Terrific piece in Vanity Fair by Nobel prize winner Joseph Stiglitz. I especially love the accompanying art work nearby.

Stiglitz is da man:

“The administration talked about confidence building, but what it delivered was actually a confidence trick. If the administration had really wanted to restore confidence in the financial system, it would have begun by addressing the underlying problems—the flawed incentive structures and the inadequate regulatory system.

Was there any single decision which, had it been reversed, would have changed the course of history? Every decision—including decisions not to do something, as many of our bad economic decisions have been—is a consequence of prior decisions, an interlinked web stretching from the distant past into the future.

You’ll hear some on the right point to certain actions by the government itself—such as the Community Reinvestment Act, which requires banks to make mortgage money available in low-income neighborhoods. (Defaults on C.R.A. lending were actually much lower than on other lending.) There has been much finger-pointing at Fannie Mae and Freddie Mac, the two huge mortgage lenders, which were originally government-owned. But in fact they came late to the subprime game, and their problem was similar to that of the private sector: their C.E.O.’s had the same perverse incentive to indulge in gambling.

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

Short, sweet, too the point.

I wonder if anyone int he Obama administration — like Summers or Geithnier — have the cojones to deal with his kind of truth telling.

>

Source:
The Economic Crisis: Capitalist Fools
Joseph E. Stiglitz
Vanity Fair, January 2009

http://www.vanityfair.com/magazine/2009/01/stiglitz200901

Category: Bailouts, Corporate Management, Markets, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

52 Responses to “Capitalist Fools”

  1. jmborchers says:

    It’s always Phd practice to rule out common sense shortfalls to your complex algorythm.

  2. r says:

    Having Greenspan say he was wrong isn’t proof that he was wrong.

    If so, this implies that our leaders such as Blagojevich would have prevented this mess and things would be better now if only the govt ran the show.

    I’m not buying it.

    ~~~

    BR: Blagojevich’s corruption somehow proves that Greenspan admitting his error doesn’t mean there was an error?

    That’s your argument? If you made that in court, you’d have you disbarred for incompetent representation.

  3. Stiglitz has no conception whatsoever of the American System of Political Economy. He’s a Keynesian … a British free market fellow traveler … a believer in a man whose ideology was regarded as well-suited for such dictatorial regimes as Nazi Germany … and that’s a fact, Jack. Furthermore, the last thing we need right now is quack whose idea of “progressive” economic policy is implementation of technologies that take us back to the 12th century. The so-called Green Revolution he advocates is a certain failure in waiting.

    Why do Americans tolerate people like Stiglitz who are unmitigated fakes? Any sane American should recognize the reason why the power of bankruptcy was written into the Constitution is precisely for times like these. Settling for such buffoons as would seek to saddle a sovereign People with still more debt — all for the sake of furthering a thoroughly bankrupt arrangement — simply is not an attractive option…

  4. VennData says:

    The dollar is up as foreign central banks move money into US Treasuries. After their Blackstone adventure, anyone losing money in China will be shot. So they sell everything – agencies etc – and move into Treasuries. This disruption ricochets at the muni, corporate, and mortgage markets as capital pools try to reposition their duration. China can’t put their money into a Schwab account, they opt for Treasuries.

    Non-governmental actors are in a mad dash for cash, mostly yen and USD. The equity market is a computer game.

    Assets can’t go up when de-leveraging occurs so rapidly so deflationary trends appear muted.

    I wouldn’t be looking to anticipate where we’re headed, because it’s just too complex. It was to complex for Greenspan, then Bernanke and Paulson, the hedge funds (except the one-way betters with long lock ups) so why should anyone be able to anticipate what approaches?

  5. John says:

    Barry,

    There is a difference between minimal government and regulator non-feasance. Failing to enforce existing laws and regulations does not automatically call for a return to a different system that has previously been proven to have a “flawed economic philosophy”.

    ~~~

    BR: That’s an entire chapter in the book. From Reagan to Bush I to Clinton to Bush II, with Greenspan there since 87, you had a huge philosophical belief that less regulation was better. That was the dominant philosophy, and it colored policies and key appointments for 3 decades.

    The case that free markets can safely self-regulated has been asked and answered. I declare in the book it has been officially resolved.

  6. Ben W says:

    This whole conception of a so-called “flawed economic philosophy” is absolutely ridiculous. Never in the history of the world has there been a truly free-market capitalistic system. Pre and during industrialization, the US was far closer to being free-market without a Federal Reserve, and tons of other areas of government intrusion in the markets.

    The fact of the matter is that since we have a central bank that has a monopoly on the money supply and which somehow believes it can determine the perfect interest rate all or most of the time, the foundations of our banking system are inherently not free. There was a time where Greenspan felt this way himself, as was evidenced in his paper on the gold standard during the 60s. No true free marketeer would ever attempt to become the lead central banker however.

