According to CNN.com, the works of Ayn Rand are experiencing a resurgence in the wake of our financial crisis. Rand was a proponent of free markets, a believer in individualism, and someone who extolled the virtues of selfishness. People have begun to start re-examining her ideas:
“If only ‘Atlas’ were required reading for every member of Congress and political appointee in the Obama administration. I’m confident that we’d get out of the current financial mess a lot faster,” Wall Street Journal columnist Stephen Moore wrote in early January.
This makes absolutely no sense. We’re in a financial mess because of selfishness, because of a loosely regulated free market. One of the captains of this sinking ship was Alan Greenspan, who was a fierce Rand loyalist. I remember Greenspan touting the benefit of subprime mortgages saying that it would help people who would normally never qualify. To say that we’re going to fix the current crisis by imitating the people who got us into this crisis is ludicrous. I suspect that this resurgence is coming mostly from the business community which is suffering from layoffs.
This will probably get me in trouble, but in my opinion, Rand would’ve disappeared from the public memory a long time ago if she didn’t have the backing of so many rich people in the business community. I once heard Objectivism referred to as “the poor man’s existentialism,” and I think that’s right on the mark. In any case, the very last thing we need for our financial markets is deregulation. One of the economists in the article says it best:
“What I find so remarkable about it is if capitalism can work on its own without any government regulation, then we wouldn’t be here,” said economist Heather Boushey of the left-leaning Center for American Progress.
We need solutions. We need to find these solutions together. The best regulatory body to oversee these solutions is a government for the people and by the people.
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I also wanted more rice than what could fit inside the wrap....
Ah, Ayn Rand, the original Mr. Gekko.
Yeah I had to read Atlas Shrugged in high school. It’s a 1,000 pages.
A THOUSAND PAGES!
Anyway, I’m all for self-reliance, but every guy I’ve met who loves that book has always been a nutjob.
Haha!
The only guy I’ve met who was an Ayn Rand junkie was a crazy, crazy nutjob. He was amped 24 hours a day. He may have been a junkie for other substances as well.
As a reader of Ayn Rand (just Atlas so far) and a free market-ist, I see a huge contradiction between Greenspan’s policies and the views of Ayn Rand. Greenspan was a constant tinkerer in the years leading up to the housing bust, primarily by keeping interest rates artificially low.
There were actually many regulatory bills that you may applaud at first but after some research find very detrimental to the economy. Here’s a short list:
- Community Reinvestment act of 1977 – Regulation that forced banks to loan to high risk borrowers and take “strategic losses”. This was enacted to boost the housing market, though it’s not clear if it was a major factor in the latest crisis. It did, however, cause a housing price distortion that affected borrowers that were more qualified than the high-risk borrowers that the act was supposed to help. In the end, housing prices went up, hurting the people it was supposed to help.
- Taxpayer Relief Act of 1997 – Lowered capital gains taxes on home sale profits of up to $500,000 for married couples. That was a huge incentive to buy up houses with the hopes of making a profit and paying no tax on it. Thank Bill Clinton for that one.
- Greenspan kept super-low lending rates through his Fed tinkering, and thus caused investors to stumble and fall on their faces when they realized the assets they owned really had no value. Greenspan was a student of Ayn Rand, but he sure didn’t act like it through his regulatory tinkering.
Also, let’s not simplify the problem by blaming “greed.” Greed also got us Paypal, ebay, iPods, and the greatest economy in the world of Hong Kong, entirely fueled by the greed of people doing business for their own profit. Greed is ever-present and can never be regulated out of existance. When they try to regulate greed, problems abound, as was the case in this current mess.
Eric,
The Fed Chairman’s job is to lower, raise, or keep rates the same. I don’t see the Fed Chairman’s job as “tinkering”–he’s gotta do it, and it’s in his job description. If the Fed Board were to meet and he just sat there sipping a margarita, he’d be out of a job.
When I talk about deregulation, I’m referring more to his policies and statements and the fact that he made no recommendations to stop or examine subprime lending. Nor did he regulate or comment much on the dangerous hedging and credit plays that were taking place on Wall Street.
The Community Reinvestment Act had to do with race and demographics more than risk. See here:
http://en.wikipedia.org/wiki/Community_Reinvestment_Act
I know about this Act since it’s required for my own licensing. Now do minorities have lower credit scores on average than White people? Does this encourage bad lending? Maybe so. But I hope we can agree that it’s important to give people opportunites to lift themselves out of poverty, especially since the banks that are chartered in their areas often get tax breaks and the benefit of being in those communities. If banks go overboard by dropping or reducing their guidelines, I’d say it’s the bank’s fault, not the law’s fault.
Taxpayer Relief Act of 1997: I think hindsight is 20/20. The economy was growing by leaps and bounds back then, and everyone and his brother was starting an internet company that they thought would change the world. Of course, I now think we should’ve used some of this money to pay down our national debt. But back then, everyone was doing well. I don’t know if that tax break encouraged people to buy up as much as the fact that people were employed and doing well.
By the way, there was a great article about Holland today, that touches on many of the socialism vs. total free market debates:
http://www.nytimes.com/2009/05/03/magazine/03european-t.html?em
The fact that there’s a central bank that can arbitrarily alter the amount of money going into the markets in itself, usually, is a bad idea. Just because it’s there doesn’t make it smart to pump cash into the economy with the hopes of helping the housing market. There are ways to make monetary policy work, but Greenspan’s did not. Bernanke’s I predict will be similar, especially with the upcoming “financial assistance” program for people who are having mortgage trouble.
I honestly doubt regulating subprime lending would have helped the situation. The environment already fostered the risky financial behavior and was largely the result of other regulatory measures undertaken in the years leading up to the crisis.
As for giving people opportunities, that’s for private charities, not banks. Banks are investment institutions, and for them to function properly (and keep our money safe), they need to engage in prudent lending and investment practices. I place more trust in my bank to decide who is high risk and who isn’t than the government or the groups who pushed for the CRA. The government neither has a financial interest nor is an authority on the matter, as evidenced by its ballooning deficit and the fact that it can’t bring high-risk borrowers out of poverty itself.
Usually tax breaks are what libertarians love. Myself included; I like paying less tax, and I like it when investors pay less tax because then they have more money to throw at my movie or business. But sometimes tax breaks skew the market in the other direction past a tipping point. For example, the tax break on payroll taxes when it comes to employer-provided health benefits. Insurance providers skew their prices by a huge amount to accommodate these plans, and coupled with the ever-present Medicare and Medicaid plans, they compensate by driving up individual health plans through the roof. Any attempt to fix this without first fixing or eliminating the social entitlement (health care in this case) results in another distortion.
I know The Netherlands has somewhat socialized system, though its economic freedom is relatively high compared to the rest of Europe. That’s hampered by its high tax rate (despite loopholes, which are found here too, which still makes 50% high), high gov’t spending (gov’t spending is 46% of GDP), and ultimately a lower disposable income than we do in the US even taking benefits into consideration. But The Netherlands isn’t the most socialized place in Europe. Check out France or Germany to see what happens when the government balloons and tries to subsidize everything. Economic stagnation results.
Bigger government spending and higher restrictions on business activity lead to economic stagnation and lower standards of living. Evidence is in Hong Kong and Singapore, despite Singapore’s lackluster human rights streak. Both have incredible growth rates right now, around 7%, while the US was around 3% before this mess, and much of Europe at 2%.
Eric,
I respect your political views, but I think you need to think about the practicality of what you’re proposing. Libertarian? No large country has ever successfully used a libertarian approach to the finance markets. The closest thing to libertarianism was Russia right after the fall of communinism. It didn’t work. Large countries have to regulate their economies, or the scale of trading and information causes countries to go into free fall. A lot of the regulation we have today comes from abuses
If they didn’t regulate, it wouldn’t benefit people like you or me. You and I would not get the sweet deals coming from insider trading or hedge funds. With the increased gap between rich and poor, you and I probably wouldn’t even be having this conversation. Micah would be applying for jobs picking up dead animals; he’d be picking them up for food.
I also think it’s hard to compare a country like Singapore to the U.S. Singapore has 5 million people crammed into one little city-state, while the U.S. has 300 million literally stretched across a continent. Singapore is more or less an oligarchy–which is fine if it works for them–while the U.S. is a full fledged democracy. Singapore mostly deals in finance, while the U.S. economy is much more diverse. Even though the Singaporean economy may have grown at a higher rate than the U.S., I can just about guarantee that they would never catch up to the U.S. It just isn’t the same thing.
Even Lee Kuan Yew said that the systems almost have to be different:
http://www.spiegel.de/international/spiegel/0,1518,369128,00.html
“But I cannot run my system based on their rules. I have to amend it to fit my people’s position. “
haha, Byron, I’ve started considering it. When I was young I was savvy in the wilderness. I’ve been wondering if I can make ‘caveman’ the new hip chic trend. I mean, people do love some retro, lol. Well, if you don’t get bugged by me here in June, you’re always welcome to join me for some rotisserie possum and literal ‘down to earth’ hospitality – I’ll even let you pick which couch you want to crash on: sedimentary or igneous.
Albania also tried deregulating sharply after communism, and something like 60% of the country’s income went into pyramid schemes, caused a pyramid scheme bubble, and burst. Things would eventually work themselves out, but going from communism or socialism straight to deregulation is of course going to be very messy for a time. It’s like taking care of your child’s every need, and then pushing him out the door when he’s 18. Switching gears in America has similar effects, but politicians need to realize that this is okay, that things go into freefall for a bit, people have to change jobs, move around, resources need to allocate. It’s like when a company restructures. Big mess. Deregulation takes the burden of responsibility off the government and taxpayer and puts it back on the individual, and usually politicians are all too eager to garner votes on the “I’ll take care of you again” platform.
That’s why when the financial crisis hit, I was hoping the government would stand back and do nothing. Like Canada during the Great Depression: they did nothing, resources reallocated, and they pulled out of the crisis far quicker than we did. But instead we now have more regulations in banks and other businesses, and the economy is going nuts.
I think it’s a mistake to work on decreasing the gap between high and low incomes. Rather we should focus on raising all incomes. Rather than equal slices of the pie, just increase the size of it, which is what’s happening. It’s been through capitalism that the poverty level been able to rise up to where it is now. Because people have the incentive to invest high amounts of dollars and make returns (lower marginal tax rates than, say, between 1935 and 1960), technology has improved, which means consumers benefit. Sometimes workers get shafted, but the simple math is that the amount that consumers save is more than enough to offset the loss of employment due to technology. It’s been continually moving in that direction ever since the industrial revolution.
As for the benefits of regulation, I think you have it backwards. It’s deregulation we should thank for the things we’re so lucky to have. Branch banking (thanks to Gore and Clinton in 1993), booming economies in China and India bringing lower prices to us, credit cards with no annual fees and low APR, cheap airfare (thanks to deregulation in the 70s). All these are due to deregulation and vastly improve our standards of living.
Regulation through wage controls serves to raise the cost of hiring workers, and increase unemployment. Regulation through rent control makes it less beneficial to rent out a house, so the owners stop maintaining it, and the people inside never move out because of the price fix, and thereby making housing in nearby deregulated markets more expensive. Regulation through high taxes on the wealthy makes it less worthwhile for investors to put their money into startup businesses, and they instead move their money to other states or countries. I could go on forever.
“Like Canada during the Great Depression: they did nothing, resources reallocated, and they pulled out of the crisis far quicker than we did. ”
Not according to Wikipedia.
http://en.wikipedia.org/wiki/Great_Depression_in_Canada
From Wikipedia:
It took the outbreak of World War II to pull Canada out of the depression. From 1939, an increased demand in Europe for materials, and increased spending by the Canadian government created a strong boost for the economy. Unemployed men enlisted in the military. By 1939, Canada was in the first prosperity period in the business cycle in a decade.
This coincided with the recovery in the American economy, which created a better market for exports and a new inflow of much needed capital.
They increased spending, plus they were helped by the war, plus they recovered at the same time as the U.S. and in partbecause of the U.S.
