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Regulation Schmegulation

by Michael Shermer, Dec 09 2008

With the market meltdown of the past year those of us who are long-time supporters of the freedom of markets have by now heard the refrain: “What do you say now?” or “So much for your mighty market economics” and especially “See, deregulation doesn’t work.”

Let’s dispense with the “deregulation” myth right here. The list of new regulations called the Federal Register averaged 72,844 pages during the Carter administration, 54,335 pages during Reagan’s presidency, climbed to 59,527 pages for Bush the First, escalated during the Clinton years to 71,590 pages, and set an all-time record during Bush the Second at 75,526 pages, supposedly the era of deregulated markets run amok. So much for the Republicans as the party of government nonintervention.

It gets worse. The number of full-time U.S. government employees in regulatory agencies increased 63 percent between 1980 and 2007, from 146,139 to 238,351, while U.S. government spending on regulating the market tripled from $13.5 billion in 1980 to $40.8 billion in 2008 (in year-2000 dollars for the comparison). During that time the population of the United States rose from 226.5 million to 301 million, an increase of 33 percent (compared to the 63 percent increase in regulatory employees). One final comparison: spending on regulation increased from 0.26 percent of GDP in 1980 to 0.35 percent of GDP in 2007, an increase of 35 percent.

By now your Baloney Detection Devices should be going off. “Hey, wait a minute Shermer, you’re throwing out figures for general regulation and we’re talking about the regulation of the financial industry.” Okay, fair enough. In point of fact, the biggest growth in regulatory spending came in the form of national defense — so called “homeland security” — where spending quintupled from 1980’s $2.9 billion to 2007’s $16.6 billion (again, in year-2000 dollars for comparison).

But the second-largest rate of growth in regulation was in finance and banking, where regulatory spending increased from $725 million to $2.07 billion from 1980 to 2007 (in year-2000 dollars), nearly triple. And there is a cry for more regulation? Please!

If deregulation is not the problem, then what is? The current economic collapse is due to a concatenation of natural business cycles, black swan contingencies, and government intervention into the housing and financial markets — most notably the Clinton administration’s drive to achieve an “ownership society” that forced Freddie Mac and Fannie Mae to lower interest rates on high risk loans — which triggered the collapse of the housing and financial markets, and with them the rest of the economy.

The good news is this: In time the economy will recover. It always does. Don’t regulate. Be patient.

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Regulation Schmegulation, 3.3 out of 5 based on 13 ratings

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270 Responses to “Regulation Schmegulation”

  1. The Blind Watchmaker says:

    I live in Michigan. Hopefully, the economy will recover before our local economy evaporates.

  2. BE says:

    Worst skepticblog article evar.

    1. Counting the number of pages in the Federal Register is useless, it’s not the number of pages that matters it’s the substance and strength of law behind them. For example by your logic I can make this article better by removing words at random… after all the fewer words I use, the better… right?

    2. Over 27 years the number of employees in regulatory agencies increaed 63%… That’s only 2.3% per year! Has the U.S. economy grown at 2.3% per year since 1980? If the economy has grown faster than 2.3% per year then the regulatory agencies have not been adequately funded to keep stride with everyone else.

    3. If regulatory spending for finance and banking has tripled since 1980 then I supose the finance and banking industry has also tripled in size since 1980. Yes? No? I don’t know. Someone will have to find out. If the banking industy is for example 10 times larger now than in 1980, the argument could be made that by not increasing regulatory budgets by the same amount means effectively less regulation.

    Does any of this make sense? Or am I crazy?

  3. sduford says:

    Clearly, just looking at statistics tells you nothing about regulations. What matters is the quality of regulations, in other words, the RIGHT regulations. You’re free-market ideology seems to be blinding you to the plain fact that banks were allowed to loan money to people who couldn’t afford it or to create loan instruments that were a clear recipe for disaster and for exploiting common people. They were also allowed to repackage these loans as “AAA” paper, and to leverage themselves to absolutely ridiculous levels.

    This is clearly a complex situation that involved many factors, including the ones you suggest. But it is equally clear that a few well designed regulations to keep banks from doing stupid things would have avoided the total meltdown we are now experiencing.

    From now on I will have to be very sceptical about anything you say.

  4. Aaron says:

    Yeah, my baloney detector is going wild, alright… Ditto to above comments about valuing the content and quality of regulation over the page count.

  5. Frank Ross says:

    The amount of money that a city spends on the police force is not the best metric of the efficiency of the force, the crime rate is. If the crime rate goes up, what do you do, hand-cuff the cops? By the same token the amount of money spent on regulatory agencies is not the best measure of their efficiency. I think that even a Libertarian would agree that the economy is not doing very well right now in spite of the relaxed oversight that started with Ronald Regan and (hopefully) ended with G.W. Bush. Free market ideology is a siren song that didn’t work under Herbert Hoover and it is not working very well right now. The idea that our economy is in the dumper because there is some smidgen of governmental control left pegs my baloney detector. If you let the richest, greediest people do anything they want then some how that is supposed to benefit the rest of us? I don’t think so.

  6. Erwin Blonk says:

    The regulation should be analyzed first. Throwing out numbers without extensively analyzing them is akin to what is happening in defense of the paranormal and quackery.

    Existing regulation seemed to have failed to put any limit to actions of bankers and investors, or the rise of derivatives, deravatives of derivatives and derivatives of those, nor the endless reselling of loans, or banks lending out multiple times the value of their assets and liquidities. I call for simpler, more effective and tougher regulation. I suspect much regulation has been declawed before it was signed into law.

  7. sduford says:

    And most likely, a lot of those pages of regulation under Bush were actually about deregulating. Remember, you need new laws to deregulate too.

  8. Those of you are asking for the right regulation are spot on. However, that isn’t what Michael Shermer is arguing against. What he is pointing out is that those who blame the current situation on *deregulation* are incorrect; there is far more regulation under the present administration. The problem lies in the ineffectiveness of these regulations in keeping up with what needs to be regulated.

    For those of you who are seeking the right (or stronger or better) regulation, where would you start now? What regulation should be enacted in order to prevent the next crisis? Wouldn’t you need to be able to predict the next crisis before being able to regulate it? What is the cost if you are wrong?

    It is a complex situation and we must keep in mind that regulation has its costs too and may not solve the problem either. Perhaps the regulations we create today, however well-intentioned and well thought out, may be the ineffective regulations of the future.

    • slippery slope says:

      SOOOOO tired of hearing people say that this… “is a complex problem”.

      Really, it isn’t so complex. Math is absolute, so too should be the money system, with no room left to interpretation. Simple.

      We do not have a free market economy in the USA, and haven’t since before the last depression. If we DID have a free market economy, the market would eventually regulate itself. It doesn’t.

      Instead, there exists a privately owned, for profit corporation which is absolutely in charge of how much money gets printed and put into circulation. They have the power to move entire markets one way or another based on how much paper they put into the system thus controlling interest rates, as well as the rate of inflation.

      They are the Federal Reserve bank. Not scrutinized by anyone besides their own board of directors.

      Congress used to be in charge of printing the money, and were accountable to we the people, so that if they did a poor job, they got voted out.

      Accountability is the key. Today, there is none. JFK was killed for the same reason as Lincoln, they wanted to change the money system. One bullet kept TRILLIONS of dollars in the coffers of the international bankers who have no allegiance to anyone save themselves, least of which- we the people…

      There was only one candidate in the primaries who even dared to speak about this, Ron Paul. He was summarily squashed in the “free” press… Another joke. He was in third place in the Pennsylvania primary yet in the news you wouldn’t even know he was running.

      Fractional reserve lending is what it comes down to. It is what the bank does with your “deposit”. Another interesting scam the banks have is credit cards.

      You “apply” for a credit card, and sign your name on an “application”. Only thing is, once you do that-you turn an “application” into a promissory note, which has value.

      Without getting into the details, for all of you who have “credit card debt”, just ask the creditor to provide proof of a loan. Also known as consideration. They will not be able to. They cannot because no proof of consideration exists. That is when they will turn around and offer you a settlement of the illegitimate “debt” they claim you owe. Their goal isn’t accountability, it is speed. If they had a legitimate claim, wouldn’t they fight tooth and nail for the entire amount? NO, they would rather be done with you sooner so that they can reinvest your money that much quicker, even if it isn’t the “full amount”…
      I don’t want to hear another pundit talk about the market, until there is actual transparency of it. We need to not only eliminate the Fed, but also find and deal with those who help keep it going. Treason is the crime and it is punishable by death. One day hopefully, the international bankers can find out the will and resolve of we the people on their way to being hanged. Long live freedom, and God Bless these United States!!!

