Governments, Markets & Growth

OK, nod to a former Prof's seminal work from many years ago.

I'm hopeful for a thoughtful exchange - as much as it will be difficult for all of us to leave bitterness at the door, or charged politics, I am hopeful this can be a fruitful discussion. In my view, the two current candidates are both socialists, of a kind - both would use monies garnered from private citizens for public ends - they just differ on who would benefit. The recent bailout is exemplar for how both support intervention, and their two plans are exemplar on how they differ in terms of who benefits. So, I am speaking more to a general discussion, than any current campaign issues.

Just a few personal views, in nutshell form, as starting off points for discussion:

I hate government. I hate its intrusion in daily life. I'd rather be completely alone, with my family, in the middle of a wilder corner of the world, in the midst of nature, never to have to deal with a single bureaucrat from any jurisdiction, ever again. That said, I hate suffering more - mine, others. I hope for the best solution to end suffering, as Sartre once wrote, "par simple décence," "by simple decency." I do believe we're all connected, ultimately, and do not live as islands apart.

We have never had a free market in America. Our industrialization was borne on the back of a strong collusion between the armed might of the state, with concentrated, heavy capital. The "labor market" was anything but an atomized, free market of independent actors. It continues today - the entire system is a gordian knot of market distortions, embedded in historical and institutional legacies.

The notion of the optimizing effect of "the invisible hand" presumes several things that do not exist in the world:

- perfect information, where all economic actors have complete and perfect information in order to effect a rational choice; this doesn't exist in a world of concentrated sources of information, market power, and so forth.

-rationality itself, on the part of all actors, in that actors make choices based on a rational self-interest. I am an elitist. I think our species is by and large, stupid. I think we behave in ways completely contrary to our self-interest, over and over again.

Even if we were to presume a free market can achieve an optimal result, and we were to able to achieve a truly, perfectly free market - zero distortions, anywhere; the "curative" effect of that market to some political-economic woe - say, as in Friedman's exploration of child labor, as it existed at the turn of the 19th century - involves "lag" that I cannot accept, as a human being. In a word, I cannot wait for the market to "clear" when something like that child exploitation exists. Hence, I see a need for regulation, some kind of regulation, as a concept.

The notion that all things can be privatized - i.e., the notion of privatizing "public goods," or a "fallacy of the commons," and so forth, is not something I can accept. I believe we crap on the world and couldn't care less whether it hurts tomorrow, or others. There are some things that do require regulation in order to stop this.

OK, enough for now. Free market - can we achieve it? How, or how no? Would it make for an optimized world? Why, or why not?

Substance - from all of us - please, folks.

 

I personally don't like the term socialism as it is used in American political life. It has taken on the air of one of these emotional political bogey terms that are used so dramatically to color the air.

The fact is that the US has been so dramatically different for decades from European nations that incorporated more socialistic elements into their lives.

Ask the European members of this forum if they think Obama is a socialist. He is so dramatically removed from that perspective as our virtually all modern American politicians including all mainstream dems.

I guess the recent intrusions of the US govt into private markets is the most socialistic thing we have done in decades in that regard. Even with these actions the intent is to purchase parts of private enterprise in equity and in buying mortgages or notes containing mortgages and other financial instruments...but then to sell them.

In fact the US did that fairly recently during the late 1980's and early 1990's. Everything it bought it resold. It removed itself from public ownership of these entities.

The world is complex. The overwhelming speed in which the US financial meltdown has spread across the world is startling and scary. Stock markets across the globe have plummeted. Financial institutions across the globe have and are facing failure. Essentially Iceland has been bankrupted as its once flourishing banks grew way beyond the small scope of the nation. As they failed they are taking the entire nation down with them if they are not helped out.

I'm not sure of the impact of all of this. It describes complex business arrangements that defy past experiences, imho. The world is subject to the term "globalization" in ways we have yet to figure out. Think of it. In roughly less than 2 decades (more like 10 years), the nation with the world's largest population (China) went from a sleeping giant with virtually no impact on world wide economics to be the world's dominant simple-product producer, generating incredible focused wealth within this nation while gathering enormous trade surpluses. In doing so it sucked out the manufacturing opportunities from around the world, including not only the US but many developing nations.

The flow of capital around the world is complex beyond the scope of understanding of even the most "knowledgeable and sophisticated" in the financial world. Essentially most of the execs in the largest financial institutions that got hit by this most recent crisis really fully didn't understand the make up and risks associated with many of the investments they bought and sold; the credit swaps and the securitized financial instruments representing mortgages, etc.

I do believe in the face of this massive scary recession with the financial institutions having frozen credit, with mass and growing job losses around the US and world, it is imperative for governments to try and intervene.

You keep taking shots at the moving targets of problems until hopefully you find something that works.

 

The good news is after the election is over and things settle down we'll be able to have a more rational and less partisan discussion about this

I have a dream.