    He sold out his values, as have millions of Americans since the development of the Federal Reserve, the income tax, social security, welfare, medicaire, FDIC insurance, and the imposition of various subsidies and tariffs. We forgot that it was the capitalist system that brought us the prosperity that we have squandered away as the state has become more and more intrusive. To characterize what we had during the Greenspan period as an era of total deregulation and free markets run amok is disingenuous.

    ~~~

    BR: You are tilting against windmills — as long as one nation has a central bank, no other nation will get rid of theirs. If your argument is that there is no free market capitalism as long as there is a Fed, well, that’s an extreme position, one that wont be tested in the real world.

    Read the Panic of 1907 with the Creature from Jeckyl Island to understand exactly why we have a Federal Reserve. Its a highly flawed system, but its one that is extremely unlikely to go away anytime soon.

  7. Mannwich says:

    @Ben W: Just so I am clear – we should go back to emulate the pre and industrialized “pure capitalist system that brought us prosperity” where there were no child labor laws, squalid living conditions, no worker protections, and brutally long worker hours? Is that ideal system we’re talking about? If so, I’ll pass, thanks………

    Slavery was great for the titans of capitalism too (and played an enormous role in building this country). Should we return to that as well?

  8. AGG says:

    You can tell someone stepped on Riskaversealert’s tail. He’s screaming bloody murder. Just let anyone of stature accuse the system gamers and con-men of being deliberately scheming thieves instead of well meaning good guys who made some “small” mistakes and the greed turns commenters into raving maniacs. What’s the matter pals, someone step on your wallet? Yeah, I know, the world is your oyster and the downtrodden are suckers that should never get a break. Remember that when you’re broke, busted and disgusted next year.

  9. wisedup says:

    If only it were a simple case of “regulator non-feasance”.
    Unfortunately, this problem comes straight from the heart of American exceptionalism.
    We are not sufficiently moral to permit minimal government or indeed the current system of large and corrupt government.
    When business can get 100-1000 times return on minimal investment (political contributions), and there is no effective counter-balance (the press is now merely another business), the system is untenable — it has to collapse in grand excess.

    Greenspan admitting he was wrong is a hell of a lot better than what he was claiming last year.

  10. wunsacon says:

    >> He’s a Keynesian … a British free market fellow traveler … a believer in a man whose ideology was regarded as well-suited for such dictatorial regimes as Nazi Germany

    Sorry, but I don’t find the “he advocates underwear — like the Nazi’s wore!” comparison to be illuminating. There’s a huge gulf between (a) deficit spending, by a democratically elected government, in times of great unemployment and (b) Hitler.

  11. While I admire many aspects of Stiglitz’ Truth-telling, this, surely, isn’t one of them..

    as, already, pointed-out: “There is a difference between minimal government and regulator non-feasance.”, IOW, there’s a big difference between having a Watchdog, and paying 20 Watchdogs not to Bark..

    past that, RAA, above, has a good read on the ‘Keynesian Ideal’..

    and, NB: the ‘Greens’ are, truly, ‘Watermelons’.

    lastly, this: “Pre and during industrialization, the US was far closer to being free-market without a Federal Reserve, and tons of other areas of government intrusion in the markets.

    The fact of the matter is that since we have a central bank that has a monopoly on the money supply and which somehow believes it can determine the perfect interest rate all or most of the time, the foundations of our banking system are inherently not free. There was a time where Greenspan felt this way himself, as was evidenced in his paper on the gold standard during the 60s. No true free marketeer would ever attempt to become the lead central banker however.

    He sold out his values, as have millions of Americans since the development of the Federal Reserve, the income tax, social security, welfare, medicaire, FDIC insurance, and the imposition of various subsidies and tariffs. We forgot that it was the capitalist system that brought us the prosperity that we have squandered away as the state has become more and more intrusive. To characterize what we had during the Greenspan period as an era of total deregulation and free markets run amok is disingenuous.” from above, should be re-read, understood, and further contemplated.

  12. Patrick Neid says:

    “The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal.”

    It would be nice if that had existed. Then we could test his theory. [BR: It was the dominant economic philosophy for 3 decade; you’ve come as close as you are likely to come].

    But as a general rule I would take gunslinger capitalism over centrally planned monitoring/intervention by a government– ours especially. I find it interesting, certainly not posted here, that the CEO’s of Fannie point the finger at Congress and the gov regulators for the current mess. Whoops!

    But no worries all you interventionists you will have your way going forward. With the esteemed Mr Waxman leading the way. Boy there’s a confidence builder! Ah the joys of big government.

    Just think, the whole world as one big GSE. Talk to Chris Matthews, he’ll explain the tingling in your leg.

  13. Steve Barry says:

    The Fed puts out Total Credit Market Debt stats every quarter…yet since 1985, they could not see it spiraling off their paper, growing much faster than GDP? Take your pick…incompetent or something much more nefarious. They were the only entity that had the knowledge and ability to have stopped it. If I met Greenspan, I would show him Credit per GDP and say WHY?????????