  9. David says:

    Well, my baloney detection device is going off for a different reason. Ideology aside, I’m not sure you successfully refute the call for more regulation.

    You take quite literally the call for “more” regulation, as though the people making the call are interested in merely increasing the *quantity* of regulation. You refute that by saying that we already have a lot of regulation, so the amount of regulation is not the problem. You conclude, therefore, that regulation isn’t necessary. But I see problems with the argument on two fronts:

    1) You don’t address the *quality* of regulation. It’s not just how much you spend on regulation or how many pages of regulations are on the books. It’s also how the money is being spent, and what the regulations actually say. If the people calling for “more” regulation are really suggesting that they want additional “different” or “smarter” regulation, then shouldn’t the discussion continue before it’s dismissed? Shouldn’t we examine the current regulations, and hear proposals for how the new regulations would be different, and then decide? If they just want more of the same regulations, you may have a point. But what if the call is for a completely different approach to regulation?

    2) Even if the people calling for “more regulation” really were suggesting simply more of the same regulations, how can your refutation be sufficient without comparing the current state of regulation with however much “more regulation” crowd thinks would be enough? Maybe the increase from $725 million to $2.07 billion was ineffective because it would really take $6 billion to regulate effectively, but they had to contend with whatever they could get.

    You correctly point out that we already have a lot of regulation. But how do you conclude “Don’t regulate” without explaining why any new proposed regulations will be ineffective no matter what they are and how many resources are dedicated to them?

    (I’m no expert in these matters; Tell me what I’m missing).

  10. Paul says:

    It seems that the “argument from authority” logical fallacy is manifest here (as well as others). Dr. Shermer, your expertise is not economics, and therefore your opinion here carries no more weight than mine, critical thinkers though we may be.

    As others have pointed out, the quantity of pages of regulations has no correlation to the efficacy of those regulations. Nor does the amount of money spent in what may be inefficient, or hamstrung agencies have any correlation with the ability of said agencies to act correctly.

    The issue is far more complex than kitchen table common sense, and it does not serve well to find correlation equivalent to causation.

    May I suggest that economics be left to economists, and that this blog remain free from ideological political posts?

  11. designsoda says:

    “And most likely, a lot of those pages of regulation under Bush were actually about deregulating. Remember, you need new laws to deregulate too.”

    Don’t you mean you need to repeal laws to deregulate? How is writing a new law deregulation?

  12. Aaron says:

    The Community Reinvestment Act and other red lining laws weren’t passed to force banks to make loans to African-Americans and other minorities. They were there to make the rules consistent. Previous to the passage of the CRA, minorities were often required to have better credit, and make larger down payments to get loans equivalent to those awarded whites. Nothing in these laws required that banks lower their lending standards, only that they be fair, consistent, and operate in a “safe and secure” way. There was no evidence then, and no evidence now, that minorities with the same initial credit rating as whites tend to default on their loans at any greater rate.

    Besides Fannie and Freddie maintained underwriting standards which forced the vast majority of subprimes into under-regulated private subprime market where borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. These companies then bundled these mortgages up and sold them off on wall street. Most of the major originators of subprime loans filed bankruptcy in 2007.

    Please if your going to peddle ideology under the guise of reason, stick to global warming denial, its more amusing.

    • slippery slope says:

      That is another fallacious argument talking about how the banks were somehow railroaded into loaning money to people who they knew couldn’t pay it back. Bologna.

      The banks knew full well that the loans weren’t going to be honored.

      Lemme ask: What happens to the bank if someone defaults on their loan? Oh, so the bank gets the asset back (house) to resell, but doesn’t get paid back the monopoly money (mortgage) used to finance it? They created the checkbook money out of thin air via journal entry. The paper isn’t backed by anything.

      Who is in charge of auditing the bank? You mean, nobody does? Really?

      Fact is, the banks should have taken the loss for their own doing, NOT the American taxpayer via government help.

      It seems quite obvious to me that neither the bank, nor government, nor the press, is representative of we the people. The ONLY way this is going to change is if we the people get VERY organized toward some predetermined goals, one of which I think should be laws for trade that benefit the US citizens, and not international corporations who bleed us dry. Outlaw corporations because really, what benefit do they provide us?

  13. designsoda says:

    Actually, I see what you are saying sduford. Presumably you would have to write:

    “We now repeal rule x.”

    But would that be included in the Federal Register as a new regulation?

  14. Joe L. says:

    “And there is a cry for more regulation? Please!”

    no, not really.
    There is a cry for BETTER regulation, not necessarily more.

    Or how about this – regulators who will REGULATE, instead of looking the other way. Or regulators who believe in the power of regulation, instead of putting in people who think their own job is inherently bad.

  15. John Powell says:

    I think the most cogent explanations I’ve heard about the reasons behind this recession were on these two episodes of This America Life:

    Giant Pool of Money
    http://www.thisamericanlife.org/Radio_Episode.aspx?episode=355

    Another Frightening Show About the Economy
    http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1263

  16. John Powell says:

    “The good news is this: In time the economy will recover. It always does. Don’t regulate. Be patient.”

    Sooo… Credit Default Swaps are a good idea then? (AIG) Allowing non-oil consumers to speculate on oil futures is too? (Last summer’s surge in oil prices when there was no supply problem.)

  17. Ticktock says:

    Michael Shermer + Regulation = Sacred Cow

  18. Eric L says:

    Yes it is amazing to me as well that a self claimed Skeptic like Shermer can throw out statistics without digging deeper and more thoughtfully into what they mean in a practical sense. For example, what if the regulations he speaks of were in reality heavily one sided in favor of the financial industry? With a heavily pro-business administration like Bush (and even Clinton) this would not be surprising at all.

    What if Paul Krugman (a real economist unlike Shermer) is correct in that the core players in the bubble/collapse were in the “shadow” banking system, which is–comparatively speaking–much less regulated than the traditional banking system?* I’m not qualified enough to answer all this but then I’m not making unsubstantiated claims, just asking for more real skepticism.

    Most notably absurd is the claim that:

    government intervention into the housing and financial markets — most notably the Clinton administration’s drive to achieve an “ownership society” that forced Freddie Mac and Fannie Mae to lower interest rates on high risk loans — which triggered the collapse of the housing and financial markets, and with them the rest of the economy.

    Presumably this is a summation of the claim made in paragraph 7 of an earlier post, which was meaningless. How does it follow that loaning to low and middle income home buyers would trigger a collapse in the housing market? How many of these “forced” loans were really “high risk”? Obviously the collapse of the housing market (the source of all the current problems including the credit crunch) was the inevitable result of a collapse of a housing bubble. The causes of which can be debated, but to think Freddie Mac / Fannie Mae and/or the CRA is even a significant culprit has already be thoroughly debunked by actual studies. See Economist’s View for an excellent set of resources covering the subject.

    Don’ get me wrong, I personally think there are good arguments for libertarian and free market principles, but they should be based ultimately on pragmatism, not ideology.

    *note: see Krugman’s book “The Return of Depression Economics” for more info re paragraph 2.

  19. Tuffgong says:

    It’s fascinating that people have forgotten two things about this website: A) It’s a blog. Not a source for anything other than logical argument and a center to argue out aspects of popular culture. B) No one said anyone here will be %100 on everything and people can and have (a few) made some arguments here that bring up relevant points against Shermer’s post. Any personal insult or assumption I’ve read has been a great waste of time.

    Shermer said that people say this issue was a result of deregulation. He presents numbers and arguments that show that regulation has increased, not decreased. It’s YOUR job to determine, check, question, and see what holds weight.

    I agree with the “quality vs. quantity” of regulation but frankly the idealogy argument used against Shermer in these comments could be used against the people who’ve posted. Anybody here read those thousands of pages? Anyone here experts on economic theory and how to determine the quality of regulation in a market? Probably not.

    This present economic issue has yielded a lot of differing sentiments and issues and there is no committee inside a room that says “Economists” that have all the answers and are the only people who should be able to say anything.

    Shermer has the statistics to show that the deliberate amount of regulation has increased over time DESPITE the popular notion that we’ve been in a trend of decreasing regulation. That is what he’s proven here.

    Shermer also said that the issue of regulation is not the one factor that has been the previous cause of this economic period of suck. Shermer denounces those who scream “DEREGULATION” and think that was the source of our economic woes.

    Those are the points that have weight from this post, nothing else. The magnitude of the regulation vs. how much is needed, the quantity vs. the quality, as well as a few other arguments are valid.