Apologies for using Wiki, by the way. Canada has a tenth the population of the U.S., and it’s not even close in terms of economic impact on the world. I didn’t even know the name of the Canadian stock exchange because they hardly ever cover it in the news–it’s always the Dow, Nasdaq, London, Hang Seng, and all those big exchanges. Again, like Hong Kong and Singapore, it’s not a very good comparison, if only because of the difference in scope.
It’s been through capitalism that the poverty level been able to rise up to where it is now.
Yes, but let’s complete the picture: it’s been through regulated capitalism that the poverty level has been able to rise up to where it is now.
Again, we come back to the practical aspects. At no time in history has the U.S. economy been completely unregulated. Many of the regulations we have today came about because of problems associated with allowing the economy to go into free fall.
I think it’s a mistake to work on decreasing the gap between high and low incomes. Rather we should focus on raising all incomes.
I agree with raising all incomes. The problem is that in the absence of regulation, the rich get richer and the poor get poorer since the rich occupy the higher positions within companies and have a greater influence on the market. Think of what your life would be like if you made half of what you do right now. Think of what it would be like if all your friends made half of what they make. It would no longer be democratic since you’d be struggling to survive rather than making films and thinking about who to vote for.
You missed a part of that article: “Canada did have some advantages over other countries, especially its extremely stable banking system that had no failures during the entire depression, compared to over 9,000 small banks that collapsed in the United States.”
The reason: Canada had no central, regulated bank until 1935. Its lack of a regulatory authority in its banking system allowed it to avoid all the bank collapses faced in the US.
But even if Canada was hit hard by the Great Depression, I have to ask you something, because I’m sure you’re an FDR-style spending fan: why did it take 10 years and the onset of a war for FDR’s spending programs to work? Why, in 1933, 34, and 35, the years after the New Deal, was unemployment still above 20%? Why was it still at 17% in 1939?
And I have to ask you why you think a war (WWII in particular) helps an economy. I argue that the US Government simply employing 40% of the labor force doesn’t help the economy, it only moves money around at the cost of removing 40% of the productive labor from the private sector. The Depression ended after the war, yes, but that was after resources were reallocated, and people were less worried about what FDR was going to do next, hence the sudden boom in investment capital. Couldn’t it be that the Great Depression was prolonged for so long because of FDR’s regulatory tinkering, putting fear into the markets, with profits being confiscated from companies? Wouldn’t that also cause high unemployment?
Back to your impression of “regulated capitalism”. What does this mean? You mean political capitalism, the same “capitalism” that allowed Ken Lay to have a state-sponsored monopoly in the energy market? That allows the Fed to arbitrarily inject money into the economy? That subsidizes multi-billion dollar farms to produce a profitless crop called corn, and a profitless energy called ethanol? What is “regulated capitalism” to you? Preventing certain people from making too much money? Preventing consumers from making decisions for themselves? Or just taking money from one place and putting it somewhere else? Because the two other biggest places on earth, China and India, have highly regulated markets. So if you believe that regulated capitalism is the way out of poverty, why aren’t China and India poverty-free? Because they’re too big?
Naturally the US can’t be run like Singapore. Singapore’s government functions like a city. The US also can’t be run like The Netherlands, with its socialized medicine and VAT. My question is this: why, when we’ve tried heavy regulations for the past 75 years, with constant failure, and with the failures of the regulatory measures that brought us to the current crisis, do we keep going back and saying, “Let’s just regulate some more, but we’ll do it right this time”? With a good 75,000 regulations in our economy, you’d think that the US would’ve “plugged the holes”, but now we’re in another disaster. Obama’s going to make that list even bigger. Why does that sound like a good idea to you?
Great discussion you two! Keep it up, this is very interesting banter
Eric,
You wrote: “The reason: Canada had no central, regulated bank until 1935. Its lack of a regulatory authority in its banking system allowed it to avoid all the bank collapses faced in the US.”
Do you think that there could be a reason why they established that central bank in the wake of the Great Depression? Do you think that possibly one could have precipitated the other? You make it sound like the Canadians were sitting up North drinking Molsons and watching hockey games while America went down, and that things just figured themselves out. That’s just not the case. Even if we ignore the fact that Canada has always been a MUCH smaller player in the world’s economy in banking and outside of banking, they were panicking and hurting as much as we were.
“But even if Canada was hit hard by the Great Depression, I have to ask you something, because I’m sure you’re an FDR-style spending fan: why did it take 10 years and the onset of a war for FDR’s spending programs to work? Why, in 1933, 34, and 35, the years after the New Deal, was unemployment still above 20%? Why was it still at 17% in 1939?”
Because that’s how long it takes. When you have double digit unemployment, people starving, people not having enough to feed their families, it takes a long time to recover. Due in large part to the regulation (AND welfare) we created in RESPONSE to the last Depression, we’ve managed to avoid the same problems that took place during the 30′s.
You have to remember too that things moved a lot more slowly back then. People didn’t have the internet. Not everyone owned a car or a TV. Things moved a lot more slowly because the technology for frequent mass interaction and collaboration didn’t yet exist.
You ask iwhy there is still poverty in China and India. First, poverty exists everywhere, even here, but if you’re talking about mass poverty, maybe it’s because India and China emerging markets. It’s the same thing–not everyone has a car, internet access, or even food. Things take time. We have to be realistic and practical when it comes to solving the problems of the world.
“And I have to ask you why you think a war (WWII in particular) helps an economy. I argue that the US Government simply employing 40% of the labor force doesn’t help the economy, it only moves money around at the cost of removing 40% of the productive labor from the private sector. “
It created community towards a common goal–stopping the Axis powers. Read the Greatest Generation by Tom Brokaw. People came together towards a common goal, and they saw what they could achieve together. That wasn’t the reason we went to war, but the upshot was that people came together. There was the GI Bill when soldiers returned from the war, people educated themselves, and that was when the economy took off.
Regulated capitalism is exactly what it sounds like: capitalism with regulatory agencies and laws. The initial discussion came from your idea that having an agency regulate rates is bad, and that we should not have such an agency. Am I reading you correctly?
By the way, I know people who are diehard Repubs, and who want really small government. That I can understand. But if I’m reading you correctly, Eric, you’re basically saying that government should not interfere at all with the markets. I don’t know anyone with experience in the markets who has embraced this view. Am I reading you correctly?
I’m not surprised you’ve never known someone who was pro-free market. Republicans aren’t about the free market, at least they haven’t been for some time. Reagan was close but the drug war and some personal liberties issues plagued his platform. The reason is the people who harbor free market ideas just don’t run in your circle. When I wasn’t looking for them they were nowhere to be found, except they came out in flying colors this last election with the hysteria behind Ron Paul, who was the best thing Libertarians have had in a long time. Don’t be surprised that the people who don’t want to intrude on others’ lives aren’t outspoken advocates.
I don’t believe the central bank helped end the Great Depression by any means. Central banks have monopoly power over currency, and it’s through bad policies like Greenspan’s that interest rates go haywire and investors have no idea how much money is actually worth until the bubble bursts. So no, I don’t believe that it ended the Great Depression or helped it end. You make no good case for it. I make the case that through heavy regulation, through FDR’s constant tinkering, the arbitrary raising of tax rates (Hoover did the same, despite his supposed “free market loving” reputation), raising of tarriffs, and massive failed government spending, investors could not reallocate resources after the bank collapses. They were petrified of what FDR was going to do. At one point FDR confiscated profits. Tax rates were up to around 70%. Tell me what incentive there was for an investor to expand under those conditions? I fear it’s the same way right now; the tinkering is scaring investors, and they won’t make a move until things settle down. And a war didn’t do it this time.
It simply doesn’t make sense that an 11-year program, that ended still in failure, with another recession in 37 and 38, with 20% unemployment at the onset of the NRA, a massive spending program meant to create jobs but ended up raising unemployment even higher, should fail simply because “these things take time.” I make the case that FDR’s (and Hoover’s before him) tinkering prolonged the Great Depression rather than fixing it. Simply saying “these things take time” (11 years?!) doesn’t work. There was no constant improvement, just fluctuating failure.
We’ve not been able to avoid the problems of the 30s, because today’s problems are looking eerily similar to those we had back then. You make no case to support your claim that regulation has been avoiding us financial disasters. We have them every 15-20 years or so, and the ones that claim the fewest victims are the ones where the government has done the LEAST.
As for people not owning cars and things being worse off for people back then, hasn’t it been capitalism that has fostered a competitive environment that has brought down the price of a car to something even the lowest class of income earners can afford? Or do you think it’s regulation that has made the car so affordable? If that’s the case, make your point. Here’s mine: companies compete to sell the most cars, and in order to do that, they cut costs in order to make the cars cheaper, and since they want the customers’ money, they keep cutting costs until customers buy their car. Basic capitalist ideas, which you might not agree with.
India and China are emerging markets and they’re growing, but let’s look at why. India’s industry in the past 15 years is the perfect place to make my case. Right after Britain left India in the 40s, India developed a socialist government in which entrepreneurship didn’t exist. Nobody had any incentive to develop and expand a business because there were no profits to be made. In the 90s the Indian government, faced with awful poverty rates, decided to start deregulating its economy through tax cuts and trade liberalisation and lifting other business-slowing mechanisms, all because of the emerging IT market. India’s poverty since has been cut by a huge amount. Wiki that one if you care. The best part of it: poor people ended up doing better as well because of these new millionaires, who were opening up new shops with the hopes of making profits, and the only way to make profits is to hire willing workers. They’re not exploited, they’re doing far better than they did under their awful socialist system. Deregulation in a huge economy works too. It’s never too complicated.
Regulated capitalism isn’t something that is definable. You know full well how politics works. People get elected, and they pander to the people who elected them through special favors, be they subsidies, regulations against their competitors, wage regulations for the unions, special tax incentives for certain companies, etc. The list goes on forever. The only reason the Democrats were able to pass the awful stimulus plan was to write in special tax incentives for all the cronies who voted the Republicans into office, like the famous tax cut on “wooden toy arrows”. These things are inherant problems in a place where politicians are given free reign over an economy to make their friends happy. But regulated capitalism is ultimately a cycle:
Politicians use their power to make their friends happy, market distorts, economy slows down, interest groups demand expensive government programs to boost the economy, government runs deficits, raises taxes, market distorts, economy slows down, and repeat until someone smart enough comes in and says “we need to deregulate”. Then deregulation happens until the economy is sound again (1990s), and then interest groups come and say “Hey, we want a slice,” elect their politician, and then begin at the top of this paragraph again. That’s regulated capitalism. Better than socialism, but it’s not Hong Kong.
A Ron Paul supporter? Oh my.
The closest I’ve ever been to Ron Paul supporters is when I was waiting in line at an Obama rally in Portland. A bunch of scruffy poor guys went up and down the line handing out Ron Paul propaganda. I was surprised Ron Paul supporters even existed in Portland.
I think you’re misinterpreting my position. I’m pro-capitalism. I sell financing for a living, which is something that only people who believe in capitalism do. At the same time, I also support regulation within capitalism because I know that:
a) People do bad things when there aren’t laws to prevent bad behavior
b) People operate with a mob mentality at times, and unregulated self-interest can destroy entire systems.
Regulation won’t end financial disasters, but it can help cushion them. Regardless of whether or not you think the current situation is a disaster, I hope you and I can agree that it’s not as bad as the Depression–there aren’t people starving in the streets, and we’re not at 25% unemployment. Lots of this is due to the fact that we have welfare, along with regulation that prevents bad behavior by traders on the stock market. Had we not had these social services and regulation, then yes, we’d be back at a situation similar to that of the 30′s.
So is Ron Paul the only guy you support these days? I think the stimulus package had support from just about everyone else, even though some Repubs were against the details (not the stimulus or idea of the stimulus itself). I, for one, am happy to know that my 401k will not go into free-fall because the government is protecting the economy and trying to fix eight years of Bush.
Most are in agreement that we are not in a time as bad as the Great Depression. However, the argument is what to do to ensure that we don’t end up there, and most are in favor of boosting government spending (the god awful stimulus), jacking up government programs, and holding our hands to be sure we don’t trip. It’s just that they never want to let go again.
