Tuesday, August 26, 2008

Quotes of the Day II

1. The reason so many people misunderstand so many issues is not that these issues are so complex, but that people do not want a factual or analytical explanation that leaves them emotionally unsatisfied. They want villains to hate and heroes to cheer-- and they don't want explanations that do not give them that.

2. There are countries in Europe that would love to have their unemployment rate fall to the 5.7% unemployment rate to which ours has risen. Yet those who seem to want us to imitate European economic and social policies never seem to want to consider the actual consequences of those policies.

~Thomas Sowell


At 8/26/2008 8:52 AM, Anonymous Anonymous said...

Yet those who seem to want us to imitate European economic and social policies never seem to want to consider the actual consequences of those policies.

That's because the imitators are narcissists: they push these policies because they need to have public recognition of their piety, not because the policies they push will actually accomplish their stated goals.

At 8/26/2008 9:49 AM, Blogger OBloodyHell said...


I believe it's also about power. The power to control things is at the heart of almost all the Leftist rhetoric.

Even Truman saw it:

Professional liberals are too arrogant to compromise. In my experience, they were also very unpleasant people on a personal level. Behind their slogans about saving the world and sharing the wealth with the common man lurked a nasty hunger for power. They'd double-cross their own mothers to get it or keep it.
- Harry S Truman, pp. 55, American Heritage 7/8 1992, from a 1970 interview --

At 8/26/2008 10:03 AM, Anonymous Anonymous said...

As long as your intentions are good, the actual outcome is irrelevant.

At 8/26/2008 10:04 AM, Blogger the buggy professor said...

Thanks for the quote and link to Sowell . . . one of the greatest social scientists of the last generation or two.

1) He's generally right, moreover, about people wanting villains and heroes. Once in a while, though, a number of well-placed, calculating financial speculators --- all anonymous, using borrowed money --- may influence markets in destabilizing manner . . . not out of malice, but because of miscalculation.
I wouldn't call them villains --- unless we mean outright cheaters like the heads of Enron (or the accounting companies for Enron and other big firms that connived in misrepresenting their profits and assets and credits) --- but they will invariably be interpreted by average people as symbolizing something unseemly.

2) Take the recent bursting upsurge in oil prices and then even faster swoop backwards.

Do that burst and swoop in just three or four months really represent just long-term shifts in demand and supply for oil and its products?

Not according to Alan Greenspan, our former Federal Reserve chief, himself a committed libertarian . . . an avowed follower not of Austrian economics but of Ayn Rand.

In a recent interview with the Financial Times, he noted that the steady rise in oil prices since 1998 does reflect a continuous increase in demand for oil out of Asia, especially China and India . . . the Chinese, moreover, subsidizing gasoline until last month.

But the surge and swoop?

According to Greenspan, who of course has access to all the information compiled by the Federal Reserve branches and by government agencies, it was and still is mainly the outcome of runaway speculation on the upswing and then --- as oil prices per barrel looked like leveling off --- a panic selling off of futures as speculators scrambled to cut their losses before others did.

--- See Greenspan's recent interview in the Financial Times: http://www.ft.com/cms/s/0/823fc3a4-673a-11dd-808f-0000779fd18c.html

3) Doesn't this excess often happen in financial markets (best analyzed, I believe, by Hyam Minsky and not some dead Austrian economists)?

Essentially, to make sense of the sharp ups and downs in the stock market in the 1980s and 1990s --- to an extent recently in this decade --- it appears that investors, on an average, are over-optimistic in a bull market and over-pessimistic in a bear one, and such excessive optimism and pessimism adds to the volatility.

Similar excessive optimism seems to have characterized a lot of hedging funds the last decade or so . . . including the fiasco of the biggest miscalculation in history, a fund run by two Nobel prize winners and 25 other Ph.D. economists --- a rescue mission needed by the Fed to keep panic from spreading.

4) Add in the other blatant symbols of financial instability that are very likely, rightly or wrong, to be interpreted by the average public --- suffering from stagnant wages, very high energy and food prices, and worries about health care and mortgage payments (for a few million anyway in the latter case) --- as signs of manipulators and cheaters:

* The savings-and-loans debacle in the late 1980s.