    I love how people trash on free market economics when Shermer doesn’t even advocate a completely free market, not even close. The global warming denial comment was rich as well.

  20. James says:

    It’s a relief that there are still a few people out there who haven’t lost their heads in this crisis and are still looking at things like, you know, facts, when constructing their analysis. Michael Shermer, I congratulate you for staying true to foundational skeptical principles, even as other “skeptics” such as the above commentators seem willing to base their opinions on dogmas they held before considering the facts and defend them with no more than ad hominem and appeals to questionable authorities.

    And to the rest of you: while patting yourselves on the back for being dismissive of claims about Bigfoot may make you feel good, you’re skepticism is in a sorry state if it evaporates when considering the really big issues like this. Ask yourselves if you’ve really given the other arguments a chance. It’s all to easy to just say “this disagrees with my initial belief and therefore must be wrong,” but skepticism is about going beyond this, considering the facts, and revising your beliefs to conform to reality rather than vice versa.

  21. Erich says:

    Not addressing your more vs less regulation argument, I’d just like to point out that increasing spending on regulation does not always result in increased regulation. The Bush administration is already well-known for its capacity to ignore facts, it wouldn’t be surprising if they didn’t pay too much attention to how efficiently things are run either. Of course, increasingly poorly run regulatory agencies can’t explain all the added cost.

  22. BillDarryl says:

    So Dr. Shermer’s reasoning is:

    *We are in “market meltdown” right now
    *Some claim deregulation is at fault
    *There is evidence of pages of regulations and increases in regulatory spending
    *Therefore, deregulation is not at fault in today’s market meltdown

    Is there a non-sequiter fallacy here? Just because there is evidence of large amounts of some kinds of regulation, how does it necessarily follow that a specific deregulation or series of deregulations isn’t behind today’s crisis?

    I would think the reasoned approach would be to hypothesize what governmental regulations would have to have been relaxed or removed to create the conditions that brought on the current “meltdown,” and then investigate if such regulations did exist and were removed. Then you’ll have evidence for or against your hypothesis.

  23. If the regulations that were in place weren’t the “right” ones then a case could be made that they were actually part of the problem. Maybe the “bad” regulations encouraged behavior or market processes that were not prudent. For instance, different capital requirements for various financial institutions that encouraged one model over another.

    Also, claiming that we did not have “enough” regulation is easy to do ex post, and also shows that political solutions may not be able to keep up with changing market conditions.

    Regardless, what we are seeing now is the market process eliminating imprudent business models and debt financed consumption. Using the politics to interfere with this process will only slow it down and cause more inefficiencies.

  24. I mostly like this post, and agree with James: if we can’t apply skeptical reasoning to really big stuff like economics, then what’s the point?

    I think Dr. Shermer successfully debunks the claim that our current financial crisis was caused by deregulation. He’s presented evidence, backed by facts that you can verify for yourself, that, to a first-order approximation, refutes that claim. Any intellectual argument is a back-and-forth, so if you disagree, then dig up some facts that show that deregulation was the cause. Like, oh, I dunno, some regulation regarding credit default swaps that was repealed.

    I’m skeptical of Dr. Shermer’s conclusions about the REAL causes of the crisis, though. I like Arnold Kling’s theory on how we got into this mess; he testified to Congress about it today (see the EconLog blog for details).

    I read something like a dozen economist’s blogs, and I’m slowly starting to thing that MacroEconomics is a pseudo-science. Unless I see more testable predictions come from the macro-economists, I think I might just have to start ignoring them completely…

  25. Max says:

    Yeah, most economic “analysis” is a study in hindsight bias, post hoc, ad hoc, and other fallacies.

  26. Aaron Golas says:

    …if you disagree, then dig up some facts that show that deregulation was the cause. Like, oh, I dunno, some regulation regarding credit default swaps that was repealed.

    Gramm-Leach-Bliley Act: repealed part of the Glass-Steagall Act of 1933 that had limited bank mergers and participation in speculation.
    Commodity Futures Modernization Act: expanded futures trading and sheltered certain investments from regulation, including credit default swaps.
    (a relevant article from the Daily Kos)

    I’m afraid Shermer is attacking a straw man of the “deregulation caused the crisis” argument. Even if he could demonstrate that regulation as a whole had actually increased (which, in my opinion, he falls short of here), the real issue is with specific instances of deregulation.

  27. Greg Martinez says:

    Maybe this isn’t really Shermer posting. Maybe it’s someone from the Discovery Institute posing as him posting these entries in an effort to discredit him!

    Otherwise, how embarassing for him to keep on repeating this argument.

  28. Abelardo Duarte says:

    I really enjoyed this post. The fact that Shermer throws some numbers which people may find ridiculous actually highlights the fact that ideology and the call for more regulation is in itself ridiculous. Saying that page number has no correlation, well, let me throw some news at you, REGULATION DOES NOT MEAN A BETTER ECONOMY. In fact HOW DO YOU EVEN MEASURE REGULATION… IN MILLILITERS OR WHAT! Ideology aside (no socialist vs. capitalist BS please, just sounds like a religious quarrel, and we all know where that leads) the problem is just common sense with the incentives. The CEO’s of the banks don´t give a damn if the company they run falls into pieces. First of all they already have a salary of 5 million plus dollars a year, second the government always intervenes and saves everyone’s butt, and third, they don´t own the joint!!!!! I mean think about it, the incentives are put there so that they earn more money, and in the financial world that means, more risk. Thus, those CEO’s earn more if they risk more, and with no one controlling them, as these are publicly owned companies, we had a time bomb on our hands. A drop in the real state prices just eliminates the price speculation that was propelling the economy forward. See, prices in the end, are just a belief of what something is worth. Without the earnings from the housing speculation there wasn’t eany money around to maintain the risk/profit that some financial companies where into, and the whole system crashed. A final comment, recessions happen, and they will happen again…. don´t panic or try to fix things by adding just more bureaucracy

  29. Mark says:

    I just want to echo the comments of others disappointed by the vacuity of this post. Throwing out raw numbers of regulations is completely irrelevant when the general concern is specific onerous instances of deregulation, such as the loss of the Glass-Steagall Act.

    You are playing the apologist for the free-market fundamentalists here, and you’re cherry-picking whatever facts you think bolster up your case, no matter how tenuously. Your argument here is on the same level of, say, Kevin Miller’s argument that belief in evolution must lead to Communism, due to the correlation between the acceptance of evolution and the rise of the Soviet Union in the early 20th century.

    What a waste.

  30. Aaron, I’m afraid I don’t follow your argument. How did limiting bank mergers lead to the current crisis? Were banks merging en masse before the crisis? Was that the trigger? If anything, the ability for commercial and investment banks to merge allowed some of them to be saved. Isn’t that a good thing? I’ll leave it to Tyler Cowen [ http://www.marginalrevolution.com/marginalrevolution/2008/09/did-the-gramm-l.html ] to sum up: “Wince all you want, but the reality is that we all owe a big thanks to Phil Gramm and others for pushing this legislation.” If Brad DeLong agrees, perhaps it wasn’t a bad thing at all.

    Also, the CFMA kept CDSes unregulated and did not deregulate them.

  31. Thanks for the pointer to the Daily Kos article, Aaron. So the claim is that the Commodity Futures Modernization Act prevented regulation of credit default swaps that woulda happened if that Act wasn’t passed.

    I suppose that’s “deregulation”, although I’d say it’s a bit of a stretch (when I hear “deregulation” I think of repealing existing regulations, not preventing possible regulation from happening at some point in the future).

    But if we’re being skeptical: what evidence is there that the regulators would have clamped down on credit default swaps if the Act hadn’t passed? The Act passed in 2000, and we’ve had 8 years of the Bush administration since then; it seems unlikely to me that the regulators would have shut down the thriving credit default swap industry, and from what I read, banking regulators in other countries (who were certainly not constrained by US laws) also did not act.

  32. Bullitt says:

    Perhaps The Skeptologists should consider adding Joseph Stiglitz (click on my name for the Wikipedia article), the most cited economist in the world and Nobel Prize winner, to the team.

  33. Aaron Golas says:

    Well, the deregulation aspect comes primarily from the Gramm-Leach-Bliley Act that preceded the CFMA. The Glass-Steagall Act had put in place regulations that limited speculation and prohibited commercial and investment banks from consolidating, to prevent the kind of activity that led to the Great Depression. The GLBA repealed those regulations; the CFMA exacerbated the problem by creating new unregulated speculative markets for the newly-consolidated financial institutions to feed on.