I’m all in favor of them (Obama, Congress, and the court) standing back and letting the market correct everything on its own, which I believe could’ve happened after the bubble burst. But there was this huge rush to “do something”, especially since it was the background of possibly the biggest election in US history. So instead of letting the market settle and allowing investors and consumers to find their footing (letting the market reallocate its resources), they step in and introduce hundreds of new regulations that make our heads spin. Now nobody knows what’ll happen next. They’re talking about forcing banks to raise more capital now, which borders on nationalized banking. Bad news, and I’m against all of it.
Regulated capitalism “should” be good, but it always hurts people who are the slowest at getting back on their feet, which are the low-to-middle-class folks. “Cushioned” capitalism would be Hong Kong and Singapore. America is “Political Capitalism”, which is not “cushioned”. Rather, it’s capitalism run by partnerships between business leaders and politicans, who work for each others’ profits. It wouldn’t be a problem if the politicians didn’t have a federal reserve and unlimited military power behind them. As it is, fighting them is nearly impossible, especially when they have nearly unlimited regulatory power that is often backed by the Supreme Court.
Just to respond to these:
“a) People do bad things when there aren’t laws to prevent bad behavior
That’s far too simple an explanation. What’s bad behavior, first off? Is profit-seeking “bad”? What are “excess profits”? Is revenge “bad”? Better to look into the economics of laws than to simply state that something is “bad” and make a law against it, which has been the way many failed policies have been in the US.
You could say that anti-drug laws prevent some people from doing drugs. They also raise the price of drugs, making pure Cocaine and Heroine too expensive, opening new illegal markets for crack and, even worse, meth. Anti-drug laws don’t prevent pleasure-seeking (or “bad” depending on who you are) behavior; they just shift the behavior to other markets, which can sometimes be far worse than had the behavior simply been legal in the first place.
Laws also are made to prevent behavior that will cost the state money. It’s why it’s “illegal” to be fat in Japan. I use quotes because when you reach a certain age in Japan, they measure you in all kinds of embarrassing ways, and if you’re too fat, you undergo a program where you have to lose weight or face mandatory dieting. There’s probably a fine if you don’t care to partake, though I don’t know. Alabama has a similar system. As does the UK. Here are some links if you care:
“Japan, Seeking Trim Waists, Measures Millions”
http://www.nytimes.com/2008/06/13/world/asia/13fat.html
“Alabama ‘Obesity Penalty’ (fat tax) Stirs Debate”
http://www.bioethicsinternational.org/blog/?p=601
And here’s the UK:
“Parents of fat children to be given a warning”
http://www.timesonline.co.uk/tol/news/uk/health/article2709161.ece
Laws against “excessive” profit-seeking or high tax rates are made so that the state can earn extra money and also so politicians can garner votes from interest groups. Minimum wage laws, rent control, tariffs, and high marginal tax rates are all laws created to prevent people from doing things considered “bad” by some, but ultimately these laws hurt the very people they’re made to protect. The people who have the most at stake in those markets (landlords, employers) are simply more skilled at reallocating resources than the people who depend on them, and the costs get passed down. That’s what happens whenever any financial regulation is passed. Best just not to the laws and to allow the market to set rates and prices, and lower the tax rates and tariffs so that we can get more investment and higher employment rates.
I’m not saying all laws are bad, just that oversimplifying the reasoning behind such laws only blames the victims, not the stupid lawmakers who decided by the whims of their constituents to turn certain groups of people into outlaws.
b) People operate with a mob mentality at times, and unregulated self-interest can destroy entire systems.
As you said before, we’ve never had unregulated capitalism, so you can’t know this. There’ve been a few anarcho-capitalist states in the past, like the Icelandic Commonwealth, which had no king, no ruler really except a Lawspeaker who was chosen based upon how much of the law he could recite from memory. That lasted for around 300 years, and it was not “destroyed” from within, it just succumbed to another form of influential government. The American West was never “destroyed” from within despite its largely unregulated self-interest, but rather was a booming time with huge amounts of economic growth. You’ll find that the only systems that were “destroyed” have been the ones that were over-regulated: North Korea, Cuba, Zimbabwe, USSR, Hitler’s Germany, Mussolini’s Italy, etc. Half-socialized systems like FDR’s New Deal and Japan’s decade-long stimulus plan in the 90s were failures too. Any state that placed excessive boundaries to financial/personal freedom on its citizens were either “destroyed” or deregulated into something far better.
It was through (nearly) unregulated self-interest up until the early 1900s that much of the world experienced the fastest rate of economic growth in history. Drawbacks at the time, yes, primarily due to bad technology and viruses. Now, when we have much of that contained, is a perfect time to bring it back. It’s such self-interest that is allowing us a still exceptionally high standard of living, and having it even less regulated would bring about even more growth and competition. The rest of the world would follow closely behind.
I thought like you when the financial crisis first hit my industry in 2007. American Home Mortgage went under, and after dealing with their terrible customer service, I was feeling a bit of schadenfreude. When I heard about the foreclosures, I thought the same thing–let’s just let it work itself out. After all, it’s not my fault if you got stuck in a bad mortgage.
But when you consider the actual economics, it doesn’t make sense either for the people getting foreclosed on or you or me. First, it hits me as a homeowner. If my neighbor’s house gets taken over by the bank and sold for pennies on the dollar, my home value suffers. It triggers a massive sell-off, which will bring crime into my area. The crime would come about because people have lost their jobs and income.
Second, many of these people were cheated because of the lack of regulation. Had there been better enforcement of laws regarding the kind of products people were allowed to sell, this problem wouldn’t have grown as it did.
It’s similar with peoples’ retirement plans. Government doing nothing to save the big banks would result in a sell-off, which would decimate people’s retirement savings. Hell, even with the bailout, some people’s savings have already been decimated. Unless you want your neighbors starving and/or forced to steal from you, it makes sense to spend right now so that we can benefit from a more successful future.
About your responses to my questions:
“Laws against “excessive” profit-seeking or high tax rates are made so that the state can earn extra money and also so politicians can garner votes from interest groups. Minimum wage laws, rent control, tariffs, and high marginal tax rates are all laws created to prevent people from doing things considered “bad” by some, but ultimately these laws hurt the very people they’re made to protect.”
There aren’t any laws against excessive profit-seeking, and if there were, I wouldn’t support them. Minimum wage laws are designed so that people at the bottom make enough to live (and it works somewhat, since minimum wage is still hard to live on). Do you think the guy behind the Burger King counter would make more without those minimum wage laws? Do you think it would make it easier for him to live without rent control?
“As you said before, we’ve never had unregulated capitalism, so you can’t know this. “
Well, we’ve never had totally unregulated capitalism in this country, but we’ve had less regulated capitalism. Look back at the robber barrons. Look at the violence that took place back then. That’s what life looks like with less regulation. Look at the starving people during the Great Depression. That’s what happens without social services.
You can’t use the American West as an example. It’s much easier to be “profitable” when you’re just taking resources, the same way European colonialism was profitable. ALL of the other examples you raise are also not relevant to my position. I’m not arguing for socialism; I’m arguing for regulated capitalism.
On the other hand, it sounds like you are arguing for totally unregulated capitalism. Again, am I reading you correctly?
Let me ask you this, Eric: You make $25k a year, and you live in San Francisco. I’m assuming you aren’t a homeowner, since properties in SF are expensive. If you rent directly in SF, you benefit from rent control laws; I know this because I know landlords in SF, and they’re only allowed to raise rents by a certain percentage each year.
So you work for the Man, and you pay less rent because of regulation. On just these points alone: Why do you think you (or me, for that matter) would benefit from deregulation?
I hear Posner recently came out with a book on why the market needs to be regulated. Posner! The Libertarian’s poster child, of all people. I haven’t read the book yet, but you better bet I will.
When you have to move, that’s resource allocation. Because housing markets are going to go through a mess temporarily, people are going to have to move, and that’s normal. Nobody was cheated because they bought exactly what they thought they were buying: housing that they thought would return far more than it did. It was a risk, and now they’re paying for it. Bad for them, good for people who want cheap housing today. I don’t see it as an entirely bad thing.
Many retirement plans that were wiped out were 401ks, which as you know are stocks. They’re not guaranteed by anybody, thank god. Otherwise they’d have tanked even worse, just like the securities at Fannie and Freddie did, which were both government subsidized entities. As for social security depleating, there are plenty of reasons for that, and I seriously doubt the market can be blamed for that since it’s entirely a government entitlement. It was a bad idea from the beginning. Back then there were 40 or so payers for every collector. Now it’s 3 to 1. Bad news, and I blame regulation because that’s all social Security is.
Your views on minimum wage are naive. Companies won’t pay burger flippers $1.00 per hour if minimum wage went away because burger flippers wouldn’t take those low-paying jobs. Only a small percentage of workers earn minimum wage. But an even bigger percentage of people are unemployed because they can’t bargain for wages lower than minimum wage. If you’re in SF, and you’re trying to compete against a kid making $8.00/hour flipping burgers, demanding only $6.00 for yourself, you’re out of luck. It’s no wonder unemployment’s so high. If they eliminated minimum wage, a bunch of $3-$7/hour jobs would open up, and I think that’d be a great thing. I say let people bargain for their own wages. Minimum wage laws put the bargaining power in the hands of politicians and big unions.
The less-regulated era of robber barons may have been one of violence, but it had nowhere near the mortality rates of heavily regulated times and places. You argue for regulated capitalism, but I’ve yet to hear you explain how you’ll keep a cap on the regulation. I know you’re not arguing for socialism, but what’s the difference between hefty state-run entitlement programs mixed with regulations on private enterprise, and socialism? Where does one draw the line? How do you actually fix the problems that I’ve mentioned, that politicians actively seek votes that they’ll reward with regulations slanted to help their constituents? Don’t you see a problem with companies like Fannie Mae and Freddie Mac, which had their losses subsidized by the government, and were some of the first to tank once the bubble burst? Where does it end?
I’d be happy to see rent control go away. Boston did it successfully. I live in Emeryville, where my rent goes up every year by $75 or so. I think there’s only rent control in Berkeley, Oakland, and SF. Shadow markets like Emeryville surrounding rent controlled areas have abnormally high rent rates. It also means that rentals aren’t built often in rent controlled areas. They build condos and office space instead, things that aren’t regulated and can return a profit, which is the whole reason people get pissed off about “gentrification”. If rent control were abolished in Berkeley or SF, I could potentially benefit from lower rates. If I wanted to move into Berkeley or SF, I can’t. People don’t move out of rent controlled housing because they’re afraid they’ll have higher rates elsewhere. If rent went up too high in Emeryville because of lack of rent control, I’ll just have to move or find more income. No complaints.
On that note, I’d also like to see unregulated capitalism happen right here. But it’d have to be incremental, otherwise there’d be a rush to “fix” the ensuing chaos with even heavier regulations (unless government just dissolved and sold all its assets overnight). I’m willing to deal with the consequences of what I’m asking for, meaning temporarily higher crime rates, the possibility that I’ll have to defend myself more often, temporarily higher rent rates, the price of hiring police protection, private arbitrators, private fire service, entirely privatized health care, etc.
But I’m also dying for private banking (no more Fed), lower marginal tax rates (more investment!), more foreign investment, unregulated health care (lower insurance rates finally), and not paying taxes, or very little, especially in the off-chance that some day I’ll make more than a quarter mil. I’m willing to bet it’d be better in the end. The only thing that’s hard to get privately is military protection, which I would be happy to pay a small tax for, assuming others would be as well, but that one’s a sticky one. Another option would just be to move to the Ocean, which is an idea of the company that I currently work for: http://www.seasteading.org
I’ll be interested in reading Becker’s new work, but it sounds like he’s still blaming the Fed for the pendulum swing. Perhaps Becker’s put to rest the notion that we can eliminate the Fed and monetary policy entirely, and if we were to keep the Fed, maybe the only way to continue is to regulate heavily. That’s still pretty much in line with my thinking: government caused the problem.
Okay, Eric, you do get bonus points for posting up that link about Seasteading. Thank God for rich people. I’ll admit, that is one of the more fascinating concepts I’ve seen in a long time, even though I think it’ll fail (and Wired seems to think so too). But it never hurts to dream, right? I’m always fascinated by ideas of Utopia. I think I’ll put this up on the front page, if it’s okay with you. Thanks for posting that.
