiff was correctly bearish on the housing market, albeit about five years too early. I thought “timing is everything?” Apparently not for the media masses judging Peter Schiff’s track record.

Let’s take a look at the chief tea-leaf reader in 2002 when he was calling for NASDAQ to reach 500 and the Dow Jones Industrials to reach 2000.

The Dow didn’t ever come remotely close to collapsing from 10,000 to 2,000 and the NASDAQ didn’t plummet from 1,700 to anywhere near 500.

The significant percentage of the Fortune 500 he predicted to file bankruptcy never materialized either.

Rather the market proceeded to march upwards on a five year bull market run that led to a doubling in the S&P 500 index from the bottom in 2002.

Like a broken clock, if you stubbornly stick to one position, chances are you will eventually become right.

I am not the only person to question the accuracy of Mr. Schiff’s persistently bearish and often inaccurate calls.

For one, Mike Shedlock of Mish’s Global Economic Trend Analysis gave an incredibly detailed review of Schiff’s track record in an article titled, “Peter Schiff was Wrong.”

12 Ways Schiff Was Wrong in 2008

•Wrong about hyperinflation
•Wrong about the dollar
•Wrong about commodities except for gold
•Wrong about foreign currencies except for the Yen
•Wrong about foreign equities
•Wrong in timing
•Wrong in risk management
•Wrong in buy and hold thesis
•Wrong on decoupling
•Wrong on China
•Wrong on US treasuries
•Wrong on interest rates, both foreign and domestic

Todd Sullivan from Seeking Alpha wrote an equally scathing, although shorter, look at Mr. Schiff’s track record.

More recently the ever-bearish Schiff continues to call for a collapse in the U.S. dollar and economy but refuses to short the U.S. market because a hyper-inflationary period may ensue, driving U.S. index prices higher.

Wait a second; is he saying that buying U.S. equities would be a good hedge against rising inflation?

All this talking in circles is getting me dizzy. As for his position on gold, just last year he said gold would hit $2,000 per ounce by 2009 – well if it rises 100%+ in the next few months, then Mr. Schiff will be right on target.

 
At 4/29/2012 8:55 PM, Blogger juandos said...

"Those union leaders could have long ago negotiated for secure, defined contribution retirement plans. But union members didn't want that, did they?"...

Well jet b union member didn't have a clue what the words, 'defined contribution' meant, what's more they didn't want to know...

I know because I tried on numerous occassions in '78 & '79 to explain it at union meetings...

The union leadership thought it was heresy I was spouting...

In '88 and '89 I tried to talk both the local and the District into buying enough shares of TWA so that we could have big enough voting blocks to put at least three members on the board of directors...

The union leadership at both the District level and the International level again yelled heresy...

Why? Because they claimed that they would have to be 'negotiating against themsleves'...

I kid you not!

Any wonder why the IAM supported Obama?

They're not that bright...

 
At 4/29/2012 8:56 PM, Blogger VangelV said...

VangelV, the productive capacity of an economy is simple to measure. For example, full employment is one measurement.

As I stated above, start with some microeconomic models, that firms use, for an basic understanding of the value of economics.


They missed the fact that there was a housing bubble. End of story.

For one, Mike Shedlock of Mish’s Global Economic Trend Analysis gave an incredibly detailed review of Schiff’s track record in an article titled, “Peter Schiff was Wrong.”

Come on. Mish was telling people that deflation was just around the corner for a decade. Anyone who followed his advice produced negative real returns.

He attacked Shciff because when the crash that he predicted came gold and some of Schiffs, gold stocks took a huge dive. But by the end of the year gold was still showing a positive return. And while some of the shares are still down most of the quality gold shares are doing better even though they are selling at a much lower multiple today than when gold was at $800 an ounce. That is not a big deal for investors. When good companies go down they should be buying more. The problem for the guys who were using their models to tout shares was not that the shares of good companies went down in price but that shares of companies with lousy business models were being recommended. Anyone who followed their advice did not see the shares bounce back as companies recovered from the oversold conditions as Schiff's clients did. If you were a new client late in the game and went all in by purchasing one type of asset you probably took a hit. But if you had been investing as Schiff was recommending you were still looking at huge gains.

For the record, I have followed a very similar strategy to what has been advised by people like Schiff and Eric Sprott. I retired at 40 in 2001 and have spent for living expenses twice as much money as I had when I retied. My net worth is still around four or five times what I started off with. Had I followed a strategy recommended by Mish I would have been totally broke by now.

 
At 4/29/2012 8:58 PM, Blogger juandos said...

"Not a Tilton comment at all. It's a quote from Randy Canale, president of District 141 of the International Association of Machinists and Aerospace Workers"...

Hmmm, I'm looking at the District 141 newsletter that is still being mailed to me even though I've not been IAM since 2000 and according to this newsletter it says Tilton...

 
At 4/29/2012 9:00 PM, Blogger juandos said...

"I am skeptical of any claim that any pension picked up by PBGC is paying less than 20% of what was earned. Can you provide any details?"...

Well jet b what do you want me to do?

Mail you copies of the form letters?

 
At 4/30/2012 2:11 AM, Blogger Abir Mandal said...

Vange- In the banks' defense, they probably did see that coming. It was just that the government allowed them to privatize profits and socialize losses on these risky mortgages, in the form of implicit guarantees on Fannie Freddie paper. What happens when you reduce downside risks on stupid policies like increasing home ownership?

 
At 4/30/2012 3:06 AM, Blogger Jet Beagle said...

juandos: "I know because I tried on numerous occassions in '78 & '79 to explain it at union meetings...

The union leadership thought it was heresy I was spouting..."


Well, you do give up a lot of freedom when you choose to work in a union job. I assume that the other benefits one receives from collective bargaining outweigh such loss of freedom.

 
At 4/30/2012 5:28 AM, Blogger VangelV said...


Vange- In the banks' defense, they probably did see that coming. It was just that the government allowed them to privatize profits and socialize losses on these risky mortgages, in the form of implicit guarantees on Fannie Freddie paper. What happens when you reduce downside risks on stupid policies like increasing home ownership?


Sorry but I don't buy it. Yes, you can make a fortune by keeping profits from taking huge risks and getting bailed out when being wrong but it is a hell of a lot more profitable to take the right side of the bet when you know a bubble is about to burst.

And you have to keep in mind that we have the Fed minutes that show that Bernanke and company were clueless about housing even after the collapse had begun. The Fed models were wrong.

 
At 4/30/2012 8:18 AM, Blogger Stephen Banicki said...

I especially like the following quote from Dr. Freidman: http://goo.gl/Aqdzw

 
At 4/30/2012 11:21 AM, Blogger juandos said...

"I assume that the other benefits one receives from collective bargaining outweigh such loss of freedom"...

Ahhh jet b, I now sometimes wonder...:-)

Yes, they're were some/are definite upsides to unionization...

 

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