  14. AGG says:

    A word about the glorious 19th century free market:
    Facts:
    In the year 1864 more people died in train “accidents” than from civil war combat. YES the year was 18 SIXTY FOUR! That was at the height of the civil war.
    Railroads saved money by nailing iron strips over wooden rails. These strips had a bad habit of coming off just when a train was going over them. The “iron snakes” as they were called would then cut up the seats and the people. And the bridges were such wonders of engineering; They would test them by putting a train on them after construction. They held and everything was great until a heavily loaded train would crash through into a river or ravine. The papers had great copy. One bridge failure caused a rare, honest railroad executive to commit suicide. And let’s not forget those modern coal and wood stoves to keep the pasengers comfy. When a train crashed into the caboose of another as often happened, all the stoves upended and the passenger cars became ovens which cooked the trapped passengers. Add to this the head on crashes because more profit minded railroad magnates used one track with side spurs for trains going in either direction further complicated by the fact that american cities kept their own “clocks” so we had different times all over the country, the boiler explosions, brake failures, disconnected passenger cars on a mountain side rushing to certain death and people began to clamor for GOVERNMENT action. This is at a time when free enterprize railroaders had purchased most of our illustrious senators and congressmen so the the GOVERNMENT was granting ( nice word. ain’t it?) right of ways all over the whole goddamned country to railroads without paying a penny.
    So spare me the “free market” bullshit. Many of us are very comfortable because of a bunch of greedy, insensitive, cruel and rapatious ancestors. The free market had nothing to do with it. Go ahead, honor your asshole greatgrandpappy. It won’t hurt him at all.

  15. Mannwich says:

    Thank YOU, AGG. That was basically my point in the post above. Let’s stop romanticizing the notion that “unfettered free markets” are what we should strive for (especially in times when none of us were even alive) because they have their many nasty attributes as well……..

  16. Moss says:

    Not a bad synopsis.. the wingnuts will never admit that Reagan had anything to do with it. It is a shame that economic philosophy will polarize this important debate. Can anyone ever imagine someone like Kudlow, Gasparino and the rest of the brainwashed supply side, free market zealots acknowledging such blasphemy?
    The system ran amok.. in effect it failed. Democracy took a back seat to the capitalists.

  17. DL says:

    Steve Barry @ 9:53

    “[the Fed was] the only entity that had the knowledge and ability to have stopped it”.

    I don’t know if they really had the power. I think the power was with the big financials (e.g., C, JPM, WFC, GS, MS, BAC, etc).

  18. Steve Barry says:

    @DL: The big financials were too busy making money by leveraging up (thanks to Fed created moral hazard and Hank Paulson’s successful lobbying), taking advantage of cheap money (thanks to the Fed) and peddling sub-prime loans (thanks to Fed’s nonfeasance in banking regulation) to turn the music off.

  19. AGG says:

    Mannwich,
    You’re welcome, my long suffering friend.
    How do we communicate the fact that justice requires the elimination of unfair advantage to a society built on it?
    Virtually everyone is looking for an “angle”, the “gimmick”, the “bailywick”, the IN, etc. The chips NEVER fall where they may. Our present government leaders operate much as they did a century or more ago. The only thing “different” now is the internet. If enough people stop buying the “conventional wisdom” crap that most of us grew up with as gospel, a lot of pressure can be applied to the LLCs who really rule our lives. For example, if back in the 19th century the europeans rushing to populate the USA were informed of what the railroads were doing (most of the deaths involved “immigrant” trains), the hanky panky at the railroads would have stopped much sooner. We need to be informed and inform everyone we can. This will bring us fuel efficient cars (or electric) instead of double talk. BLOGs scare the shit out of the LLCs because they don’t have an information monopoly any more. The big bosses have always used this information monopoly to hurt society while they touted the values of the free market. The internet is first chance we have ever had to prove that a democracy is superior to a plutocracy. It’s a fight. It’s not about capitalism. It’s really about perpetuating an unfair advantage by the elite. It won’t work this time. And for you die hards: Believe me, it will make you feel better to have a more decent society.

  20. censeo says:

    A brilliant point by point, comprehensive description of The Folly, namely holy deregulation; government is baaaad baaaaad. I am glad to see the things I’ve been saying for years coming from a keen observer: someone who deserves esteem.

    I was working at the FDIC during the S&L crisis. Tearing down Glass Steagal was the talk then, a good ten years before the Banking act of 1999 did the deed. I just couldn’t believe the idiocy of even considering it.

    Greenspan was a shadow character at the beginning of his reign. I could not understand the growing glory put upon him and his supposed brilliance anymore than I could understand what came out of his mouth. Talks kind of like a deconstructionist: big words put into creative juxtaposition. Gibberish. Emperor Greenspan at congressional hearings swathed in words called beautiful by… well just about everyone. The brilliant Emperor in his new clothes. Butt necked to me. It all fell into place for me when I learned he was a Randian. If you have gotten past your sophomore year and still bow to that demented woman you got some problem: ego, height, size.

