Letters to the Editor
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Socialism of the rich, for the rich, by the rich
profoundly undermines the political logic of laissez-faire capitalism in the 21st century
I don't think there's anything profound in this sentiment, since this simplistic idea has been spouted by all types of megalomaniacs over the course of decades, if not centuries. These people are simply bothered by the idea that they can't control everything, and as society becomes increasingly dynamic and complicated, they become more anxious.
To take this sentiment seriously, you have to buy into the absurd notion that the more complicated things get, the easier it is for some central regulator to understand them and control them. It's also based on the unsupported assumption that someone like a "former Goldman-Sachs CEO" and Bush Administration lackey would have any concern for regular folk or appreciation for self-organizing markets, when experience tells us that these sorts of people always have been willing to use government power to enrich their cronies and their class.
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Buy do I feel stupid
I should have spent like a drunken sailor on Bangkok shore leave and let the government let me off the hook.
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Bueller . . . Bueller
I can't believe Ben Stein has turned into such a tool. Or rather, that his tool-ness has taken this long to overtake my fond Ferris Bueller memories. Although I'm more annoyed at him for the upcoming Expelled anti-evolution production than his econoblogging ubiquity.
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Where this is leading to
"people always have been willing to use government power to enrich their cronies and their class."
I am in complete agreement with Adam Ricketson on that one. The operative word is always, and I think history shows this to be true in the vast majority of cases. This is human nature at work, and any system that fails to take that into account is flawed, to put it mildly.
"...subverts traditional Republican market ideology...the political logic of laissez-faire capitalism"
From a POSIWID viewpoint (POSIWID = the purpose of a system is what it does) it is questionable whether laissez-faire capitalism as is advocated by the Republican party is actually their ideology, or rather simply propaganda in service of creating and supporting an oligarchy. I'll leave this discussion for another time, but its worth considering the possibility that their proposals are not idealogically driven and shouldn't be taken at face value. Instead, I'm going to take a different approach.
A complex system is by its nature anti-market. The market system relies on the ability of consumers (individuals or business entities) to make informed choices. If they can't understand the ramifications of the financial decisions they make, the entire mechanism of the system is undercut.
Mr.Leonard's point about life on the planet getting progressively more complex is certainly true, but that doesn't necessarily extend into the economic arena. Our economy is only as complex as we allow it to be. Through the use of laws, we already regulate what is legal and illegal economic activity. If a certain approach isn't serving the public good, then their is no reason to continue it if the common good is the goal.
"when innovation has greatly increased the complexity of achieving beneficial solutions"
That points to one solution, perhaps we need to stifle innovation. Not the innovation of new technology, but rather the innovations of clever financial wizardry. We have just completed a case study in the effects of collatoralized debts, and the results seem to show that the risks outweigh the benefits. Why are we debating ways to reform this approach, when we can just as easily discard it? Probably because powerful people are getting even more powerful based on it, and they don't want the party to end, even as they realize they've let things get out of control.
I worry that the government is dealing with the mortgage crisis as if it were the disease, while in fact it is only a symptom of a larger problem. There will be much noise about how they are going to keep THIS from happening again, with no consideration of how to prevent THIS SORT of thing from recurring. New safeguards may be put in place, but clever people, driven by greed (nothing wrong with that, it is human nature) will find new exploits of the system. As soon as the "reforms" are enacted, the next crisis will be in the works.
In the long run, our nation can not be expected to sustain itself based on clever manipulation of money markets. While it might be great for those who are benefiting from it presently, as the system starts to fail, they will all move to Abu Dhabi, and take their money with them. The rest of us will be left with an economy where the primary productive capacity and attendent infrastructure have suffered from decades of neglect in favor of more profitable but completely ephemeral enterprises.
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"When innovation has greatly increased the complexity of..."? Aaaaak!!
Innovation, heh, my ass.
Should read: "when greed has greatly increased the complexity of achieving beneficial solutions".
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How unfortunate that Mr. Paulson doesn't trust the marketplace
It is infuriating but not uncommon for business people to have little understanding of the market. What is even more infuriating is that Mr. Paulson also doesn't understand government.
Complexity is precisely where the government falters (although, truth be told, the government often takes simple things and makes them complicated).
The mortgage situation is the very essence of a self-correcting problem, one exacerbated by government's insistence that the road to prosperity is owning a home. Owning a home is an expensive proposition and not necessarily in everyone's best interest.
It is unfortunate that some people will be hurt in this situation, although the number of subprime mortgagees who failed to read even the rudimentary points of their contracts is appalling. There are no doubt ways to help them that don't involve the strong arm of government. Surely all these mortgage companies don't want to deal with massive ever-devaluing properties.
I have seen some significant economic busts in my life and life has gone on, just as it will when the dust settles on this so-called crisis. Government intervention is only going to prolong the agony.
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laws and complexity
Calcareous has a good point about our options for regulating the complexity of our economy/society and what that means for our ability to predict the consequences of our actions.
However, I doubt that a little regulation is enough to simplify the situation. From what I recall, regulations are typically used to stabilize a situation -- thereby promoting the development of further complexity. Nature basically presents us with two options--either stabilize the complex system or allow it to collapse back into a simpler state. In this scenario, investors may learn that these complicated financial instruments are inherently risky due to our inability to understand them -- this lesson will prevent investors from making similar investments in the future, and will keep the system simple.
I think on a more fundamental level, we've allowed ourselves to get into a situation where the basic nature of our economic system is so complex that no person can understand it -- definitely not a regular person. As soon as we started buying our food in the supermarket, we basically lost the ability to judge whether the food was produced five miles away or five thousand miles away. In a classic market interaction, we delegated that responsibility to the merchant.
Anyway, changes to the law could work in two ways:
1) Refuse to enforce particular, complexity-promoting contracts.
2) Prohibit activities, even when they don't require enforcement.
I'm skeptical about the second approach, because we've tried it (drug prohibition) and I don't think it works that well. In fact, I think it has drastically complicated many aspects of our society. I'm not sure how the first option would work, or whether it is particularly suited for this situation.