| Wednesday, November 12, 2008 |
 |
Who Owns The West?
By Paul Hsieh @ 12:28 AM   
This map shows clearly how much of the Western US is owned by the federal government:The United States government has direct ownership of almost 650 million acres of land (2.63 million square kilometers) - nearly 30% of its total territory. These federal lands are used as military bases or testing grounds, nature parks and reserves and indian reservations, or are leased to the private sector for commercial exploitation (e.g. forestry, mining, agriculture). They are managed by different administrations, such as the Bureau of Land Management, the US Forest Service, the US Fish and Wildlife Service, the National Park Service, the Bureau of Indian Affairs, the US Department of Defense, the US Army Corps of Engineers, the US Bureau of Reclamation or the Tennessee Valley Authority.
This map details the percentage of state territory owned by the federal government. The top 10 list of states with the highest percentage of federally owned land looks like this:
1. Nevada 84.5%
2. Alaska 69.1%
3. Utah 57.4%
4. Oregon 53.1%
5. Idaho 50.2%
6. Arizona 48.1%
7. California 45.3%
8. Wyoming 42.3%
9. New Mexico 41.8%
10. Colorado 36.6% The following thought then occurred to me. One day, the US is going to face a financial crisis due to the insolvency of Social Security that will make the current mortgage crisis look like chump change in comparison. And everyone who advocates privatizing Social Security also points out that there would be huge transition costs.
So the question is whether those costs (or overall transition costs of moving from the current mixed economy to a fully consistent system of laissez-faire capitalism) could be covered by selling off those Federal lands? It might conceivably have to be done in stages to avoid depressing the market by dumping all that land on the market at once.
But there is something appealing about the idea of paying for the transition costs of privatizing our economy by a method which also privatizes a big chunk of US government assets.Labels: Cool, Economics
|
| |
 E-mail Paul Hsieh
 PermaLink ( )
 Comments [24] (New Page)
|
|
| Thursday, November 06, 2008 |
|
The Future of Social Security?
By Paul Hsieh @ 12:06 AM
One of the slowly-simmering issues I try to follow is the future of Social Security. Eventually, the current Ponzi scheme is going to go bankrupt, and right now there's no morally principled reform on the horizon. So one big question is what sort of response to this brewing problem can we expect, given the current political and cultural climate?
Last week, there were a couple of high-profile news stories that indicate which way we'll be headed. And it's not a pleasant picture.
First, there was a 10/22/2008 Wall Street Journal story about the Argentinian president's attempt to nationalize their current private retirement accounts:"Argentina Makes Grab for Pensions Amid Crisis"
...President Kirchner painted the move as an attempt to help workers weather the financial crisis. The value of private retirement accounts in Argentina has probably fallen in recent months due to a declining stock market, economists say. President Kirchner said in a speech: "The main member countries of the [Group of Eight] are adopting a policy of protection of the banks and, in our case, we are protecting the workers and retirees."
Buenos Aires economist Aldo Abram, among many other economists, wasn't buying that argument. "They were in a tight situation and this was an accessible source of funds," he said.
The step requires approval of Congress, where the governing Peronist party has a majority. Opposition leader Elisa Carrio vowed to contest it, saying, "The government measures aren't designed to better the retirement system but rather to plunder the funds of the retirees." The current financial crisis is being used as a pretext to confiscate that money, in the name of "protecting" the Argentinian workers. Of course, in reality it's just a way for a bankrupt government to attempt to steal enough money to keep going for a little while longer.
The second story was from the 10/23/2008 issue of US News & World Reports on a proposal to nationalize private 401(k) retirement plans in the US:"Would Obama, Dems Kill 401(k) Plans?"
House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created "guaranteed retirement accounts" for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return. By taking over this huge pot of private 401(k) retirement money, but promising to pay out only a pittance to the nominal "owners", the government would (quite literally) make out like bandits.
Although this is just an academic proposal at the moment, these ideas have a way of leaping from academia and think tanks to the floor of the US Congress in a surprisingly short period of time.
Several of my friends and co-workers have independently told me that they fear that their own private retirement money will no longer be available to them by the time they retire. (They already recognize that Social Security won't be). The government might not engage in a complete confiscation this private money. Instead, they might use an indirect approach, such as imposing, say, a 40% tax on any balance over $1 million on 401(k) accounts. That way, it would only harm evil "millionaires", whom the government would claim could easily afford such a tax.
Or it might be mandatory conversion of private 401(k) accounts into government accounts as proposed by Ghilarducci, where the government would then control which retirees could receive any money, and how much.
Another less likely possibility (which some libertarian groups advocate) is that the government might propose some sort of faux-privatization scheme, in which our current Social Security system was replaced by a system of "private" accounts (but still heavily regulated by the government). In that case, there is still the worry that current 401(k) plans would have to be folded into these new accounts (in the name of "efficiency"). Such a pseudo-privatization would merely gives the government more control over private assets, not less. Hence, this would still not protect Americans from the possibility of confiscatory taxation of those nominally "private" accounts -- not if there were political and economic pressure to do so, as I predict there will be.