    Self regulation. Everyone is a child. When no one’s looking your going to take the cookie. Yeah, self regulation. Like we don’t need police. The country is on the honor system. Oh, and if you do something wrong and get caught. Well, that’s okay. How much of Keating’s fines did he pay. I think it was a couple of thousand dollars. Literally.

    I guess we can be thankful for one thing that didn’t make it onto the list: the flat tax. We’ve come pretty close with regressive taxation.

    And there’s a bunch of mouths out there right now with books, columns, tv time talking revisionist New Deal. Namely, that is was wrong, destructive, lengthened the depression, claiming-as some do about the current situation-that left alone the country would have been rolling along by 1935. Yeah. Right. All the banks were about to fail in 1933. Yes, eventually all. There are times when just about everyone is trying to cut in on the Stupid Line. I am glad to see Stiglitz and Roubini and Volcker and Keynes on the radar screen. It’s about time. And if we don’t pay attention for shame. Greed is good is what got us into this mess. The Midas fable should be required reading for everyone.

  21. DL,

    you go with: “I don’t know if they(the FedRes) really had the power…”

    that’s inane, talk to a ‘Banker’ that has had his “Fed Wire” access cut-off, he’s probably, now, a barista, or, if he’s lucky, shilling FHA re-fi s..

    AGG (and Mannwich),

    note the, proper, context: “A word about the glorious 19th century free market”

    my friends, things have changed over the last 150 years (yes, file under: Ripley’s).

    being a Gambling man, I’ll wager: For all your squawk, above, about ‘child labor’, ‘slavery’, and rapacious Tycoons, that, still, your homes are festooned with multiple ornaments “Made in China”..

    LSS: take it easy on the Inkblots, and be careful of the Hypocrisy..

  22. this, though, from AGG: “Our present government leaders operate much as they did a century or more ago. The only thing “different” now is the internet. If enough people stop buying the “conventional wisdom” crap that most of us grew up with as gospel, a lot of pressure can be applied to the LLCs who really rule our lives. For example, if back in the 19th century the europeans rushing to populate the USA were informed of what the railroads were doing (most of the deaths involved “immigrant” trains), the hanky panky at the railroads would have stopped much sooner. We need to be informed and inform everyone we can. This will bring us fuel efficient cars (or electric) instead of double talk. BLOGs scare the shit out of the LLCs because they don’t have an information monopoly any more. The big bosses have always used this information monopoly to hurt society while they touted the values of the free market. The internet is first chance we have ever had to prove that a democracy is superior to a plutocracy. It’s a fight. It’s not about capitalism. It’s really about perpetuating an unfair advantage by the elite. It won’t work this time. And for you die hards: Believe me, it will make you feel better to have a more decent society.”– es verdad

    Elections are not Quadrennial affairs, nor Bi-ennial, or, even Annual. They are held Every Day of our Lives. The way we choose to spend our Time, and our U$D, in the Marketplace of Goods & Ideas, Inform our Days, and Shape the ‘Morrow we’ll trod..

  23. Ben W says:

    I don’t know why this didn’t show up before but on those evil 19th century railroad men:
    Burton Fulsom, an economic historian has written pretty extensively on the era and notes that there were those who were political entrepreneurs and those who were market entrepreneurs. Those working on the Transatlantic Railroad were subsidized extensively by the government, and the government policy which paid more for the more track that was laid incentivized them to make their tracks longer (which would probably explain the crappier material being used for parts of the tracks). The trains were also forced to go on steeper grades because of the increased lengths of tracks built. James Hill on the other hand did not seek any government help and built a far better track at a lesser cost and generated more revenue. When the other railroad tycoons all asked for loans from the government, Hill did not need to. Rockefeller and Hill were both attacked by those who were supported by the government in their enterprises because they made greater revenues by selling their better quality products at cheaper prices because they had to to compete. All regulations advocated by the political enterprepnuers ended up leading to crappier products and more poorly run enterprises.

    As for AGG’s comment on the poorer working conditions, the unions did their jobs in terms of seeking a better life for their workers. However, as recent times show us, they overstepped their bounds to the point where their actions sowed the seeds of destruction for the enterprises. It should be noted though that the superior businessmen like Ford and Rockefeller paid those who were most innovative and produced the most revenue very handsomely, and paid their workers in general higher rates than others in their respective businesses because it made sense from a business perspective to treat their workers well.