Anyway, back to the U.S. and the economics of running a country with 300 million people:
“When you have to move, that’s resource allocation. Because housing markets are going to go through a mess temporarily, people are going to have to move, and that’s normal. Nobody was cheated because they bought exactly what they thought they were buying: housing that they thought would return far more than it did. It was a risk, and now they’re paying for it. Bad for them, good for people who want cheap housing today. I don’t see it as an entirely bad thing.”
If people die on the streets because they’re starving and there is crime, that’s neither temporary nor normal. If people get their life savings wiped out and die penniless, that’s neither temporary nor normal. If our country is governed by fear, fear for safety and fear of investment, that’s neither temporary nor normal. If entire neighborhoods are getting destroyed, it’s not a great deal for people who want cheap housing–some of these places in Detroit look like Bosnia; how is that a great deal for anyone?
I’m also not a fan of everyone moving when a situation gets bad. It’s easy for young singles to do, but when we’re talking about people building lives, it’s impractical. If we’re talking about college students who are trying to stay four years in one place, it’s impractical. If we’re talking about companies trying to build up a presence, it’s impractical. Good things usually require time to build.
About risk: When Congress passes anti-usury laws to prevent people from paying 25% interest rates on payday loans, I say, “Go Congress.” Eric, you may be good at accounting, but just because you happen to be, doesn’t mean that everyone else is. Again, you have to deal in practicality. Not everyone understands rules, not everyone can read the fine print.
“Many retirement plans that were wiped out were 401ks, which as you know are stocks. They’re not guaranteed by anybody, thank god. Otherwise they’d have tanked even worse, just like the securities at Fannie and Freddie did, which were both government subsidized entities. As for social security depleating, there are plenty of reasons for that, and I seriously doubt the market can be blamed for that since it’s entirely a government entitlement. It was a bad idea from the beginning. Back then there were 40 or so payers for every collector. Now it’s 3 to 1. Bad news, and I blame regulation because that’s all social Security is.”
I’m not asking the government to guarantee stocks, but I don’t think it’s too much to ask the government to preserve some faith in the markets.
When I was younger, I got really sick with a horrible fever that preventing me from eating for nearly two weeks. So I went to the ER. I gave the nurse my insurance card. A drunk guy staggered in. He had been stabbed with a knife. They asked him if he had any insurance, but he was so drunk he couldn’t answer. He was bleeding all over the place, so they put him down on the bed and began treating him.
The guy had no insurance. Who pays for his treatment? I do. You do. People who pay taxes do.
That’s just the way things are. Since I make more money than you and pay more in taxes, when you go to a National Park, Eric, I subsidize you. When your non-profits take advantage of federal grants, I subsidize them. Someone in high-priced San Francisco who does what I do probably makes more money than me, and since they pay local taxes, they subsidize you when you take advantage of local culture and the the local scene. They subsidize those federal programs more than I do. They subsidize the cops who protect you, the DMV which keeps dangerous people off the road, the bureaucracies that manage utility companies that bring electricity to your home. But you know something? That’s part of living in a country where we take care of the common good. It’s not every man for himself. It’s a lot easier for me to give some money back to the government to help the less fortunate than it is for me to live in a country where ethnic and class differences make life hard.
Part of the reason why artistic types live in places like SF and NY is the community. Wouldn’t you rather live in a place where you can build something good over the long haul, rather than move whenever the economy takes a turn?
If you want to see what hard class differences can do, go to Brazil. The rich people there drive beat-up Toyotas because they don’t want to stand out and get kidnapped. That’s not a country in which I’d like to live. Even if I were poor, I’d hate to get caught in the crossfire.
“Your views on minimum wage are naive. Companies won’t pay burger flippers $1.00 per hour if minimum wage went away because burger flippers wouldn’t take those low-paying jobs. Only a small percentage of workers earn minimum wage. But an even bigger percentage of people are unemployed because they can’t bargain for wages lower than minimum wage. If you’re in SF, and you’re trying to compete against a kid making $8.00/hour flipping burgers, demanding only $6.00 for yourself, you’re out of luck. “
Hahaha…Eric, newsflash…even if you successfully negotiate $6 an hour, you’re still screwed. That’s like winning by losing. It’s like winning a trip to see Gary Glitter. You’re fortunate to be able to make $25 grand a year working 4 days a week. That comes out to around $14 an hour, which is far above minimum wage. Imagine what your life would be making 42% of what you make right now. You’d never be able to work your way out. Plus, you’re an exception. You make little because you choose to make little, and you have no family to support. But since you had the privilege of attending college, you probably can get a higher paying job. Not everyone is so fortunate. That’s why we need government to protect the people at the bottom against corporations whose charters explicitly say that their duties are to the shareholders.
“You argue for regulated capitalism, but I’ve yet to hear you explain how you’ll keep a cap on the regulation. I know you’re not arguing for socialism, but what’s the difference between hefty state-run entitlement programs mixed with regulations on private enterprise, and socialism? Where does one draw the line? How do you actually fix the problems that I’ve mentioned, that politicians actively seek votes that they’ll reward with regulations slanted to help their constituents? Don’t you see a problem with companies like Fannie Mae and Freddie Mac, which had their losses subsidized by the government, and were some of the first to tank once the bubble burst? Where does it end?”
I don’t think it’s practical–or even possible–to say where we cap it. The short answer is that it should be as free as possible, while protecting people at the bottom as much as possible. Another question is where would cap it at the other end? Should insider trading be legal? What about monopolies?
Hey, the government subsidized Fannie and Freddie’s losses, but they also protected against my losses and your losses as well. Letting them sink would have been disasterous. Hardly anyone would qualify for home loans without those two entities. If you wanted to see rallies and violence in the streets, that would definitely do it.
” If rent went up too high in Emeryville because of lack of rent control, I’ll just have to move or find more income. No complaints.”
Let me ask you this…where do the Stunt People work out? I’m guessing that they probably work out in a martial arts studio, owned or leased by one of your friends. If your rent went up, or if you were forced to become an investment banker with 80 hour work weeks, or if you had to move because the government let foreclosures kill your neighborhood, are you seriously telling me that you wouldn’t complain? Are you seriously telling me that you’d let everything you worked for go up in smoke just for some libertarian cause?
Whoever owns the place where you work out probably wouldn’t be so understanding. If they’re leasing, they had to front capital and take a risk before pulling in students. Would they like having all their students being forced to move? Would they like having to start from scratch at the end of every economic cycle?
I know one other Ron Paul supporter. He’s a very rich guy, older, dislikes all social programs, and hates the government. Almost all of his friends are rich white guys, and all he wants to do is retire to a golf course. It makes sense for him because he doesn’t need the money, and he can always up and move with his millions. But for an actor, a guy who doesn’t have millions, and a guy who relies on a community of people who are also not rich and don’t have corporate power–I’m not really understanding how you would benefit. At all.
I agree there’s no sense in letting people die in the streets. We just disagree on why those people are dying in the streets. Look, we’ve had a very regulated system of capitalism since the 30s, and it’s had a Great Depression, and now there’s a terrible economic downturn. I don’t see how regulation has been helping this. You’re just saying “add more regulation”?
You also wrote this sentence: “Not everyone understands rules, not everyone can read the fine print.”
That’s my advantage. It’s the reason I can get a good credit card with no annual fee, low interest, and cash back bonuses. It’s because other people are less responsible than I am, they don’t read fine print, they aren’t smart shoppers, they don’t do price comparisons, they don’t pay their credit card bills on time, they don’t pay back their loans. I benefit in a less-regulated system. I don’t want government help in ANYTHING because once the government wants to help me, it forces me to accept that help. If I don’t accept, the market’s getting screwed all around me anyway. You seem to be in favor of helping people live their lives, so am I, but let’s keep that in the private sector. Government should have no part of it.
I know that there’s a “common good” mentality in this country, which should be fine, but it’s also the reason Social Security is running out of money, medicare runs deficits, DMV’s shutting its doors one day extra per week (on top of the fact that it’s a monopoly, so we have no option but to wait in line), the mail service is cutting its hours, etc. etc. Government programs balloon, it’s in their interest. I’d rather have them small and let the private sector take care of all the things you talk about. That’s how it once was, and I think it was fine.
I could move away, but this neo-liberalism that you champion is a relatively new idea, and back in 1900 I’d be saying to you, “This is America, you work for what you get.” America isn’t a welfare state, yet it’s slowly becomming that. For now, the stab victim gets a free doctor’s visit. Tomorrow, obese people walk in and get expensive medicine for free, and the healthy pay for all of it. Where do you think it should end?
You mention Brazil being scary. Brazil has a very highly regulated system, FYI.
I think you have a backwards view of banks and corporations that lend to students for college. Banks do have a sole duty to shareholders, that’s absolutely true, and it’s a good thing. We need banks making money because we need them to be able to provide student loans. Student loans are much easier to get than most other loans, especially since you don’t get your debt wiped away when you declare bankruptcy. They provide great returns for students. But your mindset is that we need to hold the hands of those who don’t get into good schools or don’t secure these loans. But such help only incentivizes more privileged people to be lazier and have their hands held too. It also incentivizes the less privileged people to not work as hard. Unemployment insurance is an example: people are less active in seeking new employment if they’re collecting unemployment insurance. Moral hazard is one of the bigger themes of Atlus Shrugged.
“Another question is where would cap it at the other end? Should insider trading be legal? What about monopolies?”
I don’t have an opinion on insider trading, though my gut tells me that anyone should be able to invest wherever he or she pleases. If it means that some investors are hurt, but the business grows, is able to cut costs, and provide a better service to customers (who are often on the bottom), then I’m for it. I’m also completely in favor of monopolies. Just not state-sponsored ones. Thing is, it’s very hard to have a capitalistic monopoly without some regulation propping you. Enron only had a monopoly thanks to the huge number of regulations that Ken Lay was able to exploit. Without those regulations, Enron probably wouldn’t have lasted as a monopoly. But market monopolies I think are fine.
“Are you seriously telling me that you’d let everything you worked for go up in smoke just for some libertarian cause?”
I wouldn’t complain too much. It would sting for the time being but I’d just find another place to work out.
You seem to think that I can’t manage to work my way through things. Maybe you’d let the most important thing in your life go “up in smoke” so easily, but I wouldn’t. That’s one reason I’ve been able to hold a large crew together for over eight years.
Eric,
I think you’ve revealed the reasons why you and I have disagreements. Three quotes by you:
1. “It’s the reason I can get a good credit card with no annual fee, low interest, and cash back bonuses. It’s because other people are less responsible than I am, they don’t read fine print, they aren’t smart shoppers, they don’t do price comparisons, they don’t pay their credit card bills on time, they don’t pay back their loans.”
2. “This is America, you work for what you get.” America isn’t a welfare state, yet it’s slowly becomming that. For now, the stab victim gets a free doctor’s visit. Tomorrow, obese people walk in and get expensive medicine for free, and the healthy pay for all of it. Where do you think it should end?
3. “You seem to think that I can’t manage to work my way through things. Maybe you’d let the most important thing in your life go “up in smoke” so easily, but I wouldn’t. That’s one reason I’ve been able to hold a large crew together for over eight years.”
I say this with all good intent, Eric–you seem to lack the ability to empathize and put yourself into another person’s shoes. It was the same deal with the Dogs of Chinatown discussion–summarizing your position: “I’m an individual, so why can’t everyone just see past race and stop making a big deal of it.”
The truth is, not everyone is you. You’re a privileged individual in some ways, a less privileged individual in others, and you’re unable to see the views of people who aren’t you. You went to college, so you know how to read credit card contracts. Your parents probably raised you with the ethics to pay back your bills. You were born without congenital defects, which explains your callousness and insensitivity to people who are obese and require medical attention through no fault of their own. You are privileged to live in a country where there is stability that comes from financial regulation and where your friends don’t have to worry about being killed or being financially forced to move.