Given that (1) there are lots of working Americans who will not have saved enough for retirement, and (2) there will not be anywhere near enough Social Security money to pay for these people, the gloomy scenario predicted by my friends may not be too far-fetched.
Furthermore, I predict that many statists will argue that the need of those who didn't save outweighs any alleged claims of "right" to the money by those who actually did save, and that the savers have an obligation to bail out the non-savers. This would be the predictable end result of the altruist morality that is too-prevalent in our culture.
Based on numerous conversations, those who have been responsible and who have saved enough money for their retirements are understandably angry at the prospect that they will be punished for their frugality in order to reward those who didn't exercise proper long-range thinking and failed to save when they could have.
What they need is the moral sanction to be told that this money is rightfully theirs and that it's therefore wrong for the government to steal their money to give to others.
Most of society won't give them that sanction. Objectivists will.
Hence, the purpose of this post is two-fold: (1) I want to put this issue on more Objectivists' radar, since I predict it will heat up over the next several years. (2) I want Objectivists to be prepared to give the virtuous people (i.e. the savers) their moral sanction at that point in time in the future when they'll be needing it the most.Labels: Economics, Politics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [60] (New Page)
|
|
|
Mackerel Economics
By Paul Hsieh @ 12:10 AM
According to the October 2, 2008 Wall Street Journal, the unofficial prison currency in the US is no longer the cigarette, but rather the mackerel:There's been a mackerel economy in federal prisons since about 2004, former inmates and some prison consultants say. That's when federal prisons prohibited smoking and, by default, the cigarette pack, which was the earlier gold standard.
Prisoners need a proxy for the dollar because they're not allowed to possess cash. Money they get from prison jobs (which pay a maximum of 40 cents an hour, according to the Federal Bureau of Prisons) or family members goes into commissary accounts that let them buy things such as food and toiletries. After the smokes disappeared, inmates turned to other items on the commissary menu to use as currency.
...[T]he mack is a good stand-in for the greenback because each can (or pouch) costs about $1 and few -- other than weight-lifters craving protein -- want to eat it. It's interesting that these prisoners understand the need for a stable objective medium of economic exchange far better than the US government which is incarcerating them, even though few of those prisoners have studied articles such as, "Gold and Economic Freedom" in Capitalism: The Unknown Ideal which explain the importance of a gold standard.
In light of the recent Wall Street bailout inflicted on us by government officials based on bad economic theories, here are a couple of conclusions one might draw:1) Perhaps it's the US economy that is based "fishy" premises, not the prison economy.
2) Perhaps more US government officials need to spend some time in a federal penitentiary -- they may learn an important lesson about sound money (as well as some well-deserved lessons on other subjects.) (Via Marginal Revolution.)Labels: Economics, Finance
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [12] (New Page)
|
|
| Monday, October 20, 2008 |
|
Getting Rand Wrong
By Brandon Byrd @ 12:01 AM
As someone who takes ideas seriously, I've always found it frustrating when philosophers take it upon themselves to offer judgments on subjects they haven't bothered to devote serious time and attention to studying. The charge that philosophers (academic or otherwise) sometimes judge where the epistemically virtuous would fear to comment isn't new. (For instance, it isn't rare to hear someone claim that speculation from the philosophical armchair is a poor method of settling some contentious issue.) What makes this phenomenon -- the venturing of unwarranted opinions -- especially pernicious in the case of philosophers is that philosophers are supposed to be the guardians of rationality, revering the mind by sacrificing hasty conclusions at the altar of the well-formed argument. Philosophers are supposed to love wisdom and shun mere belief; when they make assertions that betray culpable ignorance, they sin against their profession as well as the truth.
I don't know what it is about Ayn Rand that makes many philosophers think they can get away with saying whatever they damn well please about her without having studied her work carefully and honestly. I suspect that the real explanation has less to do with Rand and more to do with personal biases on the part of her critics. But whatever the cause, the phenomenon is nevertheless real. It isn't just that many philosophers dislike Rand. We philosophers are an opinionated bunch; we dislike all sorts of things. Rather it's that many philosophers will attribute all sorts of nonsense to Rand without actually considering what she has to say.
To offer an example, below is a passage from Rosalind Hursthouse's On Virtue Ethics. This work, published relatively recently by Oxford University Press, is intended to be used as a textbook on, unsurprisingly, virtue ethics.
"We can interpret Thrasymachus, and more obviously Nietzsche and Rand, as saying that, rather like hive bees, human beings fall, by nature, into two distinct groups, the weak and the strong (or the especially clever or talented or 'chosen by destiny'), whose members must be evaluated differently, as worker bees and the drones or queens are." Um... what? Anyone with even a cursory familiarity with Rand's ideas will realize that she believes no such thing. Rand's philosophical anthropology -- her theory of human nature -- does not recognize a distinction between types of human beings. Her ethical theory evaluates individuals on the basis of their choices, not their unchosen attributes, and she appeals to a univocal standard of moral evaluation -- not to distinct standards for distinct types.