    These are specific arguments, but the fact of the matter is that regulation has always been created to protect certain interests. There are also always unintended consequences to them. The Keynesian solutions however are not right. I believe only the Austrians have a conception of how a truly sound economy should function.

    socialistsatthegate.blogspot.com

  24. Ben W says:

    I don’t know why this didn’t show up before but on those evil 19th century railroad men:
    Burton Fulsom, an economic historian has written pretty extensively on the era and notes that there were those who were political entrepreneurs and those who were market entrepreneurs. Those working on the Transatlantic Railroad were subsidized extensively by the government, and the government policy which paid more for the more track that was laid incentivized them to make their tracks longer (which would probably explain the crappier material being used for parts of the tracks). The trains were also forced to go on steeper grades because of the increased lengths of tracks built. James Hill on the other hand did not seek any government help and built a far better track at a lesser cost and generated more revenue. When the other railroad tycoons all asked for loans from the government, Hill did not need to. Rockefeller and Hill were both attacked by those who were supported by the government in their enterprises because they made greater revenues by selling their better quality products at cheaper prices because they had to to compete. All regulations advocated by the political enterprepnuers ended up leading to crappier products and more poorly run enterprises.

    As for AGG’s comment on the poorer working conditions, the unions did their jobs in terms of seeking a better life for their workers. However, as recent times show us, they overstepped their bounds to the point where their actions sowed the seeds of destruction for the enterprises. It should be noted though that the superior businessmen like Ford and Rockefeller paid those who were most innovative and produced the most revenue very handsomely, and paid their workers in general higher rates than others in their respective businesses because it made sense from a business perspective to treat their workers well.

    These are specific arguments, but the fact of the matter is that regulation has always been created to protect certain interests. There are also always unintended consequences to them. The Keynesian solutions however are not right. I believe only the Austrians have a conception of how a truly sound economy should function.

  25. Namazu says:

    Stiglitz is a charlatan with a hobby-horse and a big pitcher of Kool-Aid. Surely the words ‘free’ and ‘US mortgage market’ don’t belong in the same sentence. The core underlying mistake was to allow the Federal Reserve and the fractional lending system to wildly inflate the supply of money and credit. Tighter monetary policy would have constrained the bubble and funneled money towards better credits. Greenspan surely deserves our scorn, but remember that the pinnacle of his celebrity status was achieved by being hands-on, not hands-off. The notion that having more enlightened mandarins twiddling the dials will prevent future excesses is both counter-factual and a-historical.

  26. Mannwich says:

    @Mark E Hoffer: AGG (and Mannwich),

    “note the, proper, context: “A word about the glorious 19th century free market”

    my friends, things have changed over the last 150 years (yes, file under: Ripley’s).”

    Human nature has not change one bit. Sorry, not buying it.

  27. AGG says:

    Hoffer,
    You forgot to yell before you whacked us with all those chinese ornaments. Yeah, I’m guilty of buying inexpensive, bargain (okay, cheap) stuff from time to time without doing tree hugging due diligence. So that makes a your blind defence of all things profit orientated all right then?
    You must have had quite a great grandpappy.

  28. Mannwich says:

    @Mark E Hoffer: And re: your comment about “Made in China” – you are probably correct to some extent but I can guarantee you that I am maybe the biggest anti-consumer I know. I now rarely buy new underwear (I know, too much info, but you get my point) mainly because I loathe the act of shopping (for many reasons, one of which you stated)……..

    So I can assure that I do try to limit my own direct and indirect exploitation of others. None of us are perfect in that regard but we certainly can make an attempt to limit our contributions and collateral damage and I can assure that I am, at least, trying and fighting the good fight.

    It just annoys me to see many of us still worshipping the false god of unfettered free markets. Human nature has never been, and never will be, ideal. SMART laws and regulations (enforced by smart, honest people) will always be necessary, however imperfect they may be as long as that’s the case.

  29. AGG,

    Ben W, above, provides an Historically accurate rebuttal to your one-sided attack on 19thC. ‘Railroad Men’..it’d be interesting to see you unwind it..

    and, what’s the ‘tree hugging’ due dilly? pissed that you have no Cash left over from being Taxed out of you gourd by USGov’t? or, having what you earn Inflated, toward zero-value, by its Duoploistic partner, the FedRes?

    You were the one on the tear about ‘wicked Capitalists’, I was only suggesting that you mind the Hypocrisy..

  30. Ben W says:

    It should be noted that there is a distinction between smart laws and regulations that restrict fraudulent or illegal behavior, and laws and regulations that attempt to hamper the markets. This is a fine distinction. We need laws and regulations to ensure that people’s property is protected, and that if genuine fraudulence occurs, those who perpetrate the fraud go to jail. On the other hand, the government’s actions now of buying up crappy assets with taxpayers money, bailing out companies that would fail in a free market, subsidization and banning of short sales for example are all examples of the government trying to fight against the laws of economics. These laws are not justifiable and further restrict the ability of market participants to act as they otherwise would. In the long run, all efforts to fight market forces will fail, as the New Deal showed. Keynesians had it wrong and Austrians had it right.

  31. philipat says:

    Sor grapes from one who has not been invited to dance?

