This unfortunately is ringing true to way too many people in this country:
“There is no virtue in compulsory government charity, and there is no virtue in advocating it. A politician who portrays himself as caring and sensitive because he wants to expand the government’s charitable programs is merely saying that he is willing to do good with other people’s money. Well, who isn’t? And a voter who takes pride in supporting such programs is telling us that he will do good with his own money— if a gun is held to his head.”
I’ve been reading Hank Paulson’s book, On The Brink and I now know why the Wall Street bailout happened. Hank was a Wall Street guy who thought the world rose and set on spreads and the capitalization of large banks. If you are a deal maker with a Wall Street-centric view, the world ends when the banks get into a jam. He called anyone who disagreed with him an idiot. He brought government power, as many of his Wall Street friends as possible, fear, panic, and passion to the fight to advocate that if his plan wasn’t adopted- that an apocalyptic economic collapse was inevitable.
Now I’m not so naive as to suppose that the collapse of a major bank or an insurance giant wouldn’t have far reaching impacts on the economy as a whole, but I believe those shocks fix systemic imbalances. Americans and their economy are resilient. The whole TARP and stimulus has simply kicked the can down the road and delayed the day of reckoning. I believe despite his tireless work, and belief in what he was doing, history will not judge him well.
In the future, if you don’t want a one-trick (M&A), Wall Street centric government, don’t hire an ex-investment banker to be Secretary of the Treasury. As an interesting aside, the current administration power players: Obama, Geitner, Bernake, Pelosi, Reid, Frank and the Chinese all seemed to be more prominent players than anyone in the Bush administration, who Paulson supposedly worked for.
I read Paul Krugman’s The Return of Depression Economics. To summarize my thoughts, in order of recording them:
- I liked his use of simple models, especially the Washington babysitting cooperative
- I found he was dishonest in a key point, why the cooperative ran into its recession. While he talked about money supply, he purposefully neglected the reasons for the loss of liquidity in the market: some innovative babysitters who stockpiled their coupons. I believe he did this because it would be easily apparent to the reader that the solution would be to encourage the “rich” baby sitters to use their coupons…This is essentially supply side economics which he disagrees with.
- That said, I still found that I agreed to some degree with his arguments for monetary policy, a strong contrast to the arguments of Ron Paul in End the Fed.
- I found it interesting that the U.S. / IMF / World Bank policies force debtor nations to undertake austerity measures when highly leveraged speculators force foreign currency devaluations. This is the exact OPPOSITE of what happens in the U.S. When the U.S. has economic recessions, we loosen credit. Why is this interesting? Because it allows U.S. investors to make a killing at the expense of these 3rd world countries in 2 ways: U.S. lenders are protected and speculators make off with fortunes, both at the expense of the citizens and governments of these debtor countries. It is morally repugnant.
- I found the psychology aspect of both Latin American and Asian crisis in the late 90s oddly reminiscent of the 2008-9 American recession. It is hard to get investment and growth when everyone is predicting doom and gloom. I believe the Democratic negative campaigning in 2007 and 2008 was a big contributing factor to the severity of the economic downturn.
- I found it interesting that hedge funds and highly leveraged investments were a culprit in these earlier meltdowns…the same groups that contributed to the latest meltdown.
- I like how he talked about the moral hazard of loose lending. (p. 68-69) This was a big contributor to the market meltdown of 2008.
- I realized a number of Mr. Krugman’s analogies had a zero-sum analogy that wasn’t applicable in many economic scenarios. I think abundance mentality vs. zero-sum game is a very common conservative vs. liberal mindset difference. Unfortunately zero-sum mindsets prevent most win/win scenarios and justifies interventionist policies, more regulation, and wealth redistribution.