On the other hand, you’re neither a homeowner nor a business owner. You’re not rich. You haven’t invested considerable money into your community (you haven’t made enough money to invest), so you’re callous and insensitive to the position of people who have, including your martial arts studio’s owner, probably the people who employ you, and the people who have built up San Francisco to be the place that it is today. In America, it’s rarely the renters or fly by nighters who build up communities. It’s the people who live in these places, invest in these places, build them up. It’s people who love their city, not people who would leave with “no complaints” because of a financial crisis.
I’ve worked with people who struggle managing credit. Many of them are great people who were not raised with your privileged lifestyle. Their parents never taught them to pay back creditors or to balance their checkbooks. Some of them had to work instead of going to college; some of them didn’t even know they could go to college. There are many people like this–this is why the government has anti-usury laws. I’ve met great people who had the misfortune to be born with congenital heart problems. Some of them have leukemia. Kids with AIDS. Beautiful people who contribute to make the world a better place. I’m not going to criticize you for your insensitivity towards them–that’s your right.
What I will say is this though. I think that were you born as a person of lesser means, a person with some kind of health disorder, a person with friends who had some kind of health disorder, or lived in a country which practiced the anarchy which you seem to espouse, you would find that life isn’t nearly as easy or breezy as you think it would be.
“I don’t have an opinion on insider trading, though my gut tells me that anyone should be able to invest wherever he or she pleases. If it means that some investors are hurt, but the business grows, is able to cut costs, and provide a better service to customers (who are often on the bottom), then I’m for it. I’m also completely in favor of monopolies. Just not state-sponsored ones. Thing is, it’s very hard to have a capitalistic monopoly without some regulation propping you. Enron only had a monopoly thanks to the huge number of regulations that Ken Lay was able to exploit. Without those regulations, Enron probably wouldn’t have lasted as a monopoly. But market monopolies I think are fine.”
Eric, am I correct in guessing that you don’t follow the markets or trade? Even among your libertarian friends, I’ve not seen anyone support insider trading or monopolies.
I don’t agree with your notion that I’m not able to empathize with others. My point isn’t that sick or poor people aren’t worthy of being cared for. I just don’t believe the government should force money from people through taxation and then use it to “help” anyone. Private charities are great, I donate myself, either through helping teach at-risk kids or deworming efforts in Africa.
Let’s stick to the debate about economics. If you want to discuss hardships, then that’s another debate. But ultimately, my point is that these government regulations are what cause the hardships. Don’t mistake that as lacking empathy.
I follow the markets a little. I deal in silver and I have some mutual funds. I don’t know enough about insider trading, however there’s one reason that I’m fine with monopolies being allowed: the market doesn’t easily support monopolies. It’s very costly for a company to keep a market-based monopoly. In our political-capitalist system, companies spend a large chunk of their money lobbying for special favors from Congress. I’m sure you’re aware of this. That’s how monopolies are maintained, not in the market, but in this pseudo-market of regulated capitalism.
I’m going to use some knowledge from David D. Friedman. Under an unregulated market, let’s say you have a firm that has 10x more money than the competitor. The competitor is making business difficult for you, so you decide to spend your money driving him out by undercutting prices, selling at below cost. But you lose money 10 times as fast. Once you drive out the competitor, what’s to stop him from selling his plant to a competitor? And now that you’re poorer, how long can you last this way? It’s just one way in which monopolies don’t do well in real capitalism. With regulations at their disposal, they find ways to function. Or government simply keeps them that way by illegalizing certain activity.
“I don’t agree with your notion that I’m not able to empathize with others. My point isn’t that sick or poor people aren’t worthy of being cared for. ”
Well, what is your point then with regards to regulation? You’re against privatization and unregulated business, but the relatively unregulated private healthcare industry has been horrible in this country for the less fortunate, as have laws granting women the ability to work and be mothers at the same time. I brought up empathy because you keep approaching this discussion with a “look at me and what I’m doing” approach. My point is that you’re looking at this topic (and the Dogs of Chinatown topic) from your view alone. See your quotes in my last post. Since we’re talking about the national economy, your solution has to address the needs of people other than you. It has nothing to do with whether you’re a good person, a bad person, or an uncaring person; it has to do with how to create a system that benefits everyone and makes sense.
You haven’t made a case as to why you think government regulation causes hardships. Minimum wage, for example, keeps wages high and prevents unscrupulous business owners from taking advantage of employees. Letting employers pay $5 an hour doesn’t help the less fortunate. The less fortunate may be desperate enough to take it, but it will neither raise them out of poverty nor allow them to pay bills.
And when they fail, or if the system fails them, who picks up the bill?
What about employment laws designed to protect kids? Or safety laws designed to protect workers? Or sexual harassment laws? These regulations cost money to create, maintain, and enforce, but do you think life would be better without them? We had life without them just a few generations back. There’s a reason they came about.
Again, I think your views are somewhat impractical when it comes to running a country. It would be great if we had no government bureaucracy, if there was enough money to go around, and if corporations cared for people as much as profits. It would be great if we didn’t need a court system, if the criminal justice system were fair, and if money was just something we used to buy necessities and luxuries. The fact is, however, that rich companies will always have clout, and they’ll always be buying favors. It’s the case here, it’s the case in Mexico, it’s the case in Canada. The only place where it isn’t the case is in socialist countries, where power comes from the other direction.
My point has been that regulation has often been the source of hardships. You’re in disagreement with my take on wage regulation. I quote from the Library of Economics: “Some workers will be made better off with a higher wage, but workers whose labor is not considered to be worth as much as the law says they must be paid will find themselves without a job.” When you set a premium on low-skilled labor, people who are lower skilled cannot get a job. Minimum wage is going up again. Let’s see if unemployment keeps climbing.
My empathy comes from a different place than yours. You feel that the way for people to survive is for taxpayers to be squeezed, that the burden is on the government to help them, and that government needs to be necessarily big. I feel the opposite. It doesn’t mean I’m against helping people, but forcing money from taxpayers and dividing it up, in increasingly large quantities, is not working, and it didn’t work this time with the Fed, regulated mortgage market, and bad tax incentives. Simply saying that I’m not empathetic isn’t helping the discussion. You simply don’t understand where I’m coming from:
My argument is that ballooning government is bad for the poor. It’s bad for others too, the rich lose money, middle class loses some money too, but the poor get kicked into the ground because of it.
We’ll be seeing more in the next 20 years from the other countries that are implementing some very libertarian ideas. Portugal’s drug decriminalization, the flat tax in some Eastern European countries, and China and India’s continued deregulation. All will bring growth, and they’ll probably grow faster than the increasingly-regulated USA.
Here’s a list of socialist governments. Either they reformed into more capitalist systems, or, unless they’re currently undergoing deregulation, they’re not doing very well: http://en.wikipedia.org/wiki/List_of_socialist_countries
“You haven’t made a case as to why you think government regulation causes hardships.”
Yes I have, but you don’t listen, so I’ll have to do it again. Here’s a list!:
Rent control: Creates high-rent shadow markets in surrounding areas of non-rent controlled areas, lowers housing availability rates by incentivizing people to stay in their current location out of fear they won’t be able to find a cheaper place, incentivizes landlords to not care for property since they can’t profit from it past a certain point and the people won’t move out regardless, and incentivizes developers to build structures not covered under rent-control such as condos, office space, and warehousing, which many would call “gentrification”.
High marginal tax rates: Incentivizes high income earners to move their money into tax shelters, slow their expansion, find tax loopholes, lobby for tax loopholes, cut costs by cutting workers, outsource to cheaper countries, leaving American workers behind.
Minimum wage: Puts a premium on low-skilled labor, as discussed above. Eliminates jobs for people whose skills don’t merit the amount the government requires an employer to pay, and as minimum wage increases, the low-skilled worker continues to have trouble finding work.
Socialized medicine: Incentivizes doctors to overcharge for reimbursements, causes extremely long waits for non-emergency care for those with government plans, raises the price of the shadow market (insurance for individuals), insurance companies can’t compete with government market, government market monopoly results in high costs, deficits, and decreasing value of care. See this article on Canada’s system, the second-most expensive healthcare system in the world: http://www.calgaryherald.com/Health/Canadians+receive+poor+value+health+care+dollars/1584180/story.html
Social security: Takes our money and probably won’t pay us any of it because baby boomers are going to outlive the last generation, and SS has less than 3 payers for ever recipient, yet we still lose money in our paychecks to it.
As for laws to protect workers’ safety, we live in a time when access to lawyers is incredibly good. OSHA pretends to protect our safety, but the truth is they only come in after an accident occurs, fines the employer, and the employer’s costs go up. Employers cut costs elsewhere, which goes down to the worker or the customer, our “friends” in this debate. We should instead allow workers to bargain for wages based on the danger of the job. But since we’re living in an employee market where employers just have to follow the bare minimum OSHA requirements OR not get caught, they can set the hazard pay lower and run the risk, and it’s harder for employees to bargain out of that.
I’m also not in favor of child labor laws because they aren’t followed anyway. Families regularly put their children to work (any family-owned restaurant I see has kids working), except with child labor laws, paying children for work is how you get caught. So they just don’t pay them. I also think a child should have the right to find work if he or she wants it. When I was 15 and started working as a programmer, I remember having to go through a permit process and my parents having to sign off on it. If I were, for some reason, not close with my parents, what could I have done? Paid a sponsor to sign it for me? Lie? Get hired illegally and be paid under the table? It’s a ludicrous law.
Sexual harassment laws don’t do anything. I left my last job largely due to sexual harassment from a male employee. I don’t really see what good it does to have a law against something that happens anyway. It’s in an employer’s interest to deal with the situation anyway, so why put a law on it? Allow it to go to arbitration, sue the guilty party for lost wages, discredit the employer if they don’t do anything. There are plenty of market approaches to this issue. I didn’t take any, but I should have, and that’s something I learned the hard way. Glad I did too.
You’re putting me through the ringer here, but it’s okay. It’s probably not stuff you hear every day. I don’t really know anyone who holds these beliefs with me, except for my coworkers (whom I’ve known for a month). My family members are all neo-liberal Democrats, except my Grandma. I can talk to her about this stuff all the time and she loves it and the fact that I learned it all from books and podcasts. Aside from her, there’s nobody who discusses this stuff with me openly. There was a big debate on this very topic at The Stunt People forum should you care to peruse it, if just to see that despite what happened in the Dogs of Chinatown discussion, I don’t actually get unbridled support from every direction: http://thestuntpeople.yuku.com/topic/5881
I still don’t think you’re answering the question. Sure, you’re giving short term answers (fewer unemployed people since people will now be able to work for $6 an hour), but you’re not giving any long term answers (since $6 an hour doesn’t provide enough for a person to live honestly, what are they going to do with that $6 outside of wiping their tushies?). A good economic proposal requires a full explanation that covers all society, short term and long term.
“It doesn’t mean I’m against helping people, but forcing money from taxpayers and dividing it up, in increasingly large quantities, is not working, and it didn’t work this time with the Fed, regulated mortgage market, and bad tax incentives. “
But it does. One thing that you haven’t answered is the fact that we still haven’t fallen into a depression, despite the Bush years. Do you think this would be the case without social services? Without new laws preventing short selling? Without the Fed trying to bolster investment with lower rates?
Now as for the mortgage market, we haven’t been regulated for that long. When I first got into the business, we didn’t even need licenses. But that’s changing.
“We’ll be seeing more in the next 20 years from the other countries that are implementing some very libertarian ideas. Portugal’s drug decriminalization, the flat tax in some Eastern European countries, and China and India’s continued deregulation. All will bring growth, and they’ll probably grow faster than the increasingly-regulated USA.”
China and India will grow faster because a, they have much larger populations, and b, they have a lot of room for growth, given the fact they’re just emerging. We should have a gentleman’s bet on the Europeans.
“Rent control: Creates high-rent shadow markets in surrounding areas of non-rent controlled areas, lowers housing availability rates by incentivizing people to stay in their current location out of fear they won’t be able to find a cheaper place, incentivizes landlords to not care for property since they can’t profit from it past a certain point and the people won’t move out regardless, and incentivizes developers to build structures not covered under rent-control such as condos, office space, and warehousing, which many would call “gentrification”.”