    There’s certainly a discussion to be had as to whether this really caused the crisis, and whether keeping regulation would have prevented it. Personally, I find it to be a compelling case. My main point, though, is that this legitimate debate is not reflected at all in Mr. Shermer’s post. His talk of page counts is a vacuous strawman of actual concerns over deregulation.

  34. “most notably the Clinton administration’s drive to achieve an “ownership society” that forced Freddie Mac and Fannie Mae to lower interest rates on high risk loans — which triggered the collapse of the housing and financial markets, and with them the rest of the economy.”

    Michael,

    You’ve been debunked in advance by Slate Magazine
    http://www.slate.com/id/2201641/

    1)

    The Community Reinvestment Act applies to depository banks. But many of the institutions that spurred the massive growth of the subprime market weren’t regulated banks. They were outfits such as Argent and American Home Mortgage, which were generally not regulated by the Federal Reserve or other entities that monitored compliance with CRA.

    2)

    Second, many of the biggest flameouts in real estate have had nothing to do with subprime lending.

    3)

    Lending money to poor people and minorities isn’t inherently risky. There’s plenty of evidence that in fact it’s not that risky at all. That’s what we’ve learned from several decades of microlending programs, at home and abroad, with their very high repayment rates.

    On the other hand, lending money recklessly to obscenely rich white guys, such as Richard Fuld of Lehman Bros. or Jimmy Cayne of Bear Stearns, can be really risky. In fact, it’s even more risky, since they have a lot more borrowing capacity.

  35. steven says:

    Absolute silly rubbish.

    There is no such thing as a “Free market” or “Free Trade”.Anybody who thinks free trade exists now or ever will probably also believes in fairies :)

    Honestly Freemarketeers are as bad as communists and other idealists.

  36. Enrique says:

    Michael,

    Raw figures don’t prove anything, as any skeptic knows. Only analysis can make sense of figures, and there’s only anecdotal analysis in your column.

    Then, believers in free market are as deluded as any other believer. Of course, economy re-regulates itself somewhat, but that does not mean it is always for the better: after the economic collapse of the Roman Empire, economy adjusted in completely new manners by reducing the overall wealth and economic flows. It took some time to recover.

    I do not say that this case is comparable, only that ‘economy’ is just a way to referring to exchanges between humans, not an intelligent, all-powerful god as you, regretfully, seem to imply.

    Best regards,

    Enrique.-

  37. Any discussion of the current economic crisis that ignores the role of monetary policy over the last twenty years is a waste of time in any case.

    Michael’s quick debunk of the deregulation myth is a necessary element. Here’s a similar article making the same argument in more detail: http://network.nationalpost.com/np/blogs/fpcomment/archive/2008/10/29/what-deregulation.aspx

  38. Aaron,

    The investment banks (Lehmann, etc.) fell first. As such, even without GLBA, they would have been able to trade CDSes. Indeed, commercial banks, like Citibank, were caught in the mix, but this happened later. Perhaps, this would have been averted, but it certainly didn’t cause the situation.

    In any case, this current situation was precipitated by CDOs (collateralized debt obligations) and not CDSes (credit default swaps). Neither GBLA nor CFMA address that.

    I would agree that there is a discussion to be had, and whatever I believe, I’m sure we won’t know for certain until years later (as the case was with the Great Depression). Dr Shermer has taken the stance that deregulation itself is not to blame. I have, as yet, to see any comment successfully show where his reasoning is wrong, at least with regards to the (main) cause of the crisis: CDOs.

    To summarize, in my view, lack of good/right/strong regulation is not the same as deregulation and neither is “unregulation.” CDSes are not the same as CDOs. GBLA and CFMA don’t address the cause of the crisis, but may explain what exacerbated the situation.

    As an aside, it’s been nice communicating with someone who doesn’t pooh-pooh ideas without a second thought. Thanks for that :)

    (IANAE)

  39. Steve Dooner says:

    Mr. Shermer,

    I’m deeply disappointed to see you using both “patternicity” and poor critical thinking skills in your own column. The desire to make exciting short term profits through “Naked Short Selling,” Bundling together vast amounts of sub-prime mortgages, and the absolute “Id’thrill” of wild speculation fits perfectly with our evolutionary imperative to feel strong and powerful. You should add more Jared Diamond to your reading list and less Ayn Rand. No “enlightened self interest” would have stopped this crash, but an involved government might have.

  40. Patrick says:

    Oh no. More of Shermer’s religion of the free market. Just like a religionist you can argue until you are blue in the face, but nothing will get through. He’ll try as hard as he can to prove that this crisis isn’t the fault of the market. Others have pointed out his mistake in logic, but I’m afraid it will fall on a deaf ear. So sad.

  41. Lee Cooper says:

    “Or regulators who believe in the power of regulation, instead of putting in people who think their own job is inherently bad”

    Well put. I feel the same way about those who work in government but do not believe government can be effective.

  42. Larry Sharp says:

    I’m amazed how quickly “free market capitalists” become “born-again socialists” as soon as their greed driven schemes and poor business models collapse around their ears. It’s not the number of regs but rigorous enforcement that is key. And, by the way, as long as our democracy is up for sale to the highest bidder and our congressmen are “in bed” with same, our sad history becomes prologue. Capitalism and the “free market” system are broken. So… enjoy your bread and circuses while you can. But don’t be surprised when one day in the not too distant future you look around and see your bread gone and your circuses turned to side-shows. Pardon me while I go puke!!

  43. eire_rich says:

    In Canada, which (by the way) is feeling the pains from this collapse, albeit not as bad as in other G7 countries, there has been a push not for less regulation, but for ‘smart’ regulation. I.e. we can reduce the red tape and remove the useless regs without compromising the protections afforded to citizens. That would result in a thinner rule book, but the quality would remain the same.

    In the case of the current (as I assume there will be others in the future) market meltdown, all the pages in the world couldn’t save people from foreclosure if the words on those pages are wrong.

    Furthermore, regulations may be written with all the best intentions, but if they cannot be reasonably monitored or enforced, they aren’t worth the paper they’re written on.

    A more balanced analysis would have been more appropriate…one that included a qualitative assessment as well as quantitative. Due to the lack of qualitative analysis, this article looks, well, partisan at best.

  44. Michael Feher says:

    Sorry Michael, but I can’t buy your argument this time. Hopefully you will expand on this topic. Throwing a bunch of numbers out does not explain what happened. I would like to see more quality and less quantity, more holism than reductionism. Where is is patternicity?

  45. Karin says:

    Thanks for Shermer’s sanity and the kind of rational analysis usually found in the Economist. Before you balk, it also publishes a huge amount of critique, on the current administration and the ill-thought out war in Iraq, on American and global politics (and they especially despise African dictators and kleptocracy of any kind!).

    However, Shermer’s viewpoint correlates with theirs; sit out this unfortunate storm, and do not resort to isolationistic policy or increased regulation. Capitalism and globalization must prevail and have already lead to a higher standard of living for everyone, even in the poorest of countries, according to the OECD.

    Norman Borlaug had a lot to do with it also. Idea for an upcoming Skeptic feature: debunking the myth that “there are too many people to feed”. This was as much a misguided notion in the 1970′s as today, but developed countries and even seemingly intelligent writers and journalist sure would like to keep believing this blatant lie and keep propelling this myth.

  46. Gerry Weinstein says:

    Michael Shermer commits the cardinal sin of misdirection by generalization in his assertion that deregulation of the financial markets did not play a major role in the current financial crisis. Listing the number of regulations or the money spent on regulation in no way proves that those regulations were either appropriate or were being enforced—any more than claiming that the Bush Administration’s environmental record is sound based on the number of environmental regulations they passed. The important thing is the nature of regulations and how they were, or were not, enforced. To give just one example, the Glass-Steagall Act of 1933 prohibited a bank holding company from owning other financial institutions. This law was passed because of the recognition that the conglomeration of depository institutions (such as savings banks) with investment banks created dangerous situation, contributing to bank failures and a run on banks in the 19390s. The Glass-Steagall Act was repealed in two stages: The Depository Institutions and Monetary Control Act of 1980 and the Gramm-Leach-Bliley Act of 1999. Even Alan Greenspan admitted that believing the mortgage industry was “best capable of protecting their own shareholders… [was a] a flaw in the model that I perceived is the critical functioning structure that defines how the world works”. Milton Friedman believed that drug companies did not need to be regulated because it would not be in their best interest to sell dangerous or ineffective drugs. Shermer has fallen for the true baloney of free market fundamentalism and, to his discredit, uses patently transparent illogic to support his position.

