Fail Economics & You

``I'm sure there are some of my friends out there that are saying, 'I thought this guy was a market guy, what happened to him?''' the president said. ``My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became.'' 

Should that not be "My first instinct was to let the market work,
until I realized, while being briefed by the experts, that the market
doesn't work.''?

Also my ideological development is coming along well. I now believe
that laissez-faire is closer to fascism than the middle road. Law of
the jungle just means that private entities will form their own
oppressive cartels and marketing machines that are just as damaging to
the pricing mechanism as communism. Lawlessness is freedom only in the
sense that there is no "official" entity to enforce their views upon
you, but the empowering of private entities just means that vigilante
style unwritten laws will be enforced upon you by whoever is king of
the jungle. Furthermore the private sector simply cannot provide
certain services to the populace or can do so only inefficiently and
in any case will not structure a long term development plan or cope
with crisis. If there's even a moderate disaster or crisis the entire
market mechanism breaks down and is paralyzed. Whenever a country has
to "rise to an occasion" during a crisis, it is invariably the state
that takes the physical real action to fix things, while the private
sector stands stupefied because their one trick pony pricing mechanism
is acting up.

It is at that point that it is seen, the market doesn't have a plan.
If it can't be conveyed in the pricing mechanism then the private
sector cannot understand it. The fundamental problem with alot of
economic analysis is that it uses money as its base measurement, as
opposed to what is physically happening in the world. If I fix my own
computer monitor so I don't have to buy a new one, the monetary
economist sees a drop in "aggregate demand" because I did not waste my
money on a new monitor, while the physical economist sees a gain in
wealth as the need for toiling to forge a new monitor was averted by
my almost costless repairs.

I am moving towards a middle ground of policy, though a part of the
middle ground I have never seen anyone else stand on. I favour high
taxes, low spending (to the point where the government has a continous
surplus which builds up - perfect for a crisis where, if it really
becomes necessary, it can spend/tax rebate without borrowing, greatly
enhancing the stimulative effect. though I am not a believer at all in
the virtues of stimulative spending. still more thinking to be done.),
regulation, zero inflation (considering an expanding economy this
means a slowly expanding money supply), no import tariffs of any kind,
no export incentives of any kind, a unified tax system where capital
gains are treated the exact same as income (the current system of
treating them differently is bizarre and immoral), no subsidies
related to agriculture and indeed a general avoidance of subsidies of
any kind if possible.

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was in response to article here:
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_hassett&sid=a8nlSNo7H0Rc

Dear Sir,

I have just read your article on Bloomberg titled "Big spending
Democrats squander trust of voters." From previous viewings of
Bloomberg television I knew you were a man of loyalties inclined
towards the Republican party, and from my perception of things, that
loyalty stemmed from your support of low taxes and low government
spending. However I cannot understand how you can continue to beat
that drum, after 6 years (2000 - 2006) where the Republican party had
control of the Presidency and both houses of congress and proceeded to
spend their way down the road of long-term financial ruin for the
country, and exacerbated this further by cutting taxes. Furthermore, a
large portion of the excess spending was on military endeavors and
excursions that have no productive utility, making these deficits even
more economically destructive than what I imagine you would imagine a
stereotypical "Democrat-style" deficit to be, namely, excessive
spending on unnecessary infrastructure or social programs.

Indeed you make a fine argument that the Democratic congress has
been even worse in the two years after, but was it not the Republicans
who forced the Democrats into breaking their "no new spending without
new revenue to match (I'm sure it had a better name than this)" over
some issue related to military funding or something like that? That to
withhold funding would be a betrayal to the troops or so it was
phrased? Apologies for my vagueness, I am not a man who follows
American politics as well as you no doubt do. My point is, unless I
have completely imagined the above episode, that the Republican side
of congress tried and succeeded in getting the Democrats to spend more
without taxing more by bringing some question of
patriotism/nationalism into the debate, and therefore proved their own
continued lack of fiscal discipline?