- Finally, I liked how Mr. Krugman admitted at the time of the book’s 1998 printing the superiority of capitalism when he stated, “Who can propose socialism with a straight face?” (p. 5-6). He also noted how regulation and nationalism failed in Argentina (p. 46). He concluded that capitalism helps everyone (p.18)
I also read The World is Flat by Thomas L. Friedman. Unfortunately, it is already sadly dated. It talked about things like outsourcing, in sourcing, supply chain efficiencies, the amazing capabilities of Google, iPods, VOIP and other technologies. As a business and technology consultant, I had been making these things happen in the 2000-2004 period. While it would have been fun to see my efforts finally getting mainstream attention in 2005, in early 2010, reading about these “new trends” that are now such common occurances seem funny. In fact, when he talks about the incredible abilities of a new company called Skype that allows you free voice calls over the Internet, I have to laugh since my 6 year old was using the free Skype video conferencing serve to talk to her grandparents on a mission in Spain when she was 2 1/2. I also thought it was interesting to read that oil at $25 a barrel was “the ideal range for sustainable global growth.”
I did like the significance of 9/11 versus 11/9 (the day the Berlin Wall fell). The discussion of the Golden Arches or Dell Theories…that is countries with interwoven supply chains (or economies) are less likely to go to war. I also agreed with his assumption that we are generally better off with free and open international trade. I also liked how he emphasized the importance of culture in economic success. He noted the difference between Dubai and Saudi Arabia…a difference that resulted in palpable security and economic disparities. He also noted the differences between Mexico and China. These differences are why Mexico is rapidly descending into a drug civil war and China is miraculously growing in a global recession.
Finally, I felt his insight about dreams vs. memories was important. America needs to get back into the business of knowing what we have done well…preserving freedom and offering dreams. He mentions “hope” as a defining factor of the middle class. I think Obama read this book before running for office. Once we’ve forgotten those basics, we are in danger of losing our position as the beacon for the world.
I am now reading Henry Paulson’s book On the Brink…and I’m off to alarming start…reading how he planned to ambush Freddie Mac and Fannie Mae with a takeover in September of 2008 to avoid having the CEOs of these huge companies making calls to their powerful friends in congress and stalling the process. A scenario that he believed would destroy international confidence in U.S. markets and the dollar.
I have had some wonderfully thoughtful debates on Facebook in recent days. I have had a number of thoughts that I wanted to capture. I don’t have the time elucidate, but I wanted to capture the thoughts for a future post…
The dichotomy between the tea-party conservatives and socialist leaning liberals. The extremists emerging from both camps leave little room for compromise or thoughtful discussion.
The world views America as an oddity. We are highly religious, technological advanced, fiercely independent, and incredibly nationalistic. They have criticized that culture incessantly for the past 50 years and it seems in recent to the point that some Americans have begun to think these points are valid.
Universal literacy and shared Christain values among the founding fathers. I believe this was a prerequisite condition for the democratic republic made up of citizen legislators they founded. The fact that this does not exist in many areas of the world today and we are losing this in today’s America put our system at peril.
I caught the end of this speach on CSPAN and while Yuval Levin’s delivery was a little dry, his recitation of Adam Smith and the moral supremacy of capitalism was riveting. I wanted to add every other sentence to my list of quotes. Please watch this if you have the time:
I just completed the book America Alone by Mark Steyn. I have enjoyed Mark’s articles in the OC Register and online for many years. The book’s premise is that the Muslim faith is political in nature and fundamentally incompatible with Western political ideals of freedom. He also notes how demographics are playing in the favor of the religion and against the Western world. He makes a passionate case against those who refuse to stand up for freedom when confronted by terrorists.
I think it is worth a read, but probably just the first 3 chapters and the last 4 chapters- it does drag a little during the middle 100 pages. I am also a little torn on the premise that the Muslim faith lacks moderates and is incompatible with peace. As someone with Muslim friends of various levels of devotion, I would trust my life with them. I have read the Koran in translation and found it violent in places, but then so is the Bible. So I’m not yet ready to pronounce the religion “evil”, however, the religion is certainly being used as a justification for some horrible attrocities and extremist viewpoints seem to be moving mainstream.
It also got me thinking about various social movements that promote zero population growth. Isn’t it interesting that global warming, “pro-choice”, same sex marriage, and Malthusian policies all result in low birthrates, negative economic growth, self-loathing, and eventually extinction?