As I mentioned, I know landlords in SF. That hasn’t been my experience. People still buy rental properties in SF, and they still take care of them, even though the rents are capped. If they didn’t cap it, your artists would move out. SF wouldn’t be as fun of a place to live. I don’t know what else to tell you, other than the fact that people still buy places in rent controlled areas. If they didn’t, the values would have tanked long ago. They’re dropping now, but since rent control has been around for so long, we know it’s not because of rent control.
“High marginal tax rates: Incentivizes high income earners to move their money into tax shelters, slow their expansion, find tax loopholes, lobby for tax loopholes, cut costs by cutting workers, outsource to cheaper countries, leaving American workers behind.”.
So you’re saying that if we dropped rates on the wealthiest, say, 10%, that the rich would stop taking advantage of tax shelters, etc? They’d stop cutting workers?
Even Warren Buffett, who has quite a bit of money, has argued for tax reform, saying that he pays too little in taxes. I agree, some of the loopholes should be revised, but I don’t think it’s because taxes are too high. I think wealthy people–or even poor people–will always try to cut their bills.
Minimum wage: Covered this above.
Socialized medicine: It’s funny that the article you posted compares Canada to other countries with universal healthcare. The article doesn’t mention the U.S. The article doesn’t advocate privatizing medicine. It simply says that Canada is not doing as well as the other countries with universal healthcare. If anything, it’s asking the Canadian healthcare system to learn from other countries with universal healthcare, not the U.S. I’ve never met a Canadian envious of the U.S. healthcare system. And I know lots of Canadians.
Next!
Social security: I admit, we’ll have to figure this one out. I don’t have a solution for this one.
“We should instead allow workers to bargain for wages based on the danger of the job. “
You may be a Stunt Person who likes doing dangerous things, but most of us like the idea of having a powerful agency to help with the due diligence on what is dangerous and what is not. Can I ask a question? Do you have any manual laborers in your family? If you do, you know that they don’t always know what is dangerous and what is not, even if they’re very bright, even if they’re very good. Trust experts.
“I’m also not in favor of child labor laws because they aren’t followed anyway.”
Nope. In the past, families used to make their kids work at factories. No longer. They can’t do this because factories and companies, in general, follow the law. That’s why you don’t see kids hoisting big bundles at construction sites.
Now there are exceptions. Family restaurants, as you mention, is one of these. Children can act on television.
If you didn’t get along with your parents, yes, you’d be in trouble because they wouldn’t let you work. But then again, as your legal guardians, they could prevent you from working anyway, child labor laws or not.
“Sexual harassment laws don’t do anything. I left my last job largely due to sexual harassment from a male employee. “
Again, not true. Talk to any woman before the women’s rights movement. It’s a lot better than it is today. I know of women who have sued and won. It’s probably a little harder for you to prove since guy-to-guy isn’t something most people think about. If you were a woman, though, it would make a big difference. Eric–EMPATHY!!!
“There was a big debate on this very topic at The Stunt People forum should you care to peruse it, if just to see that despite what happened in the Dogs of Chinatown discussion, I don’t actually get unbridled support from every direction:”
It’s good to see that the Stunt People think deeply about economics since they don’t think deeply about racism. (Sorry, couldn’t resist. That was a joke…)
You’re in disagreement with me over the long-term virtues of deregulation, but stop saying I don’t have a long-term view of things. Deregulation in the long term would be beneficial because it would put property in private hands, yours, mine, and Warren Buffet’s.
I believe without the massive amount of regulating of the markets we wouldn’t be in a deep recession. Just because we’re not in a depression doesn’t mean that things are working. But thought patterns like yours are rapant and circular: more government intervention, markets are distorted and fail, you point to the deregulated parts, regulate those, markets are again distorted and fail, you point to the deregulated parts again, etc. It goes on forever.
Of course property is selling in SF right now. The housing market is great for buyers today. But once a relative equilibrium is reached (with rent control), the housing availability is pretty awful, and prices reflect that shortage both in SF non-controlled areas and in surrounding cities. Landlords only take care of their properties because they’re required by the housing authority to do so. And the reason the housing authority is there is because there’s rent control, and they know the landlords won’t take care of the housing when they can’t maximize their profits. The market gives them no incentive otherwise.
Here’s a great article on a recent case in nearby San Rafael. If there’s anything to learn from it, it’s that rent control should have never been in effect in the first place. Now the area’s screwed: http://abclocal.go.com/kgo/story?section=news/local/north_bay&id=6773468
“China and India will grow faster because a, they have much larger populations, and b, they have a lot of room for growth, given the fact they’re just emerging.”
Ridiculous. The same could’ve been said of China during the great famine. Lots of people, lots of room for growth then. But they had one sticking point: communism. No growth. After a freer market opened up, growth came. India’s socialism before deregulation had almost no economic growth, but now that they’re introducing free market reforms, the economy is growing. That’s not a coincidence.
Warren Buffet’s just one guy. Wanda Sykes said the same thing about taxes. That doesn’t mean anything to me. The real costs of high marginal tax rates is low investment rates. Government spending is also skewed with respect to tax rates. And yet the IRS only collects slightly more money when tax rates are raised. Here are some numbers, data thanks to David D. Friedman, from Historical Statistics of the United States, Colonial Times to 1970 pp 1110-11 and Statistical Abstract of the US, 1987, p 304.
1955: Income Tax Collections (in billions) – $29.6
Taxable Income Reported (minus exemptions, billions) – $128.0
Avg. Tax Rate Collected - 23.13%
Tax Rate on Lowest Bracket – 20%
Tax Rate on Highest Bracket – 91%
1960
$39.5
$171.6
23.02%
20%
91%
1965
$49.5
$255.1
19.40%
16%
77%
1965
$49.5
$255.1
19.40%
16%
77%
1975
$124.5
$595.5
20.91%
14%
70%
1980
$250.3
$1,280.0
19.55%
14%
70%
1984
$301.9
$1,701.0
17.75%
11%
50%
Between a top income tax rate of 91% in 1955 and the top rate of 50% in 1984, a difference in 41% at the top (and 9% at the bottom), the IRS collected a difference of 5.7% of taxes on income reported. It can’t even compensate for the change in percentage at the bottom end of the tax bracket. IRS collections do not have a direct relationship to tax rates. High tax rates incentivize people to seek tax shelters and illegal means to protect their money. If taxes were reduced to, say, 20%, there’d be almost no need for tax shelters. When businesses lose money to the IRS, they pass the losses down to consumers through higher prices, and they often cut costs as well, since they can’t afford to run a business otherwise.
If you’ve not been watching the news lately regarding health care in the US, it’s in a dire state much like Social Security, and much of it is due to both the Medicare distortion as well as the payroll tax break on employers who offer benefits, which skews the insurance market toward employer benefits and against private purchasers. Regulation into this system has made it incredibly difficult to afford private non-benefit health insurance. Unemployed people suffer as a result. I do empathize, you just can’t understand the logic behind my thinking.
I was a manual laborer for the past two years at my previous job so I know all about safety regulations, OSHA, and all that. Workers should be bargaining for wages based on job risk. If they don’t know the risk, that’s not the fault of the taxpayer that has to keep the bloated OSHA around year after year.
Your point about not getting along with parents is well taken, which is why I’m in favor of another one of David D. Friedman’s ideas which is to give children from a young age (10?) the right to leave home and seek their own means. They can come back home and be taken back by the parents, but if the child earns a living for a year, the parents aren’t obligated to bring them back. Children could also seek new parents who would adopt them and assume parental control. Laws that forbid children or teenagers from leaving the home or working do nothing but make criminals out of them. The next best thing is to afford them the freedom to do these things.
Children celebrities… we’ve all heard the horror stories about parents stealing their kids’ wages. Give children more freedom and better property rights. That doesn’t mean allowing parents to force their kids to work, it means giving the child the option of leaving home (possibly to seek other parents) when parents go that far.
It’s good that women can sue and win sexual harassment lawsuits, but those are arbitrations. The laws don’t prevent the acts from happening. They just impose penalties, which would exist in a free-market system anyway.
Just as a note regarding sexual harassment laws:
I want to make it clear that I’m not against laws. Sexual harassment isn’t always dealt with properly outside of arbitration. But in a private arbitration system the laws would probably be about the same on that matter. That’s my guess.
To recap: I’m not against laws, and not against sexual harassment laws, but the matter is almost always handled privately. That was my only comment on the issue.
Eric,
Let me just say that I understand the feeling of empowerment when living with the idea that everyone is responsible for himself or herself. I understand how the “don’t tread on me” attitude permeates American life.
As we’ve discussed this topic, twice you’ve linked articles that do nothing to indicate that unregulated markets are better. First, you linked an article from Canada comparing Canada’s healthcare with other countries with universal benefits. You said that it shows privatization is better. It doesn’t even mention privatization. Then you linked an article about rent control that illustrates how families are hurt when it’s lifted. You wanted it to show that there never should’ve been rent control in the first place. Neither supports your thesis.
You support some really strange views. I would not allow kids to leave home at 10 years old. 10 year olds don’t yet have adult decision-making capabilities–this is confirmed by every child expert I’ve ever read. That’s a recipe for some messed up kids. Teen rebellion would take on a whole new meaning. True, some people get stuck with bad parents, but the alternative for society is worse. David Friedman should stick to Physics.
At this point, I don’t know what else to say. Get rid of OSHA and put the onus on workers? Will workers who work with toxic chemicals be required to test the air themselves in the plants? Or will you privatize that, and allow testing companies who advertise well to make the rules? You’d see melamine in baby food and toxic chemicals in vegetables as companies aimed to cheapen their production costs. Eventually the companies which killed enough people would get weeded out, but new ones would come up to take their place. No thanks.
I really don’t know what else to say on this matter, other than I’m glad most of the people you know are against this folly. Now only if we can get them to think about fixing race relations in this country…
Correct, my point for posting those articles is to point out that regulation shouldn’t have happened in the first place. With the regulations in place, the dirstortions in the market cause misallocation of resources. When the regulations are lifted, there’s the costly act of reallocating resources (moving), and that usually brings about more regulation that starts the cycle all over again.
I thought news periodicals would work, but they’re not doing the job. Here are some far better articles for the discussion, all written by different economists, hosted at econlib.org. I don’t expect you to change your viewpoint, but after reading them you’ll concede that my views may not be as radical as you had thought, since the authors detail them very clearly:
Minimum wage: http://econlib.org/library/Enc/MinimumWages.html
Rent control: http://econlib.org/library/Enc/RentControl.html
Protectionism (pro-free trade): http://econlib.org/library/Enc/Protectionism.html
Job safety: http://econlib.org/library/Enc/JobSafety.html
Property Rights: http://econlib.org/library/Enc/PropertyRights.html
What you’re not doing is explaining to me how your ideas of regulation can be properly contained when there’s no profit motive other than politicians seeking votes. If the government weren’t backed by the largest military in the world, we could just not follow what the politicians said (go with competing laws?) and they’d be out of business by morning.
Eric,
“you’ll concede that my views may not be as radical as you had thought, since the authors detail them very clearly:”
The so-called “Library of Economics and Liberty” is a site for Libertarian propaganda. The authors are, as they say, way out there. You referring me to their site is similar to a religious Bible-Thumper saying, “I’m not a religious Jesus Freak! Talk to my pastor, and he’ll tell you!”
Then you’d also call Adam Smith, Milton Friedman, and Ron Paul perveyors of propaganda, which is fine. But comparing them to pastors is a false analogy. Pastors base their teachings on faith. The articles I posted are scientific.
The difference between you and them is they advocate personal liberties and property rights. You advocate the advancement of one person at the cost of another (via a forceful distributive tax system) and collective pooling of resources under the guise of politics (social welfare programs where highest payers receive lowest percentage of benefits).
Eric,
Easy on the Kool Aid. Ron Paul–yes, he’s a purveyor of propaganda. Adam Smith and Milton Friedman? No. But they didn’t write any of the articles on that site–at least not the ones you linked. It’s kind of like James Dobson saying something, me disagreeing, and him saying, “What, you don’t like listening to GOD?”
As for Adam Smith, I think he’d have different views were he alive today. You have to remember he lived a long time ago. Milton Friedman believed in free markets, but not nearly to the extent that you’re advocating.