  32. Mannwich,

    w/ this: “It just annoys me to see many of us still worshipping the false god of unfettered free markets. Human nature has never been, and never will be, ideal. SMART laws and regulations (enforced by smart, honest people) will always be necessary, however imperfect they may be as long as that’s the case.”

    as I mentioned, in a thread nearby, there’s a big difference between: One Watchdog, and paying 20 Watchdogs not to Bark..

    and, to your point re: Human Fallibility, of course, it was a Major Reason why our Founding Fathers, so strictly, proscribed Governmental Powers, in the first place..

    http://www.wordreference.com/definition/fallibility

  33. Graphite says:

    “In the year 1864 more people died in train ‘accidents’ than from civil war combat.” I call bullshit. Link, please.

    So, how much time are Mr. Keynes’ theories supposed to be given to work this time around? He got about 7 years during the Great Depression. Japan’s working on their 18th year of Keynesian wonderland. Actually, Paul Krugman is already making preemptive apologies for a global lost decade, so I suppose that Mr. Keynes will be given 10 years at least to get it right this time.

  34. Graphite says:

    “It just annoys me to see many of us still worshipping the false god of unfettered free markets. Human nature has never been, and never will be, ideal. SMART laws and regulations (enforced by smart, honest people) will always be necessary, however imperfect they may be as long as that’s the case.”

    You are begging the question. Merely asserting that human nature is not ideal does not even *begin* to establish that regulators are capable of or should be trusted to make it so. In fact, it doesn’t even make the case that they can do anything to improve the situation.

  35. algernon says:

    Well said Ben W & Mark E Hoffer. We need gov’t as a referee & to police any possible force & fraud. Gov’t invariably fails at task more grandiose than these. For example, controlling the Money supply, as over the last 40 years they respond to every economic stress by printing money to depress interest rates–then scratch their heads as to why we don’t save.

    If you don’t believe in free markets, you don’t really believe in freedom.

  36. Steve Barry says:

    An excerpt on Keynes from Landis’ fabulous piece on gold:

    Lord Keynes, along with Vladimir Lenin, pictured at right, ranks among the most destructive forces unleashed by World War I. Keynes was a Fabian socialist who provided intellectual cover for inflationism. He was more subtle than Lenin, more a termite than a thug. He’s best known for authoring bogus economic theories that turned classical economics on its head, undermined Western values and philosophy, and enslave us to this day. But he was also a devastatingly effective participant in the monetary debates that followed the Armistice. It was Keynes who famously called the gold standard a “barbarous relic.” In the words of a biographer, Keynes “killed it almost singlehanded.”

    http://www.goldensextant.com/LLCPostings4.html

  37. Stuart says:

    Fools you say, eh? Oh Ben, you’ve got some ‘xplainin’ to do….

    Fed Weighs Debt Sales of Its Own
    Move Presents Challenges: ‘Very Close Cousins to Existing Treasury Bills’
    DECEMBER 10, 2008, 12:00 A.M. ET
    JON HILSENRATH and DAMIAN PALETTA

    The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.

    Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.

    The Federal Reserve drained $25 billion in temporary reserves from the banking system when it arranged overnight reverse repurchase agreements.

    Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.

    It isn’t known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn’t explicitly permit the Fed to issue notes beyond currency.

    Just exploring the idea underscores many challenges the ongoing problems are creating for the Fed, as well as the lengths to which the central bank is going to come up with new ideas.

    At the core of the deliberations is the Fed’s balance sheet, which has grown from less than $900 billion to more than $2 trillion since August as it backstops new markets like commercial paper, money-market funds, mortgage-backed securities and ailing companies such as American International Group Inc.

    The ballooning balance sheet is presenting complications for the Fed. In the early stages of the crisis, officials funded their programs by drawing down on holdings of Treasury bonds, using the proceeds to finance new programs. Officials don’t want that stockpile to get too low. It now is about $476 billion, with some of that amount already tied up in other programs.money it created itself — known in central-banking circles as bank reserves — and has used the money to make loans and purchase assets.

  38. AGG says:

    Graphite,
    Would I lie about 1864? Okay, I can’t give you a link because I read this information in a book from the Burnham library in Essex Junction, Vermont titled History of U.S. Railroad accidents (sorry, I’m not sure that was the exact title either) two years ago while recovering from heart surgery. It had lots of horrible pictures of death and carnage as well as some entertaining ones. Some outfits would actually ram two locomotives together at a field with a merry explosion ensuing for the paying audience. As to the accidents, I was gobsmacked by how much death occurred before anybody did anything about it. The enlightened self interest of railroads was absent. The bad publicity of all the crashes didn’t phase them. Yes, I agree the civil war death numbers versus railroad accidents sounds like bullshit and my eyes popped out when I read it but it’s true and in the book. They painstakingly document the numbers year by year as they grew starting from the early railroads in 1837. I’ll try to find the exact title and mention it on this BLOG. I’m retired so it might take a few days. I have a cat that gets seriously upset when I cut down on his time on my lap.
    Rockefeller was an oil man. Hoffer wants me to argue about technology and competition in the 19th century railroad environment. Okay but you’re not going to like it. Virtually EVERY innovation was driven by death:
    1) Boiler explosions produced improved boilers.
    2) Iron rails replaced wooden iron strap covered rails beacause of the “iron snake” problems.
    3) Flagmen in the Caboose and then brightly lighted Cabooses evolved from trains smashing in to the rear of idled trains.
    4) Stronger passenger cars with interconnected and emergency independent breaking systems.
    5) Time standardization in the USA came from time schedule tradgedies with trains.
    6) Engineering standards came from a lot of broken bridges.
    7) You’ll never guess why such strong “headlamps” evolved for trains.
    The well being of passengers from a competitive standpoint was wrongheaded because the passenger car luxury seats and plush cushions were a fire hazard. The polish and wooden trim were quite appealing and because the wood was kept well waxed, it would burn brightly. Appearances meant a lot but safety was a non issue Mr. Hoffer. And I’m not talking about slavery and wages for railroad workers either. I’m talking about the paying customers being abused by undermining their safety for profit .
    Now getting back to all these semantic games with the word “free”; I don’t wish to have the government lord it over your every move and I don’t want to limit your profit in any enterprize as long as you don’t contribute by your actions to the destruction of civilized society.
    To claim that you’re just innocent lambs out to be sure we’re all free is laughable as well as dishonest.