  47. Paul says:

    The sheer quantity of logical fallacies in the comments here is disheartening.

    A link to Dr. Novella’s “How To Argue” article at the NESS is embedded in my name. I suggest everyone here review before proceeding.

  48. Jean-Philippe says:

    Wow, Shermer, I’m a big fan, but I’m SO disappointed! Luckily many astute readers have pointed out your failings. Please, redeem yourself.

  49. JD says:

    By focusing on “regulation” this discussion may be missing the larger issue in this whole story. Business executives are no longer owners of the business they manage since income tax rates encourage high salaries and insane “golden parachutes.”

    At one time progressive income tax rates reached 90%. That was combined with stock options with required waiting periods to exercise and capital gains tax rules with required holding periods to avoid being taxed at income tax rates. (I hope someone can add the actual rules from the 50s or 60s.)

    The net of these tax based “regulations” made executives owners of the companies they managed with executive income set by the long term performance of the business. How many of the banking execs would have permitted the high risk loan packaging if they had personal income at stake?

    Michael Shermer may be right that “regulation” is not the issue but that may just be clouding the discussion of the best way to manage public interest in this area.

  50. Bob Korn says:

    It’s unseemly for a leading skeptical spokesman like Michael Shermer to also be a political ideologue. The fact that he draws a firm conclusion (the economic crisis is not caused by deregulation) based on a shallow analysis (counting regulations) is a strong indication that he is emotionally attached to an ideological position and not analyzing the issue critically. I am sympathetic to a moderate libertarian view that government is generally too big and imposes too many regulations, but Shermer, like many vocal libertarians, seem to subscribe to a dogma that demonizes government and regards virtually every regulation as evil. To the best of my knowledge, he is never skeptical of any libertarian orthodoxy. He seems to be trapped in a belief system every bit as dogmatic as Marxism, pacifism, left or right wing extremism, veganism, medical quackery, paranormalism, and religious fundamentalism. I hope he will soon recognize that even libertarian doctrine needs to be evaluated critically.

  51. Ian Mason says:

    ERSATZ THEOLOGY! Blind faith in “The Invisible Hand” of the free market. Is the stock exchange to be the new Vatican? Who wants to be elected its Pope?

  52. eire_rich says:

    To add to my previous comment, after reading some of the comments here, I have to admit that deregulation is not the only culprit. In fact, it is quite possible that the same abuses could have occured under a more strict regulatory regime, because in any regulatory regime, there are always a few, crafty individuals that find a way to benefit from a given situation….adaptation!

    We can’t necessarily place all the blame on the financial institutions, although some of their lending practices were doubtful at best and downright sleazy at worst. We also have to recognize that real people decided to accept risky loans. Whether they did that with their eyes open or not is the question. We all know that ignorance of the law is not a valid defense. So perhaps an important component of this is people’s understanding of the regulations and their inability to recognize and manage the risks associated with the current credit regime.

    Solutions – there are three approaches: tighten-up the regulatory regime to prevent abuses before they can happen again (bullet-proof people against their own ignorance)…educate people that they shouldn’t spend more than they have and leave the regs alone…or do a little of both.

    I hope we have all learned a little something from this: There will always be someone who will try to take you to the cleaners…no matter what the rules are. Simple game theory suggests that in the right circumstances, these people will reproduce. See you in a generation.

  53. Balak says:

    Shermer should have titled this lame effort with the famous words (was it Richard Pryor?): “Who you gonna believe…me, or your lyin’ eyes?!”

    No need to repeat what so many others above have pointed out… I was also struck the self-conscious wink about “baloney detectors” going off! The article is evidently intended only to reassure Shermer’s fellow true-believers in Randist dogma.

  54. Grant Williams says:

    Oh Suuuuure,

    And the voracious speculation for profit on derivatives, not
    to mention the complete (and complicit) failure on the part
    of the rating agencies (Moody’s, Standard and Poors) have
    NOTHING to do with the collapse?

    Im Sorry Mr. Shermer, but this is very bad science on your
    part. It fails to objectively examine all relevant factors.

    The free market was out of speculative vehicles; real estate
    was the next big thing and the market gladly indulged all
    manner of reckless indebtedness in this area.

    Most sub-prime loans were issued by institutions other
    than FNMA and FDMAC.

  55. eire_rich says:

    Come now everyone…before we accuse Mr. Shermer of dogmatism, let’s give him a chance to elaborate. In my years of reading his work, I have come to believe that when faced with fierce opposition, Mr. Shermer uses reason to defend his point of view. Let’s give him a chance to expose the reasoning behind these somewhat controversial conclusions and stay away from categorizing him as a cleric of the free-market religion until we have sufficient evidence to do so.

    It is unbecoming of skeptics to wear the mantle of the cynic.

  56. GW Crawford says:

    Re: 1. For example by your logic I can make this article better by removing words at random… after all the fewer words I use, the better… right?

    Wow, a creationist point of view.

    No, the article would not be made better by that. A good writer removes words before they get to their final copy.

    As for regulation’s efficacy, how about the free market of senate seat purchase in Chicago? Why do people have this idea that GOVERNMENT is somehow not corrupt? For all the power of “corporations” they do not have the legal right of violenc eand confiscation that governments do. After SOX, any large business spends more and more of its income to regulations keeping them honest. But SOX doesn’t apply to government

  57. Wade Selph says:

    I have a different take on the whole problem. If housing prices had continued to go up we would not be discussing this problem. Historically housing prices (after the 30′s) have gone up with periods of only slight decline or plateau. The common wisdom was maximize your leverage and get rich. This this is the mantra of the business schools. Any company who tried to manage conservatively became a takeover target.

    To get to this point the generation who lived through the 30s as adults had to die off or retire from active management and investing. Besides the generational aspect, a prime factor allowing history to repeat itself is the delusion that conditions are so different now that it cannot possibly happen again.

    It did not take a genius to see that housing was being priced above the ability of the population to pay. The historical record of continuing appreciation was just too compelling.

  58. Daniel says:

    Ugh. This may be a skeptic’s blog, but I’m not buying the authority.

    First of all, Mr. Shermer, you go after folks that are espousing a very simplistic view of the crisis. Then you give a pile of statistics that support your claim that the simplistic view, which you’ve promoted to “myth,” is, well, simplistic.

    In a word, “strawman.”

    I find your hand waving over the complexity of the mess in the conclusion disturbing. It doesn’t serve to educate–it further obfuscates. The complexity of the presentation doesn’t make your stance any less “religious” than the myth you present.

  59. Ed Towbin says:

    Maybe it should read: “The current economic collapse is due to a concatenation of…” the tendency to disregard the existence of a cynical and greedy Ponzi scheme behind the whole business and the hope that the ride won’t end till I grab the brass ring. Nobody ever believes he will be the last one in with no-one left to pay him when the bust comes.
    What mystifies me is, what happened to all the $$$ that was taken in the last few years? Are the Masters of the Universe just laughing in their sleeves as the losers go down the drain? Is there no way to go after these people?

  60. RSA says:

    This post is an example of one major weakness of the skeptic community — to succumb to irrational Libertarian thinking. Life is not as simple as “free markets fix everything” (just as regulation does not fix everything). Libertarians think that as long as life, government, etc, conforms to the right *principles*, then it does not matter what the effect is. “World economy in recession due to deregulation? Don’t regulate, because *principle* of regulation is bad..”

    And what terrible support for his argument in this post. Using the number of pages of regulation as evidence of the amount of regulation? What about the simple fact that financial instruments have become extremely convoluted and complicated? (Credit Default Swap market… mortgage backed securities… anyone?) Because of these things, we really have no idea if more pages of regulations now equals less regulation!

    At TAM4 (James Randi’s Amazing Meeting 4), I had a chance to talk to a Libertarian economist who did not believe in any taxation (because the *principle* of taxation is bad). When I asked him over and over again how something as simple as roads could ever be built without taxes, he had absolutely no idea. He finally said “Well, there would be a free market solution.” And this man thinks of himself as a rational person….

    Rules of governments create markets; thus there is no such thing as a free market; and people are not rational. Get over it!

  61. Harley says:

    “The Glass-Steagall Act was repealed in two stages: The Depository Institutions and Monetary Control Act of 1980 and the Gramm-Leach-Bliley Act of 1999.” Blah Blah

    The repeal of Glass- Steagall has nothing to do with the current meltdown, since separation of commercial and investment banks has nothing to do with bad sub-prime mortgage loans. Glass- Steagall would not have prevented Wall Street’s move into risky credit derivatives either.