I also note that you are involved in the campaign for the election
of John McCain to the Presidency. A man who once opposed the Bush
tax-cuts on the grounds of fiscal responsibility, but now wishes to
extend them further should he be elected. A man who, by admittedly my
own assumption from his policy statements, is more than willing to
spend as liberally as Bush regime has on ultilityless military
adventures. Can you explain to me, how tax cuts and large military
expenditures will close a budget deficit approaching half a trillion
dollars in the current year? Can you explain to me how you justify the
actions of the party you so vehemently support, given you own apparent
revulsion towards budget deficits?

For America to have any hope of becoming free from the shackles of
public debt, a Robert Rubin style fiscal dicipline consisting of tax
increases and spending cuts is nescessary. Tough love is a beautiful
thing. Grasping reality has proved remarkably difficult for the
Republican party over recent years, be it related to religion and
science or internaltional relations or fiscal responsibility. But
surely a thinking man such as yourself can see the truth before your
eyes?

My personal recommendation to you Sir, if I may be so bold, is that
if you truly wish to see a debt free American, then defect to the
Democratic party and use all your efforts to direct them towards the
above mentioned Robert Rubin style fiscal discipline. He is already an
adviser to Barack Obama, and a man such as yourself would surely be a
fine asset in stopping the pro-union Democratic elements from
hijacking a potential Obama administation's economic policy. The
Democrats have shown once before that they can back policies to fight
the debt under Rubin's idelogical guidance. Surely you too can see
this as a great opportunity to liberate your country from the shackles
of debt?

I do not expect a response from a busy man such as yourself - though I
would enjoy reading it - but I would ask that you consider my words as
they are and give honest thought to them.

Sincere regards,

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"European policy makers also face more constraints than their U.S. counterparts in responding to weakening growth. One is inflation, which remains above the ECB's 2 percent limit. Governments have their hands tied by EU rules that require budget deficits to be below 3 percent of gross domestic product. 

Neither restraint exists in the U.S., allowing the Fed to cut its
benchmark rate to 2 percent and President George W. Bush to enact $168
billion of stimulus. Europe's strategy amounts to a bet that expansion
can be better revived by controlling inflation and budgets than by
pump-priming growth with short- term stimulus that generates higher
prices and bigger deficits.

Fiscal Easing

Spending taxpayers' funds on fiscal programs to spark growth would be
``like burning money,'' German Finance Minister Peer Steinbrueck said

ECB President Jean-Claude Trichet, who has demanded governments
control their budgets, said the test would be ``implementation in
practice.'' Price stability remains the bank's ``fundamental
concern,'' he said in Nice."

I think budget restraint and keeping inflation under control will be
far more effective than frantically looking for something to throw
government money at and swamping the financial system with cheap
money. Besides, any money spent by the government in a deficit
situation is just more money pulled from the private sector through
government debt sales.

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"Obama, 47, an Illinois senator, consulted this morning with his top economic advisers, including former Treasury Secretary Robert Rubin and former Federal Reserve Chairman Paul Volcker." 

They're the only two American's I respect! There's hope for the silly
country yet, if he wins.

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Good read:
http://www.nytimes.com/2007/08/26/magazine/26neworleans-t.html?pagewanted=1&_r=1

Also I seriously believe there is a significant chance of the Japanese
Government defaulting on its debt if it gets hit with a big
earthquake. I think it's a big tail risk, along with the
disintigration of China into ethnically/religiously partitioned
states. Very unlikely but more likely than almost everyone thinks.

Will write articles... eventually.

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http://www.bloomberg.com/apps/news?pid=20601039&sid=a6HMtlVh5Rhk&refer=home

what he actually believes the next bubble will be in isn't really the
gold in this article, it's the general concept. He is absolutely
correct on the concept of one bubble after another. hot money will
pile into something else when the last thing explodes. i've seen some
writings that actually blame the yen for all this, being able to
borrow so cheaply and swap it out into anything means any old hedge
fund can leverage up very easy and at minimal cost. this would also
explain the larger spacing of bubbles before the turn of the
millennium.

he is also right that every bubble starts in something that really is
fundamentally very sound and promising, and that it is just blown all
out of proportion.

this is yet another example of writings I find every week or so in the
96th percentile of insightful philosophy/thinkness (rough guess).
reading such things will enhance your universe comprehension.

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