  39. AGG says:

    And just for the record, I would like all the Mises people to know that YES, I would love to see the Fed abolished and the USA on the gold standard but as long as humans run business, I don’t want the government ot be for sale to the highest bidder like it is now. Perhaps, if I was, like my friend Mr. Hoffer, one of those high bidders, I’d have a different attitude but I like to believe that my integrity would win out. We have to have a government and the people that govern need to control the alpha beasts first. Pie in the sky? Locks are to keep honest people honest. Crooks will always find a way.

  40. AGG says:

    Graphite,
    Here it is:Train wrecks / [Robert C. Reed].
    AUTHOR: Reed, Robert C.
    PUBLISHED: New York : Bonanza Books, c1968.
    DESCRIPTION: [ ] p.
    SUBJECT: Railroad accidents–United States–History.

    Reality can be a bitch because you and I have been feed bullshit PR most of our lives. I’ll bet all you knew about the civil war deaths was that comment about how more died from disease than wounds. It’s all they wanted us to know. Dig. The world is a much messier place than we were led to believe.

  41. Steve Barry says:

    Fed to issue debt now? Where does it all end? I think they will try the obvious…just print a million dollars per family and mail it out…instant boom! Repeat as necessary…and be fair…even billionaires get it.

  42. The FedRes issuing additional Debt should be a real eye-opener..

    I wonder how many, though, will overlook this: “One hurdle: The Federal Reserve Act doesn’t explicitly permit the Fed to issue notes beyond currency.”–the frank admission that our currency is nothing, but, Debt..(?)
    ~~

    AGG,

    where is this: “Perhaps, if I was, like my friend Mr. Hoffer, one of those high bidders, I’d have a different attitude but I like to believe that my integrity would win out.”, coming from?

    this: “Reality can be a bitch because you and I have been feed bullshit PR most of our lives. I’ll bet all you knew about the civil war deaths was that comment about how more died from disease than wounds. It’s all they wanted us to know. Dig. The world is a much messier place than we were led to believe.” though, is, sadly, too true..

  43. admiralshovell says:

    AGG-

    I’ll waive the BS flag as well on your railroad statistics. Some quick googling shows Civil War deaths total between 600,000 and 700,000, more than half of those due to disease, with actual battle deaths totaling about 225,000.

    The Amazon “product description” for the book “Death Rode the Rails: American Railroad Accidents and Safety, 1828-1965″ by Mark Aldrich states “Yet by 1907 railroads had also become the largest cause of violent death in the country, claiming that year the lives of nearly twelve thousand passengers, workers, and others.”

    The Battle of the Wilderness, May 1864, resulted in more than 25,000 total casualties, in just a couple days, with over 12,000 deaths, many wounded burning to death in a forest fire started by the fighting.

    That’s just one battle. It took the railroads another 53 years to kill that many people in a year.

  44. Gene says:

    To paraphrase: so many opinions, laid end to end, will never reach a conclusion.

    The market, sans morality, can never be self regulating.

    As long as it’s OK to “get what’s mine”, at the expense of the larger society and fiduciary duty, company management will never be able to manage again.

    As long as short term financial results dominate investor thinking, GM, Chrysler and maybe Ford will have a very tough time competing against Toyota, Honda and other companies able to think and plan over the long haul.

    And remember, Joseph Stiglitz’s opinion and $0.85 can buy you a cup of 7-11′s finest coffee.

  45. Patrick Neid says:

    “The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal.”

    It would be nice if that had existed. Then we could test his theory. [BR: It was the dominant economic philosophy for 3 decade; you’ve come as close as you are likely to come]. ”

    ……………………………………….