* The misleading lure offered by brokerage firms in the mid- and late-1980s that average investors could quickly replace their stock-market investments into the bond market . . . with an automatic click on the computers. (The 1987 stock market crash proved the opposite: only big preferred customers scrambled out quickly.)

* The dot.com collapse --- full of hype.

* The hedge-fund collapses in this country and Britain --- one of them bringing to an end an investment bank two hundred years old in London.

* The auditing scandals of the early part of this decade --- Enron the symbol. With conniving accounting agencies regarded until then as impeccable in their professional honesty.

* The mortgage fiasco, with otherwise reputable banks and brokerage houses and mutual funds and God knows what else all involved in a huge Ponzi-like scheme of tossing together good and bad financial assets like a tossed salad and serving it up as quickly as possible to the next buyer.

* The credit squeeze, with banks and brokerage houses being rescued by the Fed, and still with us (alas).

* And now the surge in oil prices (and retreat)as well as food prices that the public can't easily absorb.

5) To make matters worse, we've had a president who has, rightly or wrong, been seen as indifferent to the problems of average Americans --- starting with his long vacation in Texas while New Orleans was in a hurricane emergency in 2005. With the federal agency in charge of rescue headed by a crony friend whose qualifications consisted of referring horse shows.


So what can we conclude?

Yes, for those like me --- and presumably Mark and most posters here --- the US economy isn't as bad as the public thinks . . . never mind the doom-stuff in the media. And especially if, like me, you lived through the late 1970s . . . a period of chilly gloom, mostly real.

But . . . well, average people have to face monthly or weekly bills in energy, mortgage payments, food, credit cards, health costs, and what have you, and they are rightly worried about how to make ends meet.

As Walt notes --- again, rightly from the viewpoint of the average hard-working job-holder --- the government's reliance on the core CPU itself seems way out of line with what he and his family have to cope with daily.

The Fed, of course, needs an index that removes energy and food prices --- too volatile in their movements --- but the gap between its concerns and the concerns of Walt and tens of millions of other households aren't being met by our government or (leaving aside Walt) by financial markets these days.

Oh, add in the gap between the desire of President Bush and lots and lots of businesses for cheap immigrant labor --- which the public resists and resents (and rightly so, in my view, if you count in the very costly social spillovers and long-term consequences of having low-skilled people with an overwhelmingly shared ethnic identity and high birth rates in our society) --- and you can understand, I believe, the widespread pessimism and the new populist backlash.

That backlash is the oldest recurring road-show in American life. It won't be any more easily finessed this time, it seems, than it ever was in the past.


Michael Gordon, AKA, the buggy professor

At 8/26/2008 6:33 PM, Blogger OBloodyHell said...

> well, average people have to face monthly or weekly bills in energy, mortgage payments, food, credit cards, health costs, and what have you, and they are rightly worried about how to make ends meet.

Which hopefully will be a lesson to them about living too close to your cash flow amount.

It's been too long since there was any real downswing for many of these people -- so the slightest downturn for them is sufficient reason for massive terror. Even the downturn after/around 911 was very, very brief and not particularly painful.

People are stupid and greedy (the real reason for many of the things on your list) and trust essentially government-run organizations far, far too much (the result of a modern PS edumacation) -- like S&Ls, Fannie Maes, and so on -- as though someone "important" was going to lose their jobs if those things tank.

While it's a good idea to balance your risks in investing, "buying things" isn't always the best option. The more money you're making, the more you should be investing, and all too many people, when faced with the recent real upswing for the majority past the "moderately well off" income level to the "quite satisfactory" income level have gone off on a spending spree. And thus wind up with a fair amount of credit card debt and not as much in the bank as they should have. Once you hit around $40k (+5k/child) in family income, about one half or more of that excess should be going into investments -- diversified investments, not necessarily the thing that pays off best -- out of each year's paychecks. And that doesn't include buying a bigger, swankier house in an obviously *booming* market (i.e., at inflated prices). A house you live in isn't really an investment, at least not a short-term one which can be readily liquidated.

In summary, I don't hold a massive amount of ruth for people sweating their finances when it's their own stupid decisions which put them that close to their income. Rarely are there justifications for that except greed and avarice.


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