Hursthouse does not provide any sources that might justify her 'obvious' interpretation of Rand's philosophy. But this totally wrongheaded interpretation of Rand was good enough for her editors and peer reviewers at OUP (as well as the numerous philosophers who gave her editorial comments on the final manuscript). Apparently that group of distinguished professors found nothing objectionable in Hursthouse's characterization of Rand. Of course, realizing Hursthouse's error would have required reading Rand.
(On a grimly ironic note, the above passage comes from chapter 11 of On Virtue Ethics. The chapter title? "Objectivity.")
Hursthouse isn't the only person who presents Rand's views incorrectly in a way that betrays ignorance. Chandran Kukathas's entry on Rand in the otherwise excellent Routledge Encyclopedia of Philosophy is another example. No, Kukathas... Rand didn't think that integrity was "at the root of the idea of freedom," her "real concerns" were not "the defence of the value of integrity (to the point of self-sacrifice) in the face of evil and moral despair," and The Virtue of Selfishness was not a novel.
So far, we've seen a philosopher attribute views to Rand that she 'obviously' didn't hold, and we've seen another philosopher misunderstand the fundamentals of Rand's politics and misconstrue her central concerns. But Gerald Dworkin, a professor of philosophy at UC Davis, has recently exemplified yet another way of getting Rand wrong: saying that her ideas lead to catastrophe.
The forum in which Dworkin makes this charge is Leiter Reports: A Philosophy Blog -- a blog featuring "news and views about philosophy, the academic profession, academic freedom, intellectual culture... and a bit of poetry." The blog is run by Brian Leiter, currently John Wilson Professor of Law at the University of Chicago, and Director of Chicago's Center for Law, Philosophy, and Human Values. Leiter is also the editor of The Philosophical Gourmet, which ranks the top philosophy departments in the English-speaking world. I read Leiter Reports semi-regularly, as it is a good source of professional news related to academic philosophy (faculty hires, moves, deaths, retirements and whatnot). In addition to this valuable material, the blog also features occasional leftist cultural commentary of more dubious value. Of extremely dubious value is Dworkin's post "Blame it on Ayn Rand" in which he claims Rand is a cause of our economic troubles. Dworkin doesn't really provide much of an argument for this claim, so I'll attempt to provide him with a charitable reconstruction (a courtesy I'm not so sure he deserves... but for the sake of argument...).
Dworkin quotes a recent New York Times article on Greenspan's involvement in the current financial crisis. (That article seems to get Rand wrong too; Rand didn't have "a resolute faith that those participating in financial markets would act responsibly" but that's beside the point.) The article implies that Greenspan's positions on regulation -- specifically the regulation of derivatives markets -- were causally relevant factors in producing the recent financial crisis. Why did Greenspan hold his positions on regulation? Here, Dworkin invokes Keynes:
"...the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back." (I can't resist noting that Rand held a similar view to Keynes about the importance of philosophy in history, though her insight was deeper than Keynes. Rather than viewing history as being primarily driven by political philosophy, Rand viewed metaphysics and epistemology as being much more influential. For more on Rand's insights here, consult the title essay of For the New Intellectual, as well as the title essay of Philosophy: Who Needs It. Peikoff develops Rand's insights on the philosophical motor of history in Ominous Parallels, the epilogue to Objectivism: The Philosophy of Ayn Rand, and in his forthcoming book on how epistemology shapes society.)
Greenspan was a student of Rand, and Rand argued for the principled separation of the state and economics, and thus for an absence of government interference in voluntary economic exchanges. She was a categorical opponent of governmental regulation in financial markets. Greenspan opposed regulation of derivatives markets. The current financial crisis was supposedly brought on by an absence of regulation in these markets. Thus Dworkin claims that Rand is "an important cause of the catastrophe we are in."
Let us examine this argument.
This argument gets its force from the claim that Greenspan was practicing what Rand preached. In an update to Dworkin's post, Leiter snarkily remarks that "Greenspan was not only a friend of Rand's, but a lifelong devotee of her ideas and her 'philosophy,' such as it is." While it is true that Rand and Greenspan were friendly toward one another, it is demonstrably false that Greenspan was "a lifelong devotee of her ideas." It doesn't take a hell of a lot of legwork to discover this; thanks to Google, I didn't even have to leave my armchair.
In The Age of Turbulence, Greenspan's recent autobiography, Greenspan discusses the important formative influence Rand had on his intellectual development. In his discussion, he talks about how Rand encouraged him to look beyond mere economic data and more deeply into the values and ideas that move history and influence human action (including economic action). She was credited with broadening his perspective on the world and helping him reject logical positivism. He even describes himself as "writing spirited commentary for [Rand's] newsletter with the fervor of a young acolyte...". But this enthusiasm was not to last; Greenspan's autobiography claims that Rand's philosophy has inherent contradictions, and that his "fervor receded."
So Greenspan isn't an Objectivist. His policies, as we shall see, reflect this fact.