    If you are too stupid to understand your mortgage agreement (or risks in an investment), then spend a few dollars and hire a lawyer or financial expert to explain it to you. Otherwise, buyer beware. You arrogant control freaks have no right to regulate capitalist acts between consenting adults.

  62. Harley says:

    “When I asked him over and over again how something as simple as roads could ever be built without taxes, he had absolutely no idea.”

    That’s easy. Privately constructed roads with tolls for use. (With electronic payment)

  63. RSA,

    I’d wish you flesh out the argument a bit more. “World economy in recession due to deregulation? Don’t regulate, because *principle* of regulation is bad..” Why is it bad?

    Also, a free market doesn’t require the absence of government; it simply requires that agents are free to buy and sell without coercion. A free market can exist in certain sectors without existing in all sectors of an economy.

    If rules of governments create markets, what do you refer to as trading when the rule of government has collapsed? Take, for instance, the black markets of Zimbabwe. If anything, they exist despite of, and in the face of pressure from, government.

    As for the issue of roads without taxes, the answer is rather obvious: roads would be commoditized like any other product, I imagine. If not, there would be other alternatives in transportation. I’d say it’d be a rather lucrative business, no? In any case, I’m not against taxation.

  64. Dean W. Austin says:

    Michael,

    Was this a test to see if we are paying attention, or has your writing and logic truly eroded to a disturbingly low level? Skepticism of the Church of the Free Market would do you some good.

  65. Al Lowi says:

    The market is a natural phenomenon. The “invisible hand” metaphor can refer to the forces acting within the social institution known as such from which arises a kind of regularity or order termed “spontaneous order” by F.A. Hayek; or the famous metaphor of Adam Smith can be phanticized as not only beyond human hands but the manifestation of the deity. Be that as it may, the fundamental question is whether any man understands market phenomena well enough to coercively intrude in the proceedings to the benefit of all participants. Only government has the means to coerce. That some clever people know how to employ such coercion for the benefit of some is legendary. But there is no evidence that government is omnicient, which would be necessary to make socially beneficient regulation work.

  66. RSA says:

    #62, #63: How could highways be built by a private entity that has no imminent domain? Who wants to start paying a service for the road outside your driveway, separately for the roads in your local community, separately for the roads between community, separately for roads between cities and states? Will every road have a guard making sure of payment for each company in your free market road building model? Is this any worse than the premium of having the inefficient government do it? With taxes for roads, at least I do not have to think about which company I will pay to do all those things. And in many instances, there will not be any company willing to do the work! Without taxes and the government doing these things, we had all better be good with shovels and steamrollers.

    #63: The “principle of regulation is bad” is a libertarian argument, not unlike Shermer’s post. I disagree.

  67. Brian Gladish says:

    Most of those who have commented on this article, and possibly Shermer himself, display what Friedrich A. Hayek called “the pretense of knowledge” – the title of his 1974 Nobel lecture (http://mises.org/story/3229). Hayek was a friend of Karl Popper’s and struggled with the issues of epistemology in the domain of economics. Those aspiring to make sense of economics should read Hayek’s teacher (in the non-classroom sense), Ludwig von Mises, as well as Hayek and Popper. Even if you end up disagreeing you will be tested by arguments that make you think.

  68. Harley says:

    “Who wants to start paying a service for the road outside your driveway”….

    I don’t see any practical problems here. ETC (electronic toll collection) is already used in many places. It just debits your account when you pass through a lane, the funds going to the different services, if that is required. Portugal has a universal ETC, and Norway has many such systems. This system would not be worse, since it is more fair – you pay for what you use. I would also argue the roads would be better, and built more cheaply, and that companies would make them for the same reason they make things like cars, buildings, airplanes, etc.

  69. Harley says:

    The number of pages in the Federal Registery, Shermer’s other stats, and the common sense premise that many of these regs are not trivial, is sufficient to show the market is not a “free market” in any significant sense(and sorry I don’t buy the claim that a significant portion of these regulations are in fact repeal of regulations.) So the idea that the “free market” caused the crisis as many proclaim is silly.

    The question then becomes which aspect(s)of the market are responsible for the crisis, regulation and its pressures, or deregulation and too much freedom. If the latter, nobody has shown to my satisfaction which deregulation is responsible – it ain’t the repeal of the Glass – Steagall Act (which is a complete red herring), or which limitations of freedom would have prevented the crisis without producing more harm than good.

  70. Drew Kime says:

    I agree with an earlier poster who said Shermer’s entire argument boils down to a refutation of the belief that the markets have been deregulated. If the markets have not been deregulated, it is not possible for deregulation to be the cause of the current crisis.

    The three pieces of support for this argument are:
    1) the number of pages of the Federal Register
    2) the number of federal employees of regulatory agencies, and
    3) the number of dollars spent by the federal government on regulation

    A quick look at the text of HR5660 (go to http://thomas.loc.gov/home/c110query.html and search by bill number) shows dozens of pages of amendments to the Securities Act of 1933. These amendments primarily narrow the scope of the Act, and prohibit state legislatures from regulating any of the now-legal activities. In several cases, the amendments contain more text than the original Act they modify. So in this case *more* pages leads to *less* regulation.

    That it took an increase in federal employees to administer this web of exceptions and exemptions is unsurprising. And the cost increase is directly attributable to the fact that the increase in regulatory agency employees is heavily weighted to lawyers and accountants, with salaries many multiples of clerical staff.

    So the claim that the current administration has increased “regulation” is false. At most they increased “legislation”. That is not the same thing.

    Shermer’s second point is that the *true* cause of the problem is the CRA, “that forced Freddie Mac and Fannie Mae to lower interest rates on high risk loans — which triggered the collapse of the housing and financial markets.”

    First, as a previous commenter pointed out, the CRA did not dictate interest rates. It merely required equal application of standards to all borrowers with equal creditworthiness.

    Second, Fannie and Freddie held only a small portion of the overall sub-prime debt, and what they did hold was considered the least risky. The unregulated subprime lenders generated the bulk of the subprime loans.

    Third, the CDOs that were allegedly “backed” by loan paper were leveraged by double-digit multiples above the actual loan value, with CDSs increasing the multiples eve further. So even if a downturn in the mortgage market was the “trigger” — which is still not a given — then it was triggering a much larger event made possible by *de*regulation of financial instruments.

  71. Ralph Blasko says:

    Dr Shermer

    To wit:

    ECONOMY — FORMER HOUSING CEOS: POOR PEOPLE DID NOT CAUSE CURRENT FINANCIAL CRISIS: Yesterday, four former CEOs of Fannie Mae and Freddie Mac testified on how their companies’ actions may have “contributed to the ongoing crisis.” Blaming Fannie, Freddie, the Community Reinvestment Act (CRA), and low-income people is one of conservatives’ favorite talking points, as The Progress Report has documented. But at the beginning of the hearing, Chairman Henry Waxman (D-CA) said that 400,000 documents amassed by the committee showed that the right-wing claim is nothing more than a myth. Furthermore, later in the hearing, Rep. Edolphus Towns (D-NY) asked the CEOs whether poor people caused the current financial crisis. All said “no.” Congress passed the Community Reinvestment Act in 1977, requiring banks “to lend throughout the communities they serve.” In the 1990s, greater mortgage lending to lower-income households by CRA-covered banks increased the homeownership rate for lower-income and minority families. As the Center for American Progress’s Tim Westrich has written, “The real culprits in the mortgage mess are non-bank mortgage companies — not covered by CRA — that originated the lion’s share of bad mortgages at the heart of the crisis. They made an estimated 50 percent of subprime loans in 2005.”

    To wit:

    Nassim Taleb said this meltdown was not a “Black Swan” recently.

    To wit:

    Those in the financial markets that are familiar with the details say that no one really understood these financial instruments – and didn’t care that they didn’t. Greed won out and no one stopped them (read-regulations). Your analysis is worthless.

  72. Richard Baldwin says:

    Wow! I loved the title of this article and thought I was really going to learn something. After all, I am almost a Shermer clone in that his books reflect (and have refined) my own thoughts on so many things, but this article was disappointing. After saying it was not deregulation that caused the problem, he then lists deregulation (pressure to ignore regulations on those seeking loans which is deregulation) during the Clinton administration as a problem (“government intervention into the housing and financial markets — most notably the Clinton administration’s drive to achieve an “ownership society” that forced Freddie Mac and Fannie Mae to lower interest rates on high risk loans — which triggered the collapse of the housing and financial markets, and with them the rest of the economy”).