What really resonnated with me was his comments about the feminization of the West and the intellectual bankruptcy of cultural relativism. He gave multiple examples of why multiculturalism fails and some cultures are superior. As he states, “Multiculturalism was conceived by the Western elites not to celebrate all cultures but to deny their own.”
I just completed End the Fed by Ron Paul. I appreciate his passionate plea for real money. I agree with his argument about the morality of elastic money. I am still not sure if ending the Fed is necessary, but more transparency is definitely needed.
I’ve also been thinking a lot about wealth redistribution policies. Several people have explained to me how the government can play a meaningful role in helping others improve their lot in life and achieve greater security with sums that aren’t really that much when you realize it comes via small amounts from ALL taxpayers. Our economy has changed drastically in recent years and old skills and methods no longer work in today’s more complex world. While in the past I have been the type to say, “Let people suffer the consequences of their bad decisions,” I know now that many of the people suffering did not understand what would happen as a result of their actions (or inaction).
Since we all benefit when productive citizens keep their salaries, continue to spend money, have homes, aren’t forced to suffer the results of educational failures, set aside adequate reserves, or fail to avoid the siren call of immediate gratification, shouldn’t we help them avoid the damaging effects of their risky behaviors? After all, who are we to judge?
That’s why I think we need to continue to give money to the CEOs, bankers, and others who were unintentionally affected so radically in this downturn. We know that politicians are better judges of who should receive the productive fruits of our society’s labor than the free market. We should purchase the bad investments those who unwisely made them for more than they are worth (TARP), and lend these people money at below market rates so they can still make a profit even as they are forced to liquidate foreclosed homes for a fraction of the loans made against them. After all, government should provide a safety net, right? These programs only cost each American about 4,500 dollars + interest. I’m sure that knowing us taxpayers are there to bail them out will prevent them from pursuing such risky behavior in the future.
Once you agree that stealing from one group to give to another is not immoral- especially if your intentions are noble, then the means of acquisition are less relevant. It could be accomplished through fraud, exploitation, inflation, or taxation. The real problem comes when you must rely on a small group of individuals to distribute those confiscated funds. If the means of acquiring the funds is exploitation, CEOs will distribute the wealth, taxation means politicians, inflation relies on banks and politicians, and fraud and extortion is the domain of mobsters. It is not hard to imagine that the spoils will go disproportionately to those who can most benefit those in charge of allocating the monies. The poor and dispossessed seldom bring much benefit to the allocators. I don’t know that any of these groups outshines the others on the virtue scale.
Whether you are a drug abuser, single mom, free lance consultant :), banker, CEO, or blue collar worker, we all tend to think our mistakes are small in comparison to the lapses in judgments of others. It would be nice to avoid the consequences of our poor decisions, lack of effort, or risky gambles. However, those consequences are the price you pay when you believe you also have the right keep the upside of wise judgment, hard work or a successful gamble/investment. You can’t have it both ways.
So concentrate power if you must so that wealth redistribution can more readily happen, but realize those in power don’t happily give up their power. Unless you have power, don’t expect wealth redistribution to come to you. Do expect that those in power will now have more control and the rest of us will lose our liberty and security in the process.
Trust health care reform and Christmas to come at the same time. It has been 24 hours of deep thinking in front of the fireplace.
Free lunches. We all want them, but the old addage that there is no such thing is still true today. The desire to get something for nothing is extremely enticing. It drives the economy of city about 2 hours south of where I currently reside (Las Vegas). However, we must all pay the piper eventually. Consequences always follow actions, even if they are oft times delayed.
Charity. It is the purest form of love and never fails. It warms hearts and inspires the love and loyalty of giver and recipient alike.
I have been on both sides of free lunches and charity. I am convinced that understanding the difference is the key to life and economics.
Free lunches are usually “sold” to us. Free lunches come in the form of teaser interest rates, a free sample, or no payments for a full year. They are never truly free. Charity on the other hand, often comes unexpected, sometimes anonymously and without strings attached.