We're in the midst of a recession, teetering (some might say) on the precipice of a depression. What were Rand's views about recessions and depressions? Well, Dworkin doesn't say. His blog post doesn't even bother to discuss which of Rand's ideas were supposed to get us into this mess. He doesn't explicitly discuss her ideas at all. If one consults Rand's Capitalism: The Unknown Ideal to discover her views on the causes of recessions and depressions, one is directed to the works of Ludwig von Mises. It is important (for getting Rand right) to recognize that while Rand found Mises's economic analyses convincing, she had substantial philosophical and methodological disagreements with him. Mises was a Kantian who viewed economics as a primarily deductive enterprise (and thus was inclined toward epistemological rationalism). He also attempted to do economics in an ethical vacuum, divorcing economic analysis from any underlying normative framework. Rand, of course, rejected Kantianism, rationalism, and a strict division between morality and economics. But despite his errors, Rand thought that Mises's economic theories represented a significant achievement.
At this point, I don't want to provide a lengthy, detailed summary of Mises's views on the business cycle. I may write something in the near future about the causes of our current economic woes, but I'll hold off for now. The following short summary should provide a general indication of the economic views Rand found most convincing.
The most salient aspect of the Austrian theory of the business cycle is that implicates central banks as the fundamental cause of depressions and recessions. Ah! The plot thickens! Wasn't Greenspan the head of our central bank? He was indeed. How do central banks cause recessions?
In a free market, the interest rate (the price of money) is determined by the law of supply and demand. Roughly, the supply of loanable funds that banks have (our savings) determines the interest rate, when taken in conjunction with the overall demand for money and the riskiness of potential debtors. Central banks, such as the Federal Reserve, distort this market mechanism by setting artificially low interest rates (interest rates below the market rate). What happens next? I defer to Wikipedia:
Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable "monetary boom" during which the "artificially stimulated" borrowing seeks out diminishing investment opportunities. This boom results in widespread malinvestments, causing capital resources to be misallocated into areas which would not attract investment if the money supply remained stable. A correction or "credit crunch" -- commonly called a "recession" or "bust" -- occurs when credit creation cannot be sustained. Loose monetary policy by central banks leads to people taking on more debt than they otherwise would. Artificially low interest rates allow more credit to be extended to risky borrowers. In our current case this lead to skyrocketing real estate values, since there was an increased demand for houses (made possible by banks extending credit to more and riskier debtors). This effect is obvious enough in the case of commercial banks, which more than doubled the amount of real estate loans they made (thus allocating large amounts of resources into the real estate market -- allocations that wouldn't have occurred in a free market for money and credit.
And then there's the welfare state. Don't let's forget about Fannie and Freddy. The former is a holdover from the New Deal; the latter is a "government sponsored enterprise" created by the Emergency Home Finance Act of 1976, and designed to increase home ownership. Both of which did their part to screw us all by spurring on the housing bubble... and they were able to borrow money at a (de facto, if not de jure) subsidized rate in the marketplace because the public viewed them as being low risk (since the state would presumably bail them out, should the need arise).
All of a sudden, everyone's in debt and no one wants to lend. Small wonder. Small wonder that risky investors are defaulting on their mortgage payments. Small wonder that the derivatives markets are screwing up (I'd argue that we can only make sense of the kerfuffle in the derivatives market in light of monetary policy). Small wonders that major financial institutions are losing their credit rating because they took on too many risky debtors.
We frequently hear that that the market got drunk. What was it drunk on? Cheap credit. Who was the man behind the bar? You can probably guess.
In May of 2000, the Fed Funds rate was 6.5%. By June of 2003, Greenspan had slashed it to 1%, and it stayed there for more than a year (and remained ridiculously low for much longer). Would Rand have found this type of monetary policy commendable (or even tolerable)? Of course not. She'd read her Mises. Moreover, she regarded central banking as morally repugnant and politically unnecessary.
There's much more to be said about our current credit crunch and how to evaluate it in light of Rand's moral and political philosophy. But it should now be evident that Dworkin (and Leiter) are wrong on all counts. They were wrong about Greenspan; they were wrong about Rand. Their errors on these subjects betray a culpable ignorance. One needn't do much research to figure out Greenspan's real views on Rand, or Rand's views on economics. Twenty minutes with Google and Wikipedia would probably have gotten the job done. If a philosopher is going to assert, in a public forum, that another philosopher's ideas lead to disaster, then they have an obligation to carefully consider that thinker's ideas, to understand them, and to show how (in practice) they would result in catastrophe. When a philosopher fails to do that, they do a disservice not only to the thinker they criticize, but also to the truth, to their profession, and to themselves.
Academic philosophers often get Rand wrong. They often have only themselves to blame.Labels: Academia, Economics, Ethics, Finance, Objectivism, Politics
|
| |
E-mail Brandon Byrd
PermaLink ()
Comments [48] (New Page)
|
|
| Friday, October 17, 2008 |
|
Two Cheers for Divided Government
By Paul Hsieh @ 1:06 PM
There's been a lot of buzz on the blogosphere lately regarding this chart in the October 14, 2008 New York Times showing that since 1929, the stock market has done far better under a Democratic President than a Republican President (even if you exclude the Herbert Hoover years).
The annualized rate of return under Democrats was 8.9% where as under Republicans was 4.7% (excluding Hoover) and 0.4% (including Hoover).
However, this article in the Wall Street Journal shows that although the figures are true, the stock market has actually done best under a divided government -- and specifically when the President is a Democrat and the Congress is Republican.