    Is my rational capacity failing me or is this a blantant contradition?

  73. Virginia Skeptic says:

    The number of pages of regulation went down by 18,000 at one point. This seems to refute what must be a ‘guess’ that removal of regulations increases the number of pages of regulations.

    The writing was on the wall at least 3 years ago that there were problems with loans, yet despite danger signs the process continued right up to the point of collapse.

    I would submit that there was plenty of time to add regulations before the collapse – years in fact. Didn’t those that endorse regulation see the need before the collapse? To regulate requires an understanding of the situation. If the situation cannot be understood until after the events have transpired, then what use are regulations. How do we know the efficacy of regulations if the dynamics of the system are not understood?

    I submit the following quote, “The only function of economic forecasting is to make astrology look respectable.” by John Kenneth Galbraith.

  74. RH says:

    We all make mistakes and allow our mind to trick ourselves from time to time. We value critical thinking as a tool to overcome this tendency towards imperfect gut-thinking. Michael Shermer brave enough to share his critical thoughts as skeptic, he creates and publishes content which expose hi inner self. As a fine skeptic he is, he should be able to see his logical mistakes (already discussed in other comments), and for the sake of his integrity and the benefit of his readers retract this flawed article. There is no shame to admit that the finest minds are not immune to flawed and biased logic and perception, that is the reason we need a rigorous skeptic tool set.

  75. Grumpy Owl says:

    I love economics arguments because they use the same ritual as religious arguments being as both are based on faith, one a faith in the reality of God, the other in the reality of Money. The general decline in the value of anything, or increase for that matter, is directly influenced by faith the object under consideration has a real usable value. My house, worth 25,000 in actual money outlay during the mortgage period from 1960 to 1985 was last year worth in excess of $500,000.00 (Canadian Dollars) if I wanted to sell and now about $400,000.00 if i want to sell and can find someone to buy it but until then it is worth precisely nothing past keeping the weather out.
    The little money I have in the bank is also worth precisely nothing until such time as I can exchange it for something I want. In both cases, the value of the money is an article of faith wherein I can exchange something of no value like bits of paper or base metal, or I & O’s on my computer for something of value like an apple which I can eat.
    The economy is not unlike evolution, millions of individual acts of self interest in which, from time to time, a pattern appears. Guessing what might come before hand is like guessing what the next variant of a particular class of animal will be in ten thousand years, or for that matter, just what God will look like if and when he comes.

  76. Ian Mason says:

    Well said and well quoted, Virginia Skeptic. Some years ago a pal of mine who was studying economics told me that developing equations that were right, within their own parameters, 50% of the time was enough for The Nobel Prize. So, at best economics forcasting is as reliable as tossing a coin.
    Good luck, gentles all!

  77. Barry says:

    What they said.

    Economists will be picking over the remains of this meltdown and arguing about causes for years to come. At the moment we can just see some of the jigsaw pieces, and blaming regulations and Clinton based on just a fraction of the picture is something I’d expect to see from World Net Daily, not Skeptikblog.

    • slippery slope says:

      yes how DARE they blame clinton…

      • tmac57 says:

        There is plenty of blame to go around, to be sure, but I think Phil and Wendy Gramm deserve extra-special blame in this fiasco.

  78. Richard Woods says:

    Dr. Shermer,

    I’ve been a fan of yours ever since I first encountered your writings. I’ve highly recommended you to others.

    It greatly disappoints me to see you _unskeptically_ buy into conservative mythology with your meaningless comparison of Federal Register pages. Furthermore, what _I_’ve always said about the current economic crisis is not that deregulation or lack of regulation _in general_ was the cause, but only and specifically that lack of regulation _of the mortgage derivatives such as credit default swaps_ was the reason that a housing slump not unlike others in U.S. history was magnified into an enormous global crisis. So you may have refuted those who were too ignorant to perceive that only a “small” (> global GDP) insufficiently-regulated financial segment (i.e., highly-leveraged mortgage derivatives) was responsible for inflating a national sector slump into a global whole-economy crisis, but you aren’t fooling those of us who pay attention to a few details.

    You should be ashamed of yourself for betraying the rationality movement with this “Schmegulation” post.

    Richard Woods

  79. SDR says:

    Once again Mr. Shermer, you show that you are no skeptic, and it is not because we disagree. It is because, as always with economic issues you write on, you are simply not following through with the pressing evidence skepticism demands. You clearly show with every non-fact-based article that you are in fact an ideologue hijacking the terminology of skepticism for your own purposes.

    I can’t keep silent anymore. You are hurting the movement.

  80. ned watson says:

    hmmmmm. clinton is to blame. if you add up both freddie macks and fannie maes bad loans together thats less then 20% of the bad housing loans. now tell me again its clintons fault. a free market always moves in boom and bust cycles. regulate and smooth out the booms and busts. and next time you want to convince me of the pros and cons of regulation please come up with something better then the number of pages published.

  81. McDuff says:

    Goodness me. What a facile analysis this is.

    I’m sympathetic to the notion that any complex phenomenon — and the global economy is one of the most complex human-generated phenomena we can reasonably measure — can be explained in a single word, be that “deregulation” or “over-regulation”, so in that aspect and that aspect alone I understand why Mr Shermer would want to throw the brakes on some of the more overheated rhetoric that he may or may not have heard around the water cooler.

    However, to replace it with what can only be described as “it’s the fault of Bill Clinton and the poor” is not an improvement, merely a replacement of one simplistic mischaracterisation with an equally simplistic one. If the howls against “deregulation” (which as others have pointed out should really be “flawed regulations, often written by bankers who wanted to be allowed to make out like bandits, badly implemented and rarely enforced, coupled with an emergence of new kinds of economic voodoo which were not regulated in the first place”, but that’s rather more of a mouthful) are the signs of an inherent ideological bias then pushing the problem onto the poor is a sign of another one. And, although this may be my ideological bias showing, at least those calling for more regulation are incorrect while being on the side of the weak against the strong and not the other way around. I’d rather be wrong and noble than wrong and a toady.

    Others have covered in more detail some of the complexities involved here. I’ll add that Daniel Davies (who incidentally really does not like Taleb, although I personally think there’s more to Taleb’s analysis than Dsquared is prepared to professionally admit) called the crisis six years ago – although this was no feat of real skill as a reasonably well trained chimpanzee could have worked out that the US housing bubble was unsustainable – (http://d-squareddigest.blogspot.com/2002/08/were-forever-blowing-bubbles.html) and writes a much better and more nuanced take down of some left/liberal sacred cows here (http://crookedtimber.org/2008/10/17/those-stupid-bankers-and-their-stupid-stupidity/). As is indicated in those posts, the real driver wasn’t really regulation or otherwise, although they will certainly have contributed in complex but mostly forseeable ways. Rather, the issue at hand from the US point of view is that the current account deficit was way out of hand. The efforts to sustain “the American Way Of Life”, be they regulatory or otherwise, certainly contributed to the maintenance of an unsustainable economic environment long past its sell by date. Fundamental but hard to hear truth that neither the Shermer-type market fundamentalists nor the liberal Blame-it-on-Bush types want to hear: America’s going to get poorer, and that’s the market correction mechanism at work. Say bye-bye to your nice suburban lifestyle and get used to living in the cities again. Sorry if that sucks for you.

    Of course that’s not the only driver behind this, but this has been brewing for decades and it had to happen at some point. Other things made the decline a bit bumpier than it needed to be, but the decline itself was inevitable.

    A final note, though, to respond to Mr Shermer’s closing statement: In the long run, we are all dead. “The market will correct itself” is as meaningless and unhelpful a thing to say to people going hungry and homeless – which is what these numbers really mean, and the only reason they are at all important – as “one way or the other, your illness will stop at some point.”

  82. Tuffgong says:

    People forget to read the words and not read what they think is there. Shermer never said an economy should be without regulation, he never said the crisis was the fault of minorities and the poor, and he never said that regulation wasn’t an issue.

    Shermer is more qualified than anyone to link cultural and psychological factors into the our current systematic economy. For example: Shermer stressed the culture as a whole to be an “ownership society”. That caused an increase in the amount of bank loans, which increased the amount of people that could and did get loans. Sometimes people can’t play that money back. Put bonds and such on top of a housing bubble and you see what can happen. There are multiple factors, of which one is regulation. Regulation however isn’t to replace other factors and is not the problem nor the solution. Shermer never said that it was the problem or the solution be it regulation or deregulation. We call each other skeptics and all I’ve seen is dismissal, personal attacks. A few who’ve considered both sides of the argument are in a a firm postion. As for the rest of you…pathetic.