If you took half a minute to read some of the articles, they’re very much in line with ideas from Friedman and Smith, unless you haven’t read any Friedman or Smith, then you’ll have no idea. Friedman was a free market economist who believed in minimal government intervention. His son David put forth the anarcho-capitalist viewpoints later, which are quite compelling in his book Machinery of Freedom. And his grandson is my boss at The Seasteading Institute. I follow David Friedman’s work more closely because he takes a strong stance against government regulation in the technological world where laws start to become fuzzy. He also has a book online for free (http://www.daviddfriedman.com/laws_order/index.shtml) that explains the economics behind making laws, which ties into this whole discussion nicely.
If you’re just gleaning information off Wikipedia right now then you’re probably not really grasping what I’m talking about. It’s a good source, but reading the books or even the articles gives you a concrede understanding of these utterly insane viewpoints that I harbor. And don’t assume I’m upset that you’re calling my viewpoints insane (Kool-Aid reference…?) because I get it all the time from my family and peers. I’ve been on my own there for a while.
I took half a minute, and they’re a bit more extreme than Smith or Milton Friedman. They are in line with David Friedman, but I think he’s a bit extreme himself. He has to be extreme–what kind of non-extremist would start the name of his viewpoints with “anarcho?”
I’m grasping what you’re talking about, but I still don’t think you’re thinking long term. I still think you’re drinking the Kool-Aid or smoking the crack pipe. Seriously, can you answer the melamine question?
I’m thinking long-term just like the Icelanders thought long term when they started the commonwealth in 900 AD. It was about as close to anarcho-capitalism any country’s ever been, and it lasted almost 300 years, only to become converted to a monarchy. It didn’t crumble under its free market principles and property rights, but rather the chieftains were influenced by the King of Norway and became his vassals, and soon Iceland came under Nordic rule. Friedman talks in depth about this.
“You’d see melamine in baby food and toxic chemicals in vegetables as companies aimed to cheapen their production costs. Eventually the companies which killed enough people would get weeded out, but new ones would come up to take their place.”
This is an excellent topic brought up by a Cato podcast I listened to once. By the way, Cato are also a bunch of insane libertarians who get plenty of talking time on all the news networks and NPR. Lately they’ve been having a field day debating the health care reforms. It’s a very reputable group, and not as wacky as you may think.
Melamine: Government does regulate products for children. So why did it allow Chinese-made toys tainted with lead to go to the shelves in 2007? The FDA and Consumer Product Safety Commission only monitor a tiny percentage of products. These slipped through, as many do. The natural response now is for the government to pass a law banning not just the lead products, but however many other products that are deemed dangerous by consumer protection groups who lobby congress. Blanket banning on products means one risks banning products that are not dangerous.
Whether they react heavily or not, the FDA and CPSC allow dangerous chemicals and substances to be released into the US, like lead, and FDA approved pharmaceuticals (sp?) that get yanked after years of usage after finding that they’re lethal. Pharmacy students know how ineffective the FDA is.
The other problem with FDA regulations is that they impose extra costs on non-violators, and they make competition harder for smaller businesses. China releases a toy with led in the US, so ToyCo USA will lobby congress to adopt regulations against lead. Congress agrees because ToyCo has money. Since ToyCo is huge, it can survive with the new regulations imposed on it, but smaller toy companies have no way of competing in a market where regulatory costs are so high. Smaller toy companies go out of business, and the cost of regulation at ToyCo is now negligable due to the fact that there are fewer competitors.
It’s the same reason there are only a handful of cigarette companies. The taxes are so high on cigarettes that small makers can’t afford to compete against the big boys. Small businesses get hurt, prices go up, hurting consumers.
Another problem is China’s lack of property rights, which incentivizes them to make products as shoddy as possible with little regard to consumer well-being.
There’s an alternative. There are a few things to keep in mind. In a free market economy that Rand, Friedman, and Smith could all agree on, there would be considerably low government corruption, largely due to the fact that trade protectionism and regulations that benefit certain businesses but hurt others would be impossible to enact. Let’s just dream for a minute that our Congress didn’t accept bribes from companies to set up special regulations for them (Ethanol is a good example).
That said, rather than having the FDA and CPSC decide what’s safe and impose regulatory costs on businesses, let private companies do it. Allow ratings agencies to develop reputations, and those whose reputations are high will be the ones consumers follow as well as being ones that companies aim to please. If privately-owned RateCo takes a bribe from ToyCo, RateCo goes lax on ToyCo, ToyCo releases a dangerous toy, consumers discover dangerous toy was approved by RateCo, RateCo is discredited, and ToyCo goes bankrupt. RateCo probably goes with it. The difference between the FDA and RateCo is that RateCo has a vested interest in serving consumers since their own livelihood depends on it, and there would be other ratings agencies to fill its place if it goes bankrupt.
Let’s not mistake this with government using a SINGLE third party ratings agency. That’s what they did when they rated mortgage-backed securities. One ratings agency with monopoly power backed by government. It rated securities too high. There were no other ratings agencies to compete with it, so naturally the market was distorted and look what’s happened now.
Privatizing the ratings system wouldn’t eliminate danger in the market. There’s always danger, and someone’s always trying to get away with something, but privatization would significantly lower the chances that something slips through the cracks since there would be more ratings agencies driven by profit, and they would take on more product testing. It would also limit the chance of continued violations, since bad ratings agencies would go out of business to be replaced with better ones that test well nad don’t take bribes.
If you want an example of private ratings agencies that work, many ratings agencies on the internet rate the safety of websites. Those ratings sites that are plagued with fake 5-star reviews from bad companies are invariably discredited. The rating site either changes how it obtains ratings or loses popularity, and consumers go to a different rating site. It seems to work pretty well.
Eric,
It’s ironic that you mention Iceland and Norway. The #1 most popular article in the Times today is about Norway’s economy and how they managed to escape the financial crisis through government intervention:
http://www.nytimes.com/2009/05/14/business/global/14frugal.html?em
(Granted, Norway, like Alaska, is propped up by oil.)
“If privately-owned RateCo takes a bribe from ToyCo, RateCo goes lax on ToyCo, ToyCo releases a dangerous toy, consumers discover dangerous toy was approved by RateCo, RateCo is discredited, and ToyCo goes bankrupt.”
So that’s the practicality issue again. How is RateCo discredited if it’s melamine? By people dying. No thanks.
Norway’s socialist model has given it a growth rate of 2.3% compounded over five years. It’s been thanks to a very open trade system that Norway has managed to keep their standard of living high, though its growth is relatively stagnant (compared to 2.7% in America during the G. W. Bush years). But a country of less than five million people should be able to pull a growth rate far better than 2.3%. Hong Kong’s growth more than doubles that through it’s deregulatory model. Actually Norway’s one of the slowest growing countries in the world. Economically it’s a stiff. New York Times loves doing articles about temporary “solutions” to capitalism like Norway’s hefty socialist model. They would’ve Nazi Germany in the 30s.
“How is RateCo discredited if it’s melamine? By people dying. No thanks.”
You’re dismissing my entire argument about private ratings companies because of that? You have nothing else to say about the idea, other than “if people die, it doesn’t work”? That’s your argument?
Okay. People die under the FDA model too. By your logic, that doesn’t work either.
No ratings agency will remove danger from the world. But they’d do better than the FDA. RateCo has an incentive not to allow melamine into the market, as do all the rating agencies. Its incentive is made even stronger by the fact that melamine is deadly, and as a rating agency RateCo would go bankrupt and possibly face prosecution, especially if there’s a conflict of interest. The FDA has no financial incentive to act in the interest of consumers, so they don’t. Rather, they rely on laws fashioned by people in Congress who are bought by companies. You act like business prudence is only after the fact, but you’re getting it mixed up. Regulatory models work that way, prudence does not.
One more thing about Norway:
The economic situation right now is still relatively new. When our government injected money into the economy, there was a temporary boom. Then it slowed. When a welfare state amps up its spending, there’s a recovery, but Norway will always be a slug in the world economy with its heavy labor and fiscal regulations.
There’s also something else that looms over this article, and that’s the relatively “modest” livestyle in Norway. The author is clearly in favor of a modest, socialist lifestyle:
“Some here worry that while a cabin in the woods and a boat may not approach the excesses seen in New York or London, oil wealth and the state largesse have corrupted Norway’s once-sturdy work ethic.”
Excesses? I think he means high standard of living.
“‘We have become complacent,’ Mr. Mork added.” Sounds exactly like what happens in socialist countries. Russia had the same problem: complacency. When the incentive for profits is taken away and government hands everything out instead, you have people working for the “common good”, and they stop working. “More and more vacation houses are being built. We have more holidays than most countries and extremely generous benefits and sick leave policies. Some day the dream will end.”
Grim. Maybe you’re cool with that, though.
Haha, oh no, not this again. Eric and I never really finished our own economic debate, and I probably agree with him more actually!
“Then you’d also call Adam Smith, Milton Friedman, and Ron Paul perveyors of propaganda, which is fine. But comparing them to pastors is a false analogy. Pastors base their teachings on faith. The articles I posted are scientific.”
Ron Paul is a follower of the Austrian school, which I myself am fond of. Although economics is 1000% more scientific than religions ever will be, the Austrian school is actually quite often attacked by critics for being non-scientific, which is actually true to a degree. Their arguments are based more on logic than math, which is what they themselves would probably argue is their strength, and it is what I like most about the Austrian school. Science is a great tool, but it cannot measure everything. That is where the Austrian school exceeds over most other economic schools. They reject classical economics view of homo economicus, and they reject socialist views that the economy can be micromanaged. Either way, it’s a rejection of the view that you can convert all the elements of the economy into numbers. A lot of economists do think they’re crazy though.
Can you calculate how many deaths are necessary to indicate that a company’s products are harmful? Probably not, which is a case for why you need regulation to stop the nonsense before it gets out of hand. The FDA may not be able to stop everything, but it probably acts a hell of a lot faster than the market to weed out the bad companies when the shit does hit the fan.
On the topic of wages though, I think there’s a perfect example of where there needs to be less regulation. 100 years ago when unions were either illegal or attacked with violence, it would have been crazy to say that, but the favor has definitely shifted. Employees should have the freedom to negotiate their wages, and employers should be free to adjust wages, but now things are shifted to one side. You don’t need unions if the government’s just going to raise minimum wage. All minimum wages do is restrict companies from creating jobs for people with no skills, since they’re not allowed to hire a person for a job that is only worth 5 bucks an hour. I’m pretty sure this is the reason why people pump their own gas these days in every state other than Oregon and NJ, why you push the buttons in the elevator, and why there’s a homeless guy outside of McDonald’s opening the door for donations and not a wage.
“RateCo has an incentive not to allow melamine into the market, as do all the rating agencies. Its incentive is made even stronger by the fact that melamine is deadly, and as a rating agency RateCo would go bankrupt and possibly face prosecution, especially if there’s a conflict of interest.”
Yeah, but companies will do that anyway if it’s profitable and nobody’s looking. Markets still don’t assure that the CEO won’t make a dumb decision and get a bunch of people sick or killed. Sure they will be sued and go bankrupt, but who is going to prosecute them if there’s no regulation in the first place. They did this back in the day, and people suffered for it, which is why the regulations came about in the first place. Unless I’m mistaken, regulations in terms of safety never made things less safe.
I gots sea shells. Anyone want to trade me a hamburger? ;o)
Man, they must serve Kool-Aid on tap at Seasteading.
Eric, people may die when the FDA makes mistakes. But these are mistakes. The purpose of the FDA is to be above the profit motive. What you’re describing is a process where you’re asking rating companies to be guided by a profit motive, and the market only reacts when people die. It’s not just about dying either. What if they have carcinogenic materials that kill people years later? No thanks. I’d rather have a regulatory agency regulate them, even if it costs me money from taxation.
Derek,
I mostly agree with what you say, except for when it comes to the minimum wage laws. I used to work a minimum wage job, and I can assure you, if management could have lowered my hourly pay, they would have. They would lower not just my wages, but the people who made a dollar more per hour than me. Especially with the big companies, employees at the bottom are just numbers. That’s the way they treat people in lower retail positions. It’s stupid and uncalled for, but that’s what happens with large retail corporations.
Bottom line is that people deserve dignity. Corporations have the money to pay people living wages. Having that work experience on my resume, I just don’t think they would. Not without government intervention. Besides, it’s not as if minimum wage is that high anyway. Asking corporations to pay $8 an hour isn’t asking much.
Derek:
Point taken on the Austrian schools being less scientific. I actually slapped my head when I wrote that. I appreciate the Austrian method for its lack of mathematics and focus on microeconomics rather than messy macro models.
“Can you calculate how many deaths are necessary to indicate that a company’s products are harmful? Probably not, which is a case for why you need regulation to stop the nonsense before it gets out of hand.”
Yes you can calculate it actually, just as they calculate what the penalty is for when a death happens on the job. They have numbers for all that stuff, and the risks would be built into the market, not arbitrarily chosen by a government board.
“The FDA may not be able to stop everything, but it probably acts a hell of a lot faster than the market to weed out the bad companies when the shit does hit the fan.”
How do you know that? It’s never been done for food safety. The closest we’ve gotten is in the organic foods market. Anyone savvy in organic foods understands that the “USDA Organic” stamp means jack sh*t. That’s why reputable organic food companies use a secondary rating agency, a private one, in conjunction with the USDA stamp. Smart consumers look for the secondary stamp when buying products. Unsmart customers are getting overpriced non-organic food out of the deal. Here’s a little snip of info from Wikipedia that can give you an idea of how useful the USDA stamp has been:
“In August 2008 the NOP announced that 15 of 30 federally accredited organic certifiers had been placed on probation for various violations of USDA organic standards.[4]”
http://en.wikipedia.org/wiki/National_Organic_Program
I’m proposing a non-regulatory model that’s profit-based so that there’s an INCENTIVE not to make people sick or kill them. Why would a ratings agency allow something like that to pass when it’s their very livelihood at stake?
Jaehwan:
“But these are mistakes. The purpose of the FDA is to be above the profit motive.”
Very naive again. The FDA, because it’s “above” the profit motive and therefore subject to the whims of congress and special interests regularly approves harmful drugs and materials entry into the market. It happens all the time with those guys. Since the FDA is “above” profit and funded by tax dollars, when they have complaints brought against them (happens often), they still stay in business! How is that okay?
“What you’re describing is a process where you’re asking rating companies to be guided by a profit motive, and the market only reacts when people die.”
No that’s wrong wrong wrong, the market reacts before they die because the ratings agency has an incentive not to approve a company’s product if it’s going to kill someone. Testing first, if pass, approval later.
“It’s not just about dying either. What if they have carcinogenic materials that kill people years later? No thanks. I’d rather have a regulatory agency regulate them, even if it costs me money from taxation.”
This is a problem with the FDA too, so I don’t see how it applies. But profit-seeking takes a long-term view at protecting customers because no successful business has a temporary model. The FDA has no incentive to protect people in the long-run, which is why they approve ridiculous, harmful drugs year after year. They always find deficiencies in the FDA, but the solution is always “let’s spend more money.” They never take a privatized approach. They keep the monopoly in power, and it sucks money from our economy.
Eric,
“The FDA, because it’s “above” the profit motive and therefore subject to the whims of congress and special interests regularly approves harmful drugs and materials entry into the market. It happens all the time with those guys.”
Okay, this is a pretty strong accusation, so I think it demands proof. Find an instance where the FDA was bought off. The FDA isn’t Congress. It’s like saying that the Supreme Court is bought by Congress. It isn’t. The separation of powers creates distance so that there is no conflict. It’s the same deal with independent prosecutors.
“No that’s wrong wrong wrong, the market reacts before they die because the ratings agency has an incentive not to approve a company’s product if it’s going to kill someone. ”
How do you know which agencies are good and which are bad? It sounds like the one which spent the most money on advertising will ultimately win.
Plus, no ratings agency without government approval will ever have the power to do what a government agency can do. “Cigarette smoking is hazardous to your health” could easily be discredited without the government seal, and without government authority to lay down the law. Just seeing that label is worth my extra tax money.
And what about the ways people do business? What would you do with the Better Business Bureau?
I know I’ve said this before, Eric, but remember two words: Empathy and Practicality.
“I know I’ve said this before, Eric, but remember two words: Empathy and Practicality.”
I’m getting really tired of your moral preaching. Four times you’ve told me to empathize, and every time I posit an argument from which you can’t find any of what you consider empathy, you just tell me to empathize again. It’s annoying. Please stop.
For an avid fan of European-style govnernments you might want to look into what they’re doing. The following paragraph is from http://www.cato.org/pub_display.php?pub_id=3905:
“European governments allow private companies that meet certain objective criteria to certify medical devices. That approach is less subject to abuse, better ensures patients’ access to devices, and could be an alternative to the malfunctioning American approach.”
While those companies are regulated, they do have to compete for market share in the certification industry. If they are perform bad work, they go out of business and/or face litigation, just as they would in my hypothetical.
Here are a few places where the FDA succumbs to special interests at the costs of patients:
- Removal of the contraceptive Dalkon Shield in 1974 due to media hype and despite all tests proving it was safe (ultimately proven safe in 1992)
- Ralph Nader’s Public Citizen petitioning the banning of breast implants in 1988, followed by the Association of Trial Lawyers of America jumping on board to win some lawsuits. “In contrast to the FDA in America, European authorities, except in France, continued to allow use of silicone breast implants. The British Ministry of Health conducted three separate studies on breast implant safety and exonerated the implants in each instance.”
- The tendency to regulate products that, if overused, will raise health-care costs in Medicare (special interest), like salt (http://www.washingtonpost.com/wp-dyn/content/article/2007/11/29/AR2007112902080.html)
- Drugmakers pushing for regulation of pharmaceuticals that, after patents expire, would turn up in the generic market, taking away from major drugmakers’ profits (http://www.usatoday.com/news/health/2005-02-07-pharmacists_x.htm)
- Pharmacists pushing for regulation of pharmaceuticals so that drugs go behind the counter rather than OTC, and this way they would have more control over patients’ health care. Cholesterol-reducing Zocor faced this, forcing people to pay an extra $25 to visit with a pharmacist (covering new costs thanks to the lobbying) rather than simply being able to buy the drug over the counter. Consumers lose, pharmacists win (same article above)
Maybe that’s enough for you, but I’m sure I could find more. There are plenty of them.
The agencies that win out in the certification market aren’t the ones who advertise more but the ones who give consumers what they want at the lowest cost.
As for cigarette smoking, that label on the cig. carton is paid for by cig. consumers, not you. The tax on cigarettes is extremely high, and the cost of that tax is enough to prevent small companies from entering the industry. Smaller companies could bring a useful component to the industry, namely the implementation of safer cigarettes that would be far more popular, but alas they can’t afford to enter due to the heavy burden of taxation.
“Plus, no ratings agency without government approval will ever have the power to do what a government agency can do.”…”What would you do with the Better Business Bureau?”
The BBB is a private enterprise, not governmental. It’s great for that very reason. There’s competition out there too like Vanno (http://news.cnet.com/8301-17939_109-10075507-2.html, http://www.vanno.com/). It’s proof of how the private system works so well. The ability for other ratings agencies to enter the market, especially thanks to the internet which lowers costs on ratings companies immensely, makes the BBB even better.
“As for cigarette smoking, that label on the cig. carton is paid for by cig. consumers, not you. The tax on cigarettes is extremely high, and the cost of that tax is enough to prevent small companies from entering the industry. Smaller companies could bring a useful component to the industry, namely the implementation of safer cigarettes that would be far more popular, but alas they can’t afford to enter due to the heavy burden of taxation.”
Thank goodness for that. The last thing I want is more companies to peddle that poison. They could use that land to grow healthy food rather than tobacco.
Anyway, I think we’ve come full circle. I’m going to continue to share common sense, and you’re going to continue what you’re doing. In the end, it makes little difference since no government will ever deregulate to the point that you’re espousing. No government is crazy enough to defy logic by taking that risk.
Although I will say that I hope Seasteading is successful with at least one new country. It would be cool just to see them succeed at that. As I said earlier, I like the idea of utopia.
Government might not deregulate (and allow ultimate personal freedom) to the extent that I talk about, but incremental steps are definitely possible. The DC voucher system was a good start…
http://reason.tv/video/show/777.html
Okay, two last questions. Public education–yes or no? Public libraries–yes or no? Just curious.
Public education: If anything, I’m all in favor of having an open market for schooling via vouchers. Then people have the choice to take their kids to public or private school, and the public schools will have to compete for the kids. Public schooling in the US is a failure, yet we keep putting money into it only to see it do worse. Refund the money, and let parents take their kids where they want.
Libraries: Subsidized information. I like free information, but libraries get shut down when cities and states cut budgets, and they end up selling them to private companies anyway. And as access to the internet get cheaper ($300 +$25/month for high-speed) libraries are losing their purpose. Their costs are usually high too since they have no financial stake in who they hire. So libraries often hire unions out of local pressure, not prudence, and their costs go up.
My main gripe with subsidized information is it’s not an improvement upon anything. Public libraries are almost always behind the curve. If it’s free information like Wikipedia, a method of information technology that everyone can copy and compete with, I’m all for it. But libraries are free information that do nothing to improve the technology. They’re simply old methods for allowing people access. So, two things happen:
1. They get extra extra funding to vie for public attendance. If attendance is low, libraries get shut down or sold, and the library unions don’t like that. So they fight for more taxpayer money (whether that means taxing the community more or not, they don’t care, it’s a special interest group in the end).
2. They stay operating despite being bad methods of information technology. Some people can’t afford internet and computers, so libraries are good for them, but how far can we go before 10 people need libraries? Fewer and fewer people NEED libraries because the alternative technology is so cheap and far more convenient (computers, cell phone access to internet, wikipedia, google). How do you make libraries worth anything if their user bases are dwindling? If ten people in the community had no access to information except the library, is it then the time to shut them down? 100 people?
There’s no easy answer to this because it’s an entitlement issue, so you then have to find out whose brains are worth funding with taxpayer dollars. If people had to pay for the information (the costs would be FAR smaller than renting videos, maybe we could have monthly fees), then libraries could compete for lower prices and raise the money for better technology. It’d be better information too. Then you could also have libraries that better reflect the wants and needs of the community. A used book store on Shattuck in Berkeley has ZERO free-market economics books. It’s no wonder. Businesses are better at responding to the desires of the community.
Another way to look at it is the fact that most book stores let you sit down for hours on end reading without having to buy a thing. Their selections are often superior to libraries, and they’ll let you drink coffee too. I see far more people at Borders on a Wednesday afternoon than at the dingy old library down the street… though I can’t actually say I’ve been to that library. It looks like the DMV and operates 7 hour days…. except WEEKENDS! Then it’s closed. Private bookstores are far better at providing people what they want than libraries are.
I have empathy for those few people who don’t have access to information, but charities exist outside of government too. People are good at heart, and they like giving so long as they have a choice to. When they’re taxed, and local politicians heroically use it to make something “free” to the public, suddenly people don’t want to be charitable anymore.
I’d like to think that libraries provide a valuable public service. If they were entirely funded via local taxation, and members of the community could vote on how the library was funded, then it wouldn’t affect me much. But my tax money partially funds libraries in Nebraska (and all other places), even if they’re bad spenders.
Thanks for responding, Eric. As usual, I disagree with both your opinion and facts, most significantly your statement that library user bases are dwinding–see here for news on libraries, here or here or here to see how the bookstores you suggest could replace them are doing. But thanks for your response.
Looks like book stores are dying out too, but that’s normal, especially when books just aren’t as popular as they used to be. Arcades mostly fizzled out for the same reason. Fortunately, good ol Wikipedia will always be there for us, Amazon.com provides great books for $3-10, there’s the Kindle, Half-priced books.com, Apple plans on releasing a reading device similar to the Kindle but in color. As for Borders, if B&N buys it, that’s fine. B&N has equally good seating, albeit worse coffee. If anything it’ll be a good time to switch to tea finally.
Alert Alert: Don’t use Zicam.
Courtesy of the FDA. See story here.