Business is about using human ingenuity to create something of more value than its component parts. The excess value accumulates to those whose inputs contributed to the enterprise, be they capital, inputs or labor. The desire to accumulate wealth is a powerful incentive for innovation and hard work.
Charity is using your own means to help another. It assumes that no material benefit will be derived from the exchange. True charity expects nothing in return. Charity is about forgiveness.
Sometimes well meaning individuals try to mix the two. It always ends badly. It leaves the giver jaded and the receiver bitter. Cynicism and anger displace good feelings. Examples of this misguided thought process include inflated grades where teachers end up complaining about entitlement mentality and students complain about lousy educations. Artificially low mortgage rates eventually result house prices out of reach of the working class, banks too big to fail, housing markets plagued in high foreclosure rates, and displaced families. High salaries and the inability to fire or lay off employees dictated by government mandate results in destroyed shareholder value, frustratingly incompetent leaders, and jobs being moved overseas. Market truths are obfuscated and opportunities to take corrective actions are missed.
In my opinion, politics has become about mixing charity and business and providing free lunches. Well meaning individuals are destroying business by trying to making them act like charities. Their proposed rules dictate irrational prices and encourage wasteful behavior. Logic dictates that we will see its devastating consequences in the coming years as reality cannot be bent and illusions cannot be maintained. Bubbles always pop- Tulips, Internet Stocks, Real Estate- and people left holding the bag suffer. We should not seek to prolong bubbles, but strive to get back to solid ground where truth and transparency mean that real value is created, bought and sold.
Mises said, “The flowering of human society depends on two factors; the intellectual power of outstanding men to conceive sound, social and economic theories AND the ability of these or other men to make these ideologies palatable to the majority.” (emphasis mine) The ideology of welfare and socialism is easier to sell since it is based on the majority getting something for free. It was successfully used by Pol Pot, Stalin, and Mao to gain their power. Nationalism, blind faith and the pursuit of short terms profits can also be easier sells than reason. One only needs to look to the Nazis, Al Queada and Enron for powerful examples.
I recognize my limits in the salesmanship department. The masses prefer titles like Rush Limbaugh is a Big Fat Idiot and Arguing with Idiots to titles like The Innovator’s Prescription and Human Action. However, libertarians need to borrow some pages from popular media without abandoning the truth or they risk losing their country to groups competing to use our tax dollars for their own self interest or misguided economic policy. Do any libertarians out there have suggestions? Please let me know.
I’ve been reading HR3590 and analysis of its impact. It is a disaster.
We all agree America needs healthcare reform. We as a country are the Titanic heading towards the iceberg that will bankrupt many of us individually and the country as a whole unless we can decrease the cost of care. The lucky thing is that we can see the iceberg ahead. Innovations are emerging that could significantly reduce the cost of care. Unfortunately, microeconomics and the effect of regulation on prices are classes that the 60 Senators who voted it for have either not taken, or don’t care.
Analysis by the CBO place the cost of the proposal to taxpayers in trillions. (Yes, with a “T”) It suggests that, “Average premiums per policy in the nongroup market in 2016 would be roughly $5,800 for single policies and $15,200 for family policies under the proposal, compared with roughly $5,500 for single policies and $13,100 for family policies under current law.” It would incent employers to drop coverage of their employees resulting in 10 million new uninsured workers. Now that is progress! With decreases in reimbursements to doctors, we are sure to have fewer Primary Care Physicians than today’s already dangerously low numbers. Costs are expected to escalate. Get used to expensive coverage without care. The “right” to be put on a waiting list is not better healthcare. Even the New York Times agrees.
It was such great legislation that bribes were required to get it passed. Certain states will get federal funding or get boondoggle projects. Preferred companies in those states will be exempt from certain provisions. It is a real look at what politics is about- special interests.
While we can take evasive manuevers to avoid hitting the iceberg, this bill will only increase the speed of the boat and determine the order that passengers will get into life boats.
It is Christmas Eve…so family comes first, but time permitting, I’ll show why if you thought you might get a free lunch from this piece of legislation, you will be sadly disappointed.