 

I do want to stay quiet for a while, as I would love to see a variety of viewpoints without mine intruding for now. Just wanted to clarify, Earl - re: "socialism," and its baggage, I completely agree with your problem with the term here, both in terms of its historical, polemical weight in the States, and in its comparison with true socialism, as it has existed in Europe over the last century and a half. I'm going by only one aspect, which is the public aggregation and dissemination of private means. By this same attribute, as we both touched on some time ago, Bismarck was a "socialist," and I do disagree with such a definition, though I've come to better understand (and respect) the position of those who would argue the opposite point of view.

 

Well you started off well enough – both candidates are socialist... come on

If think we need to start a thread: What is socialism?

Both favour a roll for the state, although traditionally Republicans have favoured it that less so that the Democrats, but lets face it there has never been much ideological difference between them.

The use of the state is neither left nor right. Actually, the Bush government have always given out billions to failing private industries, just not on this scale...

When McCain recently made a speech he threw in Obama's “socialist” intentions and then mentioned Canada's socialised medicine – even though the day before they had elected the Conservative party back into power.

Historically, socialism has been just as much about being anti-state – Bakunin, Kropotkin, Chomsky – as much for the big, BIG state: Lenin, Kautsky and Trotsky.

In Britain, the modern welfare state was founded by William Beveridge, a liberal, instituted by the Labour Party – occasional socialists – and then continued by the Conservative party until the post-war consensus broke down in the 80s.

Traditionally, the labour movement in Britain had been based on self-help co-operatives, rather than about state power.

Britain is probably unique in Europe in this situation, as the post-war consensus holds in most of the rest of Europe.

Personally I'm a libertarian. I view the state corrosive to society and although I would like a free association of peoples, I'm also a humanitarian.

I recognise the state plays a role that is often positive in people's everyday lives.

I'm glad we have a National Health Service – and 99% of Britons are too. I'm healthy, and have always have been, but I'm glad it's there if I fall ill because I know that's a well-funded, professional service.

I live in a council flat – a government owned property. It's not ideal, but the rent is cheap (which counts for a lot in London) and the repair service is excellent, and it's secure. If I'm made redundant from work I'll never have to worry about them sending the bailiffs around.

The NHS and quality council housing came from the post-war consensus. That is, an direct answer to the desperate poverty and instability of the pre-war world.

Matters were desperate then, and I'm not talking about centuries ago but about living memory.

My mum, who is in her early seventies, remembers appalling poverty in Hackney (London) that we would now associate with the Third World.

The post-war consensus saw a major role for the state and it was very much tied in with capitalism a keeping an equilibrium in labour relations and keeping the profits turning over.

Historical matters are a bit different in the US as you really didn't get the brunt of WWII.

So what's the relationship between the Republican party and the state? Well it's bound up in it relationship between the wealthy – the plutocracy: that is to oppose it when it threatens its wealth through higher taxes and regulation, and to be for it when it needs the state to take on the cost of its failure.

The state can play a role in bettering people's lives for better. It doesn't have to be a negative force.

It's nice to keep an anti-state ideal, but I've got to get on with my life

I'm not elitist, I'm anti-elitist. It's always been my natural instinct to attack any elite whereever I come across it.

I'm a great believer in humanity. I'm amazed when I look at the world and see this advanced technological and cultural civilisation around us...

I'm also a great fan of capitalism as it's proven to be the great survivor and far more resilent than many would have been believed in the 19th century.

However, capitalism is completely amoral. It has no internal restraint and ultimately seeks profit above all else, even at the expense of people and the environment.

The restraints come from external factors, consumers, labour unions and the government.

So smash the state, long live the state

 

Divisive, I should mention that my background is in Western European political economic development, especially surrounding the era of industrialization and nation-building. My focus has been on historical variants of socialism, coalition-building, and nation-building, especially from Metternich's Treaty of Paris/Congress of Vienna through the interwar (1919-1939) period.

I merely mention the argument here as one aspect of "socialism" coopted by the state, in "peeling" away nascent socialist aims during the period of socialist mobilization near the last portion of the 19th century. In the case of Germany, in a word, Bismarck's suffrage and social security initiatives stole the thunder out from under the SDAP, but these were still (democratic) socialist aims. Same, as you mention, with the Labour party platform and Liberal policies in Britain. Same, actually, everywhere in Europe, with variances depending on social structures historically embedded. Another thread.

 

Well.....as regards my claim that European members here would repudiate describing the US as socialistic....it appears that Divisive totally burst my bubble->

thanks bud. On the other hand, divisive you claim to be a libertarian and support several significant govt policies in your nation....and end with a somewhat (IMV) wild response....

So how and where do you characterize the 2 dominant political parties within the US as being very socialistic?