    That may have been the economic philosophy as you point out but it was not the reality in principle. The free market has always had the foot of government manipulating it since the Federal reserve was created and the New Deal came into existence. All we have ever had is a sine wave of rising and falling interference. At the root of it all is the tax code. Everything that a business does is based on this bench mark. Change that and you change business. Mark to market anyone!

    Throw in a Fed that manipulates the level of interest rates to effect the latest political fade and you get a non free market. The official day of recognition/acceptance occurred on Oct 20, 1987 when the Fed birthed the fabled “Greenspan put” on black Tuesday. The crowds cheered but not free market advocates. It is no coincidence that the great bubbles of the last 15 years, the Internet, commodities, oil and the grand daddy of them all–Housing, all have their roots in basically one percent money and countless Greenspan puts at work. Super imposed on all this are political imperatives, the last being home ownership. This time it was the GSE’s. The market always gravitates to the sanctioned easy money. The Fed and the politicians know this. They stir the drink. Then when they get in a head on they blame the market.

    Now with said bubbles crashing we are getting the government intervening again, further distorting the marketplace cheered on by political partisans posing as economists or moby’s. They are easy to spot–they want intervention all the while claiming they have to because the “marketplace” is out of control. It’s a nice gig if you can get it. You might even get a Nobel prize.

  46. What I find humorous about this discussion is the assumed — but unproven — premise that corporations want an “unfettered” free market that is truly free of government influence. Experience shows that opposite. Corporations are constantly and incessantly trying to game the system to their advantage (and to the disadvantage of competitors) by convincing government regulators to tamper with the “free market.” This can take the form of outright bribery, or through indirect bribery (campaign contributions), or lobbying percs (vacations to Puerto Rico, use of private jets, etc.

    Shareholders could not care less if their corporation is operating in a philosophically pure “free market” so long as they are receiving adequate value for their $$$.

  47. Douglas,

    with this: “premise that corporations want an “unfettered” free market that is truly free of government influence. Experience shows that opposite. Corporations are constantly and incessantly trying to game the system to their advantage (and to the disadvantage of competitors) by convincing government regulators to tamper with the “free market.” This can take the form of outright bribery, or through indirect bribery (campaign contributions), or lobbying percs (vacations to Puerto Rico, use of private jets, etc.”

    two things: 1.) No question that Big Government is Big Business’ greatest ‘friend’, though 2.) who is forwarding the premise: “that corporations want an “unfettered” free market that is truly free of government influence.”(?)

  48. Ventura2012 says:

    Barry…how can you claim the free market system has failed..this boggles my mind when I hear this nonsense. The reason the system has failed is simply a function of govt interference in the business cycle and much needed recessions being politically incorrect. The Austrians have been warning about this for quite some time and have predicted every thing that would happen as a result of government interference in the business cycle.

  49. richard says:

    About this railroad story, as per AGG. In part: “Railroads saved money by nailing iron strips over wooden rails. These strips had a bad habit of coming off just when a train was going over them.”

    The first railroads (US 1820s and 1830s, say) used squared logs topped with iron straps, as wood alone lacked longevity. By the early 1840s (that’s 20+ years before the Civil War) solid iron (later steel) rails in something very close to the shape we know today were already in almost universal use, exceptions being the smallest, slowest, shortest railroads (Adirondack mining and logging roads, for example). That is, strap iron rails were a stage of development, not the produce of plutocrat parsimony.

    As to AGG’s source. Robert C. Reed is (now perhaps was) a railfan and a hobbyist, not a historian. He can (could) certainly comprehensively catalog all the various driving-wheel configurations on steam engines produced by the Baldwin Locomotive Works. But he cannot (could not) be counted on to accurately describe the business, economic or social impacts of railroads in American history. That wasn’t his gig. (By the way, there’s an entire railfan literature out there (trolleys too) that’s similarly long on pictures and short on context.)

    I know this is secondary issue, but it goes to credibility. That’s would be your credibility, AGG.

  50. The Curmudgeon says:

    I’m just wondering, for all those that see free markets as evil because the humans participating in them are inherently evil…how does one get from evil human individuals to good collectivists? Do humans somehow get transformed along the way from individuals to members of groups such that they collectively become good? If the answer is that collectivized humans become good because their evil individual natures cancel each other out when organized in a collective society, is that any different than how a competitive market is intended to function?

    The debate over whether free vs regulated markets caused the ongoing and accelerating economic collapse is quaint but not particularly relevant. The immediate cause of the collapse is the unmasking of the illusion of aggregate demand and wealth creation by dint of excess money creation. The underlying cause is an inherent willingness among humans for delusion, coupled with demographic forces, domestic and international, that operate well outside the ken of our control. No manner of regulation, more or less, would have saved us from ourselves, or from forces beyond our control.

  51. DeDude says:

    That pretty much sums up what went wrong: The failure to correct or sometimes even recognize flawed incentives. Personal economic incentives (or greed) is the major strength, as well as the major weakness of capitalism. If you want capitalism to succeed you have to make sure that you have a strong government hand ensuring that the gread remains productive and never is allowed to become destructive.