  83. Tuffgong says:

    ^^^^^^^^correction (i seem to have had a lapse in cognition): Clinton stressed the culture as a whole, not Shermer lol.

  84. Max says:

    No let’s just really sum up the whole problem.

    I live in a small house with my wife and daughter. Most of the year we will live on one income, mine. I make about 60K/yr.

    This january my wife will go back to work again for three to four months, and make about 10K, to help make ends meet. Our income covers just under what we spend. We don’t live extravagantly or poorly. We don’t save enough and we don’t spend too much. We always pay our bills.

    The people at AIG spent more on their bonus vacation after being “bailed out” then I will make in TEN YEARS. The heads of the car companies spent more in Fuel to fly to DC than I will make in a YEAR!

    Everyone loves to trot out figures and staticstics as to why this has all happened. Everyone loves to point fingers and assign blame to whom ever. That is a fun hobby, but solves nothing.

    Frankly I feel the car companies should go out of bussness. If you can’t sell a product why should you be given my share of taxes to keep your company going???????? If you can’t manage your bank why should I pay you to do it badly?????? I feel the “markets” should “self correct”, and the companies go out of bussness.

    No one is going to bail me out when I don’t pay my bills.

  85. Al Lowi says:

    Where is the skepticism regarding the power of politics to correct market instabilities? Indeed, with all the political meddling in economic affairs, where is the skepticism regarding market incapacity for self-rectification? It seems from reading these blogs that there is a lot of political gullibility and little or no political skepticism. There is doubt in a god of the universe but no doubt in the god of the people — the government.

  86. Timothy says:

    The burden of proof lies on those that make the proposition. If you propose that freedom, that is to say deregulation (an almost unintelligible word as atheist), caused the markets to collapse then the burden of proof is on you. Mr. Shermer does not have to say that growth in regulation outpaced the economy, you have to prove regulation did not keep up with growth in the economy if you are to show that a lack of regulation caused the housing crisis.

    Objectively speaking people are not “allowed” to do anything because with or without your or my permission people can do something, therefore the proposition is whether or not somebody takes action against that person. Those actions in this case are called “regulation” therefore regulation advocates bare the burden of proof, not those advocating deregulation.

    Such comparisons between the percentage in growth in regulation and percentage of growth in the economy are likely irrelevant. Considering that financial industry regulation grew faster than any other type of regulation (except for national security) the industry should have improved by leaps and bounds compared to other industries assuming that other regulated industries grew at approximately the same rate. Also you would have to show that the percentage in growth of the economy mandates an equal growth in regulations, both in terms of the number of regulations and the number of regulators. After all, if you have the “right” regulations in place, why would there be any need to grow those regulations simply because the aggregate number of businesses to regulate grew? Wouldn’t only the number of regulators need to increase if anything needed to increase at all?

    However, before any of those facts can be considered, then you, if you are a supporter of increased regulation, must show first that regulation works and that the “right” regulation can be found more often than the “wrong” regulations which have negative effects on the economy and that those regulations work to a greater degree than the negative regulations.

    Where are these industries that respond well to regulation? Surely the airlines have not improved since they have seen large increases in regulations. Surely the phone industry is much better today with the elimination of regulations. Now, apparently, the banking industry is falling apart not because banks were “allowed” to give out risky loans, but because they were forced to give out risky loans. The Community Reinvestment Act can be referenced to back up this point.

    Tell me, where exactly do we find these angels that are going to organize society for us without self interest and with benevolence when they have the power to make others comply? I don’t even trust Shermer to do that.

    Of course I am approaching this query from an entirely consequentialist point of view as there are still the moral implications involved of setting up organizations that can and will use force, coercion, and if need be violence to make free men and women comply with the arbitrary wishes of a third party.

  87. Eric says:

    Very broadly, the current problem is due to the de-coupling of risk and reward. Companies were able to make risky loans without having to worry about them impacting them in the future because they would sell the loans to others who would then bundle them together and resell them to investors. None of the people running these companies took on personal risk in doing so – in fact, they were acting in their own self-interest in doing so.

    Shermer’s position brings to mind Greenspan’s astonishment that executives would act in their own self-interest even if they knew it would cause problems down the road – a lesson that most of us learned when we were children.

    First of all, we need to couple risk and reward again. The simplest way wrt mortgages is to prohibit the secondary market in mortgages. If a financial institution has to hold onto a mortgage, they will make conservative decisions about which ones they issue. If that makes it too hard for some people – because of the risk they pose – then you create a program to address that separately.

    Second, you need to have reasonable limitations on the amount of interest that you can charge, both in mortgages and in consumer debt.

    Finally, for investments in general, you need more disclosure, and you need to be willing to let investors lose their shorts when risky investments go belly up.

    Two other things to address.

    Shermer speaks of natural business cycles. Yes, there is a natural ebb and flow, but allowing behavior that amplifies any natural fluctuations isn’t in the nation’s (or the world’s) best interest. Hundreds of millions of people have had their lives altered in important ways, and not for the better, while thousands to hundreds of thousands have made out like bandits.

    Finally, I personally don’t agree with much of the monetary policy in the last 20 years, but to claim that this meltdown was caused by high risk loans at too low of an interest rate can only be described as “stupid”. Or perhaps “mindless”…

    The reason that’s a fallacious cause is because mortgages are secured by a real asset. Even if you see a higher default rate than you expect on a class of loans (for the interest rate you offered), you still own the houses, so the additional risk is very low. Sure, in some cases you get it wrong, but it’s easy to see from the numbers that this is a small order effect, and is unlikely to effect profits more than a percentage point or so.

    Now, if you are operating in a system that is deliberately trying to create a bubble, then you have more risk at foreclosure time, but that’s not from the loans, it’s from the bubble.

    I’ve enjoyed lots of what Sherman has written, but I’m very disappointed by this analysis.

  88. Cary says:

    Wow… Absolute WORST Skeptiblog article ever.

    Here is an article that debunks the myths that the “ownership society” initiatives ’caused’ the financial crisis.

    http://patrickhenrypress.info/?p=146353

    “Myths and Falsehoods about the Proported Links Between Affordable Housing Initiatives and the Financial Crisis.”

  89. rg the lg says:

    Got a response. Guess that means I wasn’t the only one to read your drivel. Keep this up and I’ll do more than just cancel my on-line subscription!

    As an employee of a lowly public school district, I am affected by tons of mandates from our state legislature, from the feds, from the states’ dept of education, and all of the local regs. Does that encumber us, or make us more efficient? The answer is that well-meaning people often fail to understand that there are always unintended consequences. The answer is that many of the regulations are specifically designed to reduce the culpability of the ineffective. The answer is that there is a revolving door between those who regulate and those who administer.

    Next question … does any of this sound familiar?

    Of course it does … our financial system is designed to make the rich richer and to give the rest of us the illusion of wealth. So, my final question is, this being the case, how wealthy is Shermer to be content with the low/no regulation argument?

    RG the LG

  90. Wade Mathias says:

    As an individualist who finds liberalism and conservatism to be simply opposite ends of the same stick (collectivism), I strongly agree with Jefferson’s “That which governs least governs best”. I would love to see laissez-faire capitalism work. I think Ayn Rand said it had never really been tried in this country. But I’m afraid that Ayn Rand (who I have a great appreciation for), The Objectivists, and the Libertarians wrongly assume that those in big business tend to be John Galt like. But whereas I also have a real appreciation for “the big people” who other “little people” like myself tend to resent, I find that the difference between those who make the world go around and the nobodies tends to be drive, a dedication to hard work, and often at least some measure of good luck. Otherwise I recognize the same degree of immorality in them as I do everybody else. In keeping with that I’m afraid that some regulation is probably needed.

    Ironically it appears to me that in our latest economic meltdown we would likely have been better off if we had either more or less regulation. The Democrats claim it is the fault of the Republicans and vice versa. It appears to me that they are both right. I strongly suspect that the main problem with regulation is not so much the amount of it we have but the corruption in our government which dictates acquiescence to the highest bidder.

    I wish to make one last point, but first I want to make it clear that I am only speculating here as I have no inside information. I suspect that initially the government’s wrongful insistence that the banks loan to risky borrowers might very well have been at the basis of the problem. But I further suspect that the lenders either found or paid for (bought off politicians to make) loopholes or other compensation to make the whole deal profitable for themselves. Furthermore, whