Sabrina wrote: I, however, will never compromise principles for short-term fixes. If the government continues to inflate the dollar in order to make this bail-out happen our dollar will be worth nothing one day. What would you like, deflation or hyper-inflation?
So a couple of thoughts here:
1. I'm not sure which principle(s) she is concerned about violating.
I do know that some of the people complaining about this bailout have implicated a few principles like:
- People should get what they deserve
- People shouldn't be able to escape from their mistakes
- People should suffer for their sins
All three of which I don't think are principles but rather eternal truths; I personally have no problem with vicarious solutions to aid in their avoidance. I don't want to get what I deserve much less what President Clinton deserves. I'd be interested in discussing each and every principle in depth and individually that anyone thinks this bailout implicates. If you have one that you think applies please call it out in it's own paragraph in a comment.
2. Which is worse deflation or hyper-inflation?
I don't think that's a fair conundrum. To be fair, we'd need hyper-deflation to go against hyper-inflation.
But for comparisons sake let's look at the results of either disaster scenario.
In inflationary situations, savings are reduced in value and real commodities possessed are increased in value. Given sufficient hyper-inflation, only commodities possess value and all savings are destroyed. Investments are reduced to their real underlying worth. (Often nothing, for example Google has no real assets in a hyper inflationary economy.)
In deflationary situations, savings are magnified and real commodities possessed are decreased in value. Given sufficient hyper-deflation, commodities become worthless and investments become the only thing of value. This of course causes assets to be hoarded and commodities not to be produced. (For example, farmers can't take out operating loans to grow crops because those crops will be worth less than the seed by the time they are grown.)
I think either situation results in badness in the long term. My instinct says more people die from starvation in a deflationary depression than an inflationary one, but I have no evidence to back that up.
In any case, I think it to be irrelevant to this decision. The question is not whether to allow hyperinflation. M3 (a measure of the amount of US money in existence) is roughly 10 trillion dollars. That makes this buyout 7% inflation spread out over a minimum of one year. That's about 1.2% of the rate necessary to be discussing hyperinflation.
Sabrina also wrote: I am already up in arms that it costs me $3 a loaf, when I used to regularly find it for half that price only 4 years ago.
The important distinction here is the difference between inflation and other forms of government theft. The reason bread is more expensive is partly due to inflation. But that doesn't make it harder to buy a loaf of bread by itself. Inflation is matched by a change in nominal wages. The rates aren't always the same and the disparity is the change in real wages. This is a number that is much more important than the nominal inflation rate. Consider, if I was paid enough 3 years ago to buy 10,000 loaves of bread and doing the same job I'm now paid enough to buy 11,000 loaves of bread, then it doesn't matter how many nominal dollars I'm paid. Of course it's not quite that simple since man cannot live by bread alone, and that's why one can't figure the change in real wages using just one commodity.
Bread is getting more expensive in large part because of environmentalists. By favoring the use of ethanol over gasoline, they've created a government based drain on the supply of corn. They've also prevented all sorts of cheap power from coming on line. These things add up to a higher cost of food. It's still government theft, but it's not inflation.
There's talk of adding 700 Billion dollars to our debt with this buyout. This is a misunderstanding of basic accounting. When someone buys an asset they are not decreasing their net worth. If they borrow to do it they do increase their liabilities. But at the same time they increase assets. The effect of buying assets at 20 cents on the dollar is an increase in net worth.
Sabrina also wrote: Furthermore, and maybe I sound void of compassion when I say this, retirement, home ownership and employment are not human rights.
No, they aren't human rights. But that doesn't mean government has no business protecting them. In fact, that's was a major purpose of creating the government. For example, consider the constitutional references to a government that creates monetary policy to promote prosperity. There are two such references in the preamble. There are 8 clauses in the last sections of Article I which give powers necessary to that end. Article 6 was about ensuring that this could remain possible. A libertarianism so strict that government couldn't regulate banks is to my mind probably a recent addition to political thought. It certainly doesn't coincide with 19th century government policy.
Sabrina wrote: Our country needs to learn a lesson. We all need to learn that everything has a risk and everything has consequences. We may or may not get to retire. We may have to live in apartments for the rest of lives. We may have to take the street sweeper job because it's the only one available to us. So what? We can't ever have true prosperity until it's built upon a real solid foundation of production and individual risk-taking and responsibility to deal with the consequences. Our prosperity now is built on a bubble of credit, backed up by useless paper money. This kind of economy is doomed to fail from the very start. Now we are witnessing that failure.
But the very premise is wrong here. We have the most incredible amount of real prosperity imaginable underlying the highest standard of living the world has ever known. There may be a lot of falsity involved in the numbers we project; but in real worth this nation is very prosperous. The roads are paved and the people have cars to drive on them. We have sufficient for our military needs. We have plenty of food. We grow enough to feed the world. We develop amazing technologies. There's at least one TV in even the poorest households, often with a satellite dish.
I don't think that our generation really has a good grasp on how different life was in past generations. I don't fear a world where we have to live in apartments, can find jobs that are only distasteful, and have to work all our lives. I believe for about 6,000 years that's how most of the world dreamed of living.
Our economy is not doomed to fail. I'm not even sure it's doomed to have any serious corrections though I don't think they are unreasonable to expect. As long as everything stays sane, we'll produce enough for our needs next year, and then plenty will be left over for our wants. The biggest problem is poor decision making regarding energy and we can fix that.
Giving up on the theory that we need to punish ourselves doesn't make sense. If the whole system is going to collapse, I don't think I believe it's any more likely to collapse because we try and fix this than if we give up. And if we give up there's no chance of winning.
Here's what winning means to me: We stabilize the situation. We then solve the energy problem and make a tax cut. This results in a major economic boost. We reduce spending and grow ourselves out of debt. What does winning mean to you?
3 comments:
Ok, it's late and I can't even begin to touch all of the Keynesian economics you have been talking about. I don't claim to know a ton about economics anyway, and most of what I do know comes from the Austrian school anyway. So, I'll have to go educate myself some more before rebutting your statements (don't worry, what I do understand I don't agree with still ;) )
However, I do want to pose the question to you of what you think about this particular sentence within the Paulsen bill:
"Decisions by the Secretary [of the Treasury] pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
Being you are usually a proponent of small government, Constitutional law and, I'll assume, checks and balances, shouldn't that sentence alone scare the bejeezies out of you?
Even if all the economic principles you expound upon here are completely sound in the long-term, doesn't it make you even a bit weary to give the federal government that much power without any oversight by anyone? I don't trust most politicians at all. I am not about to support something that would give that much power of such a large sum of tax payer money to one man.
More on the rest later, but I'd like to know what you think of that.
I'm very wary of this plan. (I assume that's what you meant.) But I'm also very wary of doing nothing. Remember that the Great Depression is responsible for a good share of what's wrong with government now. If you think this is too populistic, what do you think will happen when the banking system collapses.
As for the discretion issue, I'm not sure that's particularly noteworthy text. Since the internet is a flutter with people complaining about it, I couldn't find the similar sections in other bills. But it isn't exactly striking new law, anything done that is pursuant to the act cannot be reviewed. For example, see Citizens To Preserve Overton Park v. Volpe. That's from 1971 and addresses the same kind of language, albeit in passing.
While perhaps almost surplusage, it does set very clearly the appropriate deference standard for discretion here. Remember the idea is to inject stability by purchasing the risk. If every transaction involving California mortgage assets were subject to review by the Ninth Circuit, then the plan would have problems.
That doesn't mean the bill is good. There can be plenty of details to get wrong. My endorsement is not for any low level piece but simply for the idea. The Secretary should still have reasonable limits put on him, but those limits would be in the terms of the act. The review of any action he takes that is not in bounds of those limits is not at all circumscribed by committing to discretion acts pursuant to the bill.
As for the economics being Keynesian, I think that's a big stretch. I think you could as easily make an argument that what I'm suggesting fits into the Austrian or Chicago models as to suggest it is Keynesian. If the government drives a tank over your car, it isn't Keynesian economics to suggest the government should fix it. It's just good policy. I see the economics here as similar. I think 4 months ago the correct solution would have been simply to allow proper valuation of the assets. Now I sense it is too late for a minimalist solution.
Yes, I meant wary. I was tired :) Anyway, Saturday night, after reading your latest comment, my mind kept mulling over everything you said and everything I understand and believe. I have a hard time shutting my mind off at these times which is why I shouldn't read about politics too close to bed time because I can't fall asleep for many hours. In any case, I did come up with some things I could come back with. Then, Sunday happened and I got a lot more perspective. I decided I do have fundamental problems with the bail-out which I can't explain in economic terms, nor do I have the time right now to do all the research to be able to articulate my thoughts (I have thought seriously about getting a master's in economics one day, so maybe then I can speak more intelligently).
Therefore, I concede. I still don't agree with it if for no other reason than these powers are not given to the federal government in the Constitution and I believe in a strict interpretation of said document. I also don't believe in the principle that government intervention can be good for the nation. I believe we'd be a lot better off with very, very limited government and we shouldn't ever make an exception. We should always err on the side of less government and see how the private sector works it out (except in cases of self defense when we have actually been attacked).
I am sure you have many wonderful arguments for this as well, as you are very intelligent and well-read. Therefore, I am going to say, maybe you are right. It doesn't change my mind and we'll have to see how things turn out. In either case, there isn't too much we can do about it besides make our political decisions based on our consciences and do the best we can with the circumstances we're given.
Even though the bail-out failed in the house today, I am sure it will be resurrected in some other form, possibly with more intervention and nastiness that I don't want to see. So, I am not counting my chickens before they hatch. You may yet see what you hope to have happen come to pass. In the mean time, I am going to celebrate this small victory in the very large war against our civil liberties and government intervention.
Post a Comment