This makes sense to me. Under a divided government, each party tends to moderate some (although not all) of the worst excesses of the other party. Furthermore, a divided system seems to work better with a Republican Congress restraining a Democratic President, rather than the other way around. For a variety of reasons, Republicans are better in the opposition than in power and will then sometimes even fight for fiscal responsibility. On the other hand, when we've had a Republican President and a Democratic Congress, the President often tries to be "more altruist than thou" in outspending the Democrats, so as to avoid looking mean and selfish.
Yaron Brook once said that we've seen the least growth in government when we've had this pattern of divided government with a Democratic President and Republican Congress. It's good to know that this also is the best combination for the stock market and economic growth.
Unfortunately, it seems pretty unlikely that we'll have that particular combination in 2008. But depending on how the next 2 years turns out, we could easily see this relatively desirable combination in 2010 (just as Democratic control of both branches in 1992 turned into the "better" divided government in 1994.)Labels: Economics, History, Politics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [14] (New Page)
|
|
| Thursday, October 16, 2008 |
|
New Web Site: Repeal the Bailout
By Diana Hsieh @ 1:17 PM
A most welcome message from Tony Donadio, posted to OActivists last week:
In response to last week's passage of the financial bailout legislation, I've taken the liberty of acquiring the domain name repealthebailout.net and creating a rudimentary website. It can be found here:
www.repealthebailout.net
Right now, it's more or less just a skeleton, consisting mainly of links to various articles on the subject. However, I have a strong suspicion that last week's bailout isn't the last one we're going to be facing, and that the website may continue to be relevant for some time to come. I plan to try to update it steadily as my (unfortunately limited) time allows, both with original material and with new and timely links.
I'm interested in feedback and thoughts on what I've (hastily) thrown together so far, so please feel free to respond to me (preferably directly, so as not to clutter the list) if you have any. I'm also interested in new and useful links as well as original contributions if you have any to offer or suggest.
Thanks -- Tony Donadio Tony has done a fantastic job with Repeal the Bailout. Kudos to him! Please do point people to it in any writing you do about the financial crisis, e.g. in e-mail discussions, comments on news stories, comments on blogs, and the like.
Such small sites focused on some current issue -- like my even smaller Vote No on 59 -- are relatively easy to create, maintain, and promote. They can get a steady stream of search traffic, as shown by the stats of No on 59. (See the visits and referrals.) They're an effective and enduring form of activism for just a few hours of your time.
Notably, because of Vote No on 59, Ari Armstrong was interviewed by the local news for a segment on Amendment 59 on Tuesday. It was shown at 5:30 and again at 9:00; you can watch it here. (The reporter called me due to the web site, and I pointed her to Ari, as he's more knowledgeable than me.) That's an unusually good result, but certainly possible in a busy election season! In the meantime, over 100 interested Colorado voters each day are reading why they should vote "No" on this permanent tax hike.
You can make a difference -- if you speak out!Labels: Activism, Economics, Finance, Politics
|
| |
E-mail Diana Hsieh
PermaLink ()
Comments [8] (New Page)
|
|
| Wednesday, October 15, 2008 |
|
In Defense of Speculators and Short-Sellers
By Paul Hsieh @ 1:41 PM
Amit Ghate defends speculators and short-sellers in this excellent OpEd from the Ayn Rand Institute. Here's an excerpt:...So just as doctors specialize in identifying and evaluating the facts affecting health and disease, speculators and short-sellers specialize in identifying and evaluating the facts pertinent to market prices. They make it their business to understand economic facts like supply and demand, and then risk their capital on their judgment, properly profiting if they're right and losing if they’re wrong. Thus in a free market, rather than prices being set by wish or decree, they are set by a rational process, one which benefits from the knowledge of all who participate.
For instance, if speculators believe that future oil supplies won't match demand, they buy oil, increasing its price. If they're right, and oil prices continue to increase, they sell their positions, profiting from their insight but also capping prices as their supply comes to market; furthermore, their initial effect on prices signals to the market that greater oil supplies are needed and reduced oil consumption is appropriate -- efficiently allowing market participants to adjust their actions to the facts.
So too for short-sellers. If they judge that Enron is cooking the books, or that Lehman is insolvent, they can seek to profit from their insight by short-sales. These lower stock prices in the present and convey to the market that there are potential problems with the companies, helping others avoid losses in the stocks. And if shorts are proved correct, rather than exacerbating any price slide, they actually mitigate price declines when they buy their positions back. (Of course, short-sellers, like speculators, only profit if their judgment is correct. If they short a productive, undervalued firm, say, e.g., Wal-Mart or Apple, they lose when the actual facts belie their predictions.)
...Speculators and short-sellers don't create facts, they seek to identify and respond to them; and in the process they help adjust prices to economic conditions and establish smooth and liquid markets. As a result -- instead of being scapegoated and banished--they should be respected and welcomed for the productive role they play in our markets. Labels: Economics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [4] (New Page)
|
|
| Tuesday, October 14, 2008 |
|
LTE about Ayn Rand in The Telegraph
By Paul Hsieh @ 5:00 PM
The October 14, 2008 edition of the UK paper The Telegraph printed the following letter on Ayn Rand and Atlas Shrugged (towards the bottom of the page):Sir - Ayn Rand has been mentioned several times in your pages of late, but it is startling how prescient was her novel Atlas Shrugged.