My belief has been that in the last 20-30 years the US has dismantled a lot of socialistic characteristics, allowing business more freedom.

This seems to be opinion, so I'd like to hear more of your comments.

 

It's funny how everyone wants to interpret this debate on the basis of the UN Security Council Members....

United States, Great Britain, France, China, and Russia.

Believe it or not there are other continents out there, namely South America and Africa.

Why will there not be a free market under the current climate?

Because there are too many, "useless eaters" in Europe and the United States who want to maintain their wasteful, indulgent lifestyles at the expense of contributor nations in Africa, the Middle East, and South America.

The concepts of globalization, free trade, global economy, or free markets are terms used to exploit resource-rich countries for the benefit of the US, Europe, and Australia.

When I think of the vast amounts of gold and wealth removed from South Africa while the people were killed, tortured, and abused by European invaders (aided by US policy), it makes it clear how much of a farce any discussion of economic development is when it comes from these sources.

 

Pioneer, it's a good point.

I would especially agree with you that the dynamics of the first industrializers, in terms of national political economic development, were a universe apart from the "second wave" of industrialized (and industrializing) nations, and these would include the post-colonial, post-WWII independent states. If the latter processes were horribly skewed by imperialist intervention, the "classical" models on which a good deal rests grew much more organically, not in small measure from the introduction of things (i.e., national railroads, mass communication) not previously available. You might appreciate the read: Ethnicity, Patronage and the African State: The Politics of Uncivil Nationalism. (PDF).

 

If capitalism is amoral than so is the nature of man. You either have a warped mentality of free-markets or finally realized the self-centered nature of well.. nature itself.

Things exist for the primary purpose of personal growth and just so happen to fit into a larger picture of benefiting others in the process. When the lion eats the lamb, is the lion a force of evil or is it really a blessing in disguise - keeping the population in check?

You're mistaking amoral for truth and showing a possible weakness. Because we think too much as humans we undermine the purposes of things, and therefore choose an immediate fix over the long-term natural order of things. That's what these stimulus bills are, overlooking the longterm and focusing only on the fix.

The drug you all need, delude yourselves because you're afraid of the truth. Weakness is only a horror in your mind but not mine, that's why I'm in favor of exposing it so it can be fixed.

 

Actually capitalism is based on human nature and specifically the idea that everyone will act in their own best interest, so yeah, if capitalism is amoral then both would be.

Northpointe... not exactly a plethora of people here, but the responses so far support what I was saying in the other thread about the makeup of a potentially successful third party. I wont go ahead and repeat it all here, but it seems to fit.

 

I think the financial meltdown is exposing the simplistic characterization of free markets being superior and more naturally correct then having any kind of outside (call it government) involvement.

I'm screaming for government...I just want to point out where the markets don't seem to operate well...or necessarily reflect the theoretical academic ideal that drives the theory of economics.

Take oil prices. Who thinks that simple demand and supply both caused the incredibly fast run up on price peaking this summer and the incredibly fast price drops we are seeing right now.

Are these rapid changes solely a function of demand and supply from the end user?

It can't be. There have to be and are intermediate forces in the market; probably all the traders for future prices that are moving prices well well beyond any expected or actual changes in demand and supply right now.

What comprises end market prices for oil is something vastly different than the simple economic theories that suggest demand and supply in a "perfect market" arrive at the "best most efficient prices".

Similarly there is Congressional Oversight going on right now on the rating companies that establish the credit worthiness of huge bond offerings such as the securitized subprime mortgages that collapsed as home owners foreclosed.

They are disclosing that internally the credit ratings agencies knew they were providing false and optimistic ratings that were "wanted" by financial entitities.

Their role as an intemediary rating establishment in the pricing of these bonds is complex and subject to all sorts of influences.

None of that fits into a simple description of a "perfect market" that will most efficiently determine price and then demand and supply.

While I strongly believe in markets and have worked in them for decades I've grown to see that not all of them work perfectly in any way shape or form close to where they should obtain absolute authority over any other entity in determining exactly how business works.

The key to working all through this is not unlike any business consistently adjusting to try and meet ever changing conditions.

As conditions change so too should some government oversight change.

I don't think that is all that bad.

 

Speaking of regulation and oversight. I've been reading about the "net capital rule" abolishment in 2004.

http://en.wikipedia.org/wiki/Net_capital_rule

The SEC was being petitioned by the big investment banks for a while to let them be more highly leveraged. In 2004 they granted the request. Goldman Sachs was one of the banks imploring the SEC for abolishment of the rule. Guess who was the CEO of Goldman Sachs at that time?

Not sure how on-topic this post is.

 

Interesting read, though a bit wordy. Thanks for the info.

Have you noticed how communist-like this country is?

All the money comes from two sources, Manhattan and Washington DC.

When is centralized planning ever good?

You have centralized financial markets (New York).
You have centralized financial control (Washington DC).
You have centralized financial reporting/rating (New York).
You have centralized Reserve Banking (Washington DC).
You have bailouts coming from Congress (Washington DC) going to Wall Street (New York).

Yet, people wonder why the system is broken?????

Have people lost their minds or do they care since they are enjoying the benefits, indulging in their extravagant lifestyles, and stroking their egos?

Is the average financial investor, employee, economist, congressman this delusional? It appears so listening to the news and financial TV.

Free markets, as defined in the US, has been a sham since the Federal Reserve and the Federal Income tax came into existence.

This country is going to collapse unless the people in this country demand more accountability and stop allowing these people to steal their taxes, steal their wealth, their future, and their children's future.

Has America lost its mind?

 

Pioneer:

I have been involved in several industries. I own some businesses now. I worked for a long time in a utterly market oriented industry, commercial real estate. Some of the businesses in which I've been involved in have certain layers of govt oversight.

If you are going to lie, cheat and steal, the business needs oversight. If you aren't it doesn't need oversight. Its that simple to me. Most businesses will get some people who will lie cheat and steal. I've got one of em in one business right now. he does do other things well. He is pretty much under control (for the time being (crosses my fingers))

My perspective is that finance is centralized in NY but there are plenty of money sources and financially powerful places around the nation. I've found non NYC sources for decades.

The fed govt is hqtered in DC. What can I say. So what. Name some nations where the national presence isn't focused in its capital city. I'm not aware of them, but then I haven't thought about it.

One nifty thing is when the fed govt spreads its presence....like the mining office in Denver....we get colorful events like sex,drugs, alcohol parties between the oil industry and the interior dept employees in denver, let alone possible big financial fraud with taxpayer money.

The govt. could spread itself around more, I guess. Never really thought about it.

 

Pioneer:

I have been involved in several industries. I own some businesses now. I worked for a long time in a utterly market oriented industry, commercial real estate. Some of the businesses in which I've been involved in have certain layers of govt oversight.

If you are going to lie, cheat and steal, the business needs oversight. If you aren't it doesn't need oversight. Its that simple to me. Most businesses will get some people who will lie cheat and steal. I've got one of em in one business right now. he does do other things well. He is pretty much under control (for the time being (crosses my fingers))

My perspective is that finance is centralized in NY but there are plenty of money sources and financially powerful places around the nation. I've found non NYC sources for decades.

The fed govt is hqtered in DC. What can I say. So what. Name some nations where the national presence isn't focused in its capital city. I'm not aware of them, but then I haven't thought about it.

One nifty thing is when the fed govt spreads its presence....like the mining office in Denver....we get colorful events like sex,drugs, alcohol parties between the oil industry and the interior dept employees in denver, let alone possible big financial fraud with taxpayer money.

The govt. could spread itself around more, I guess. Never really thought about it.

 

Why are you so hell bent over DC and NYC? I agree that there is too much power in the hands of the federal government and that the states have all but been kicked out the door. The only thing the states have left is the electoral college which people are trying to get rid of because they think America was meant to be a democracy. I am baffled and appalled that people think this.

You want a decentralized government? Repeal the 17th amendment.

We are in the age of the internet and fast flowing information, so it doesn't really matter that NYC is the finance headquarters of the world. London is quite large as well with other cities emerging.

 

I agree. First of all I've found financial sources, knowledge and advice outside of NYC.

On an international scope, there are competing money centers in London, Dubai, and in either or both Hong Kong and Singapore.

The financial guys do like a place where they can congregate and easily transfer from one company to another without having to move to different cities. I just don't see it as a big deal.

 

In today's homogenized media environment, all you get is how well things are doing in Washington DC and Manhattan.

In my community I see banks, radio stations, TV stations, newspapers, major employers all being sold to concerns in New York based on legislation from Washington DC.

It's as if these two cities have decided they are the United States and the rest of the country is here simply to provide them with their lifestyles and comfortable jobs.

If someone in Kansas loses a job, it's... get over it.
If someone in Manhattan loses a job, it's... the end of the world. It's economic disaster. We need to CHANGE THE LAW. We need A BAILOUT. We are TOO IMPORTANT and TOO BIG to fail.

Unless you live in Washington DC/Manhattan, why would you defend this economic system when it's using your hard work to subsidize it?

Not sure what this has to do with anything. But, before this period, government was much smaller. In fact, Manhattan provided the majority of tax revenue to Washington DC.

You see, Manhattan supported DC (through the Port of New York) instead of today where the rest of the country supports both cities while neither produces a single thing of any value to the rest of the country.

See, you're making my point how useless and unnecessary today's financial capitals are. But, this post is already so long, so I'll leave that for another time.

My only point is money should be available everywhere. It should not be monopolized/dominated/centralized in just 1 city per country. At least, not if you want distributed access to capital.