The directors/shareholders lost everything in these bailouts. The CEOs that left with a golden parachute got 10s of $millions tho.
I have a hypothetical question I like to ask people who favor socialism or communism. It goes something like this: "They build a 2 story apartment building across the street from the beach. The lower floors' views are blocked by trees, but the upper floor apartments have awesome ocean views. Who decides who gets the lower floor apartments and the upper ones?" The concept of rationing goods and services means these things are limited and someone is going to get the 1st floor. If the 2nd floor are rewards, then you have cronyism, corruption, and whatever you call it, it's no longer socialism or communism. It simply doesn't work.
Indeed, living conditions for peasants and kings in pre-capitalist societies were, and are, much more equal than under capitalism. Of course, they're more equal because they're uniformly worse. Why? It's certainly true that working conditions are pretty good in monopolized, uncompetitive industries but most people wouldn't work in such industries. So raising prices simply means the average person can't afford as much, and less competition means the expensive product they buy is unlikely to be of good quality. We're better off having much lower costs, because that tends to make things more affordable for more people.
On the bailouts, a libertarian (and I consider myself one) should note two things: * People talking about this as a "market failure" are missing the very obvious point that we weren't talking about free market companies when we talk about the GSEs, and to a large extent the regulatory schemes that created the housing bubble in general. * Being a libertarian != being an anarchist. Most of us think there are legitimate roles for government, and acting as the lender of last resort to head off an epic financial disaster is a legitimate role for government notwithstanding the fact that government actions might have been a significant cause of said disaster. The remaining question is what happens after the crises.
It all depends on your view of human nature. I would say I have a utopian view of society, so my ideals would be unlikely due to problems in society. The problem with society is that we are all trying to get one over each other. As Gracchus Babeuf said “Society must be made to operate in such a way that it eradicates once and for all the desire of a man to become richer, or wiser, or more powerful than others.” If that were the case, and the entire world/country worked together as a community, we wouldn't have the problems of poor quality goods or people driving up prices because everyone would want everyone else to be well off. Unfortunately, in the present society this is not the case, and people instead want to be better off than everyone else, for which I largely blame the media for their part in the idolisation of "celebrities" who do very little but go to parties and wear expensive clothes. Since people idolise them, they want to be like them and have all the expensive clothes etc. This isn't the case for everyone (idolisation of celebrities) but it has such a large impact on our society (why do you/your kids want those expensive clothes?) that it cannot be ignored.
I posted this over in the Religion/Politics board, but I'd be happy if everyone read it. http://freakonomics.blogs.nytimes.c...nd-kashyap-on-the-recent-financial-upheavals/ I'm just gonna post the whole thing because it's a really good article to get a handle on why these bailouts are happening:
Finally, for those wanting to talk blame, Megan McArdle has an equal opportunity smackdown of various political takes on the financial crisis:
I don't know what to think really but I had an idea today. I was thinking of sending AIG a bill for consulting work for hmmm, let us go with one million dollars. Maybe the feds would just pay me?
LOL, Doug and Anil are two former profs of mine. They're both depressingly smart--by that I mean they unintentionally make you feel like a knuckle-dragger. Doug Diamond may know more about bankruptcy than any other living economist, especially when it comes to financial institutions. Diamond/Dybvig was written almost a quarter century ago, but has stood the test of time and circumstance. Kashyap badly wants to be on The Fed, and I've never met anyone who hates inflation more. I'm convinced that he would happily suffer a deep recession/small depression to wring out every last bit of inflation in the economy. He's one of those folks that is so smart, his solutions aren't all that realistic. Thanks for the link.
De nada. That's interesting. Did Kashyap ever give a good explanation for why inflation is bad? One of my profs pointed out once that he doesn't think anyone has a really legitimate explanation for why it's bad (at low levels... obviously nobody wants Zimbabwe), and I've come to the conclusion he's probably right.
I don't think it is to change basic human nature, I believe that we need to change the way society operates. Too many things point us towards making our own life better at the expense of others, which is not the way society should be.
Depends on the tax code, right? People need a COLA to their paychecks keep up with inflation (don't lose buying power). If those pay raises bump people into the next higher tax bracket, they can end up with even less take home pay. Otherwise, I've never seen a good argument against low levels of inflation.
His basic thesis is that economies run on predictability of input costs. There are plenty of greeks to add up to calculate your risk; having a currency or inflation risk should be unecessary. Bottom line. inflation is corrosive.
So they don't teach much Knightian uncertainty there anymore? Heh, I wouldn't presume to be as sharp as Kashyap but it seems to me that inflation generally reflects unpredictable changes in the costs of inputs rather than vice versa. Of course I have little evidence to base that on
But a COLA to everyone's paycheck is inflation. If no one received a COLA, the argument goes, you wouldn't need a raise to keep up with inflation because there'd be no inflation to keep up with.
I'm not explaining myself well. When he speaks about inflation, his POV is monetary policy and money supply, not exogenous variables.
OK, this was two years ago, but it popped into my mind today as I've been mulling over a debate I've been having with a couple of my grad school friends. I'm still trying to understand the "Grim Death" fight against inflation view. In fact, I'm really trying to understand it because I increasingly see the guys who actually have meaningful stuff to say on the Fed putting forth the Kashyap via of things. From a big picture view, I get the idea. That is, a price index is composed of a basket of goods, and the prices reflect our relative average valuation of the stuff in the basket. In theory, it shouldn't matter if the basket were always valued at 100. But any price stability is an aggregate phenomenon. The basket of goods is continuously changing over time. And even if one is moderately skeptical of price stickiness, change is costly, the time value of money changes (especially as written in contracts) and the relative valuations of goods are going to shift a lot. Moderate price inflation, I'd argue, provides a certain amount of grease for these shifts in a growing economy. Without them the dislocations and various mistakes folks make are that much harder to overcome. In a nutshell, if you were to think of economic growth in terms of Schumpeter's "creative destruction" idea, mild inflation somewhat soften the destructive blows, thus allowing the creation to move forward. Without it, folks just get hammered.