There is the socially responsible banker who went bust because he gave loans to those who needed them, rather than to those who could afford them. There's the government regulation and takeovers to ensure that failed businesses keep going.
There's the unthinking desire to cling on to "stability", and the consensus that it is a global problem and everyone must pull together for the common good.
All is in denial of reality, a rejection of reason. Result: the rational is distrusted; men are guilty of being "unfair" if they value competence and "unfeeling" if they refuse to indulge failure. The individual is subordinated to the national, and the national to the international.
If Rand was right thus far, what of the years ahead? Perhaps the motor of the world is stopping.
Iwan Price-Evans, Enfield, Middlesex The big question is whether our version will have the same happy ending or not...Labels: Economics, History, Literature
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [9] (New Page)
|
|
|
A Slender Silver Lining to the Bailout?
By Paul Hsieh @ 2:02 PM
Although the economic crisis and subsequent bailout are going to be painful for our country, there may be a very slender silver lining -- namely that the loss of money will likely derail some plans for more big government programs.
Here are a two recent examples, one in health care and the other in "green" legislation:"After Bailout, What Will Health Reform Look Like?"
A growing number of experts have abandoned all hopes of major health reform. "The bailout makes it that much tougher, because health care will be crowded out by other issues," said Drew Altman, president and CEO of Kaiser Family Foundation... And,"Efforts on global warming chilled by economic woes"
The economic free fall gripping the nation may bring down one of the main environmental objectives: capping the greenhouse gases that are blamed for global warming. ...[T]he focus on stabilizing the economy probably will make it more difficult to pass a law to reduce carbon dioxide and other greenhouse gases. At the very least, it will push back when the reductions would have to start. These stories suggest that even if a President Obama and a Democratic-controlled Congress wanted to implement these bad ideas, they probably wouldn't be able to do so immediately, purely because of cost.
(It was similar economic constraints that stopped California from imposing "universal health care" at the state level last year, even though the Democratic state legislature and Republican Governor Schwarzenegger were both strongly in favor of it.)
Obviously, this would just be a temporary reprieve -- the liberals' underlying bad ideology has not changed. And I fully recognize that there are plenty of other bad laws that both the Left and the Right could propose (such as restrictions on free speech) that wouldn't require much money to implement.
But the economic downturn could buy us a little more time to continue the fight for good ideas. Let's not waste it...
Update: This New York Times column by David Brooks argues the opposite -- that an Obama admininistration would use the financial crisis as the pretext for massively increased government spending, despite the fact that the country will not be able to afford it.
Either way, I think we'll have our work cut out for us...Labels: Activism, Economics, Finance, Politics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [5] (New Page)
|
|
| Monday, October 06, 2008 |
|
We Are All Venezuelans
By Gina Liggett @ 1:40 AM
There's a Barney Frank before, and a Barney Frank after. No, the pork-belly king hasn't gone on a diet. But Americans probably will have to go on one, now that the $700 billion bailout has been hastily rammed down the country's throat.
All I can say is, "Bad, Bush!" "Bad, Barney!" for taking such a hard left turn to the land of socialism when they were warned about the crisis in the housing markets years ago.
Furthermore, "Bad, Democrats!" for blaming the whole thing on the Republicans, when the Clinton administration helped stage the inevitable fallout by legislating irrational lending to facilitate home ownership among people who otherwise wouldn't qualify.
And "Bad, Bolivia!" "Bad, Brazil!" for blaming the whole financial crisis on capitalism.
Dr. Yaron Brook, director of the Ayn Rand Institute, provides a good explanation of the real underlying causes of the biggest financial threat to this country since the Great Depression. This whole greasy mess is a direct consequence of a conglomeration of governmental initiatives such as: artificially-low interest rates set by the central planners at the Federal Reserve; politically-motivated lending standards set by the social planners in Congress; and the artificial profit opportunities created by the financial planners at Freddie and Fannie and the SEC. It is a conspiracy of irrational market manipulations that preclude any corrective forces that would have kicked in long ago in a truely free-market.
At some point, the houses of cards had to fall down. And now we're stuck with a botched emergency Financectomy performed on Wall Street's bleeding wallet by a panic-stricken Treasury Secretary, President, and Congress.
And it doesn't matter who takes over the care of this patient in November because both candidates were right there in the operating room agreeing with the chief surgeon's basic care plan. And both blamed the crisis on some entrenched greediness of businessmen.
Hugo Chavez must feel vindicated. He even says that it's so bad over here, America needs a new Constitution to free itself of the tyranny of big banks and corporations.
Thanks for the advice, Hugo, but I think the Constitution--even with its flaws--is pretty good already. It's just that our leaders don't like to follow it. It's like they've missed the whole essence of it. Ayn Rand clarifies that the "Constitution is a limitation on the government...(it is) a charter of the citizens' protection against the government."
While Hugo confuses American political power with the economic power of our quasi-capitalist system, he hasn't missed the chance to enhance his own economic power by exercising his monopoly on political power in Venezuela. And America has been inexorably following suit.
This bailout is just the latest in a long string of Venezuelanesque growth in government: from Medicare/Medicaid/FDA...to public schooling... to Social Security...to limitations on abortion..to special programs this..to special programs that...to subsidized industries in agriculture/autos/airlines/Savings and Loans....and now to the big kahuna bailout of October 3. The greed of capitalism? I don't think so.
But if we did follow Hugo's advice and make a new Constitution, maybe it should start with, "We The People of the United States, who don't want our freedoms mucked up by a bunch of central planners in Washington, want a Constitution that really means it when we say limited government..."Labels: Economics, Finance, Politics
|
| |
E-mail Gina Liggett
PermaLink ()
Comments [10] (New Page)
|
|
| Friday, October 03, 2008 |
|
Hsieh LTE on the Bailout
By Paul Hsieh @ 10:34 AM
The September 30, 2008 Denver Post did publish my LTE on the proposed bailout, but only in the online edition, not the print edition. (All of the LTE's on this topic were online-only.)
It's the second LTE on the page:The current financial mess is not the fault of the free market, but rather of government interference in the free market. It's clearly not in the interest of banks to loan money to people who can't pay it back. The government created artificial incentives (such as the Community Reinvestment Act) that rewarded lenders for doing so, with the implied promise that taxpayers would pick up the tab if anything went wrong. The current mess is exactly the result one would expect.
To blame the free market for problems caused by government interference in the free market is like blaming one’s automobile accident on the car, rather than the fact that one was driving while yakking on a cellphone while looking at the onboard GPS system while reaching for a stick of gum in the glove compartment...
Paul Hsieh, Sedalia For a longer discussion of this issue, see "The Long Road to Slack Lending Standards" by Steven Malanga. Here's an excerpt:Many defenders of the government's efforts to prompt banks to lend more to minorities have claimed that this effort had little to do with the present mortgage mess. Specifically they point out that many institutions that made subprime mortgages during the market bubble weren't even banks subject to the Community Reinvestment Act, the main vehicle that the feds used to cajole banks to loosen their lending.
But this defense misses the point. In order to push banks to lend more to minority borrowers, advocates like the Boston Fed put forward an entire new set of lending standards and explained to the industry just why loans based on these slacker standards were somehow safer than the industry previously thought. These justifications became the basis for a whole new set of values (or lack of values), as no-down payment loans and loans to people with poor credit history or to those who were already loaded up with debt became more common throughout the entire industry.
What happened in the mortgage industry is an example of how, in trying to eliminate discrimination from our society, we turned logic on its head. Instead of nobly trying to ensure equality of opportunity for everyone, many civil rights advocates tried to use the government to ensure equality of outcomes for everyone in the housing market. And so when faced with the idea that minorities weren't getting approved for enough mortgages because they didn't measure up as often to lending standards, the advocates told us that the standards must be discriminatory and needed to be junked. When lenders did that, we made heroes out of those who led the way, like Angelo Mozilo, before we made villains of them.
Now we all have to pay. A deliberate policy of elevating "lack of value" above value sounds almost like something from Atlas Shrugged. The end results certainly looks like it...Labels: Activism, Economics, Finance, Politics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [0] (New Page)
|
|
|
1999 New York Times on Fannie Mae
By Paul Hsieh @ 12:06 AM
Here are some excerpts from an interesting article in the September 30, 1999 edition of the New York Times on Fannie Mae's new policies:Fannie Mae Eases Credit To Aid Mortgage Lending
..."Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements," said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. "Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market."
...In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. [Emphasis mine. -- PSH]
"From the perspective of many people, including me, this is another thrift industry growing up around us," said Peter Wallison a resident fellow at the American Enterprise Institute. "If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry."
...Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites. At least Fannie Mae's directors had good intentions -- shouldn't that be what's most important here?Labels: Economics, Politics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [1] (New Page)
|
|
| Thursday, October 02, 2008 |
|
Berton Braley on the Bailout
By Diana Hsieh @ 12:00 PM
Berton Braley was a very popular early 20th century poet; his writings often extolled the virtues of capitalism, industry, success, and the like. Here's a particularly apt poem, sent to me by Boaz Arad:
The Profits and Loss
By Berton Braley
From New Deal Ditties: or, Running in the Red with Roosevelt, 1936
When "planned economy" first began
It looked like a swell "idea" –
Until we learned it had no plan
And wasn't economee.
For the taxes rise and the budget's shot
And the New Deal costs are met
By spending money we haven't got
For things that we never get.
The Billions roll in mighty stream,
A regular tidal flood,
With the net result that each spending scheme
Bogs down in a sea of mud.
When plans and programs go all to pot
Do the New Deal planners fret?
Why no, they think up a brand new lot
Of schemes to spend what we haven't got
For things we will never get! The House is scheduled to vote on this new bailout plan on Friday. It might well pass this time, in part due to all the special-interest pork added to the bill. (UGH!) Please tell your representative that you still oppose the bailout. You might wish to mention that your vote in November will be influenced by their vote tomorrow.Labels: Economics, Finance, Poetry, Politics
|
| |
E-mail Diana Hsieh
PermaLink ()
Comments [6] (New Page)
|
|
| Wednesday, October 01, 2008 |
|
More Bailout-O-Rama
By Diana Hsieh @ 7:51 AM
The Senate has a new $700 billion bailout plan that they're voting on today:
Top lawmakers said the Senate proposal, worked out after a day of behind the scenes maneuvering, would include tax breaks for businesses and alternative energy and higher government insurance for bank deposits. We do need to speak up against this new bailout plan. The market crash after the defeat of the bill in the House caused some to think that a bailout would be a good idea:
Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, said the Senate decided to move quickly, citing signs of regret from some House members after the markets plunged in response to their initial vote.
"I think their will is coming back having heard from their constituents," Mr. Dodd said.
Lawmakers said the stock market response to the rejection was a sobering experience that could enhance prospects for a revised plan. Some anxiety lifted on Tuesday, as the Dow Jones industrial average rose 485 points, regaining more than half of the 778 points it lost on Monday.
...
On the morning after the sell-off on Wall Street, Congressional offices reported a shift in angry calls from constituents, with some now demanding that lawmakers take some corrective action -- a distinct change from the outpouring of public opposition that contributed to the defeat of the plan.
"I started hearing from a lot of people who lost money on their investments thanks to the big drop on Wall Street yesterday," said Representative Steven C. LaTourette, Republican of Ohio, who voted against the plan. So even if you already wrote or called your Senators, contact them again to tell them that you still oppose the bailout.
Also, the Ayn Rand Center has created a page of great resources on the bailout:
http://www.aynrand.org/site/PageServer?pagename=arc_financial_crisis
Feel free to make good use of it in your activism on this issue -- not only by informing yourself but also by posting the link in comments on news articles, forwarding it to friends, including it in e-mails to representatives, and so on. Here's ARC's announcement:
The Ayn Rand Center Responds to the Financial Crisis
September 30, 2008
Americans are now facing an historic economic crisis. What was the cause? What is the cure? How do we prevent it from happening again?
While pundits and politicians blame the current housing and financial crisis on "greedy" businessmen and lax regulators, and are frantically urging the government to expand its control over our economic lives, the Ayn Rand Center for Individual Rights has launched a new Web page to defend a different view--that the actual cause of the crisis is government intervention, and the only cure, laissez-faire capitalism.
We invite you to check out our collection of essays, op-eds, lectures, and interviews arguing for a rational approach to this crisis--an approach you will not find anywhere else. Labels: Activism, Economics, Finance, Politics
|
| |
E-mail Diana Hsieh
PermaLink ()
Comments [11] (New Page)
|
|
| Tuesday, September 30, 2008 |
|
The Bailout Made Easy
By Paul Hsieh @ 6:03 PM
The cover from this week's edition of The Economist reduces the bailout to its essentials:
(Unfortunately, the article itself supports the bailout.)
In contrast, 8 years ago Howard Husock wrote the following about the Community Reinvestment Act in "The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities":...Even without a no-down-payment policy, the pressure on banks to make CRA-related loans may be leading to foreclosures. Though bankers generally cheerlead for CRA out of fear of being branded racists if they do not, the CEO of one midsize bank grumbles that 20 percent of his institution's CRA-related mortgages, which required only $500 down payments, were delinquent in their very first year, and probably 7 percent will end in foreclosure. "The problem with CRA," says an executive with a major national financial-services firm, "is that banks will simply throw money at things because they want that CRA rating." From the banks' point of view, CRA lending is simply a price of doing business—even if some of the mortgages must be written off.
...Looking into the future gives further cause for concern: "The bulk of these loans," notes a Federal Reserve economist, "have been made during a period in which we have not experienced an economic downturn." The Neighborhood Assistance Corporation of America's own success stories make you wonder how much CRA-related carnage will result when the economy cools. I think we're finding out exactly how much right now...Labels: Economics, Finance, Politics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [2] (New Page)
|
|
|
Bush Vs. Ott On The Bailout
By Paul Hsieh @ 1:15 PM
As one would expect, President Bush called for a massive financial bailout in his recent speech to America. So much for fiscally conservative Republicans.
I prefer this fictional Bush speech from satirist Scott Ott a lot better. Here are a few excerpts:Bush: Congress Must Act to Save Stupid People
..."To sustain this shining city on a hill," Mr. Bush said, "we need to rescue the ignorant, irresponsible folks -- from Wall Street to Capitol Hill to Main Street -- who got us to where we are today. We must guarantee that no American suffers the soft bigotry of being forced to live with the consequences of his bad decisions."
..."If these giant companies fail, then America will be left with nothing but thousands of small to mid-sized financial firms that made prudent investment decisions during the past 15 years."
..."It is a moral imperative that we guard the civil rights of these idiots," he said. "If we fail, then we face the specter of free market capitalism run amok, and millions of Americans will feel the painful lash of personal responsibility across their backs." Labels: Economics, Finance, Politics
|
| |
E-mail Paul Hsieh
PermaLink ()
Comments [0] (New Page)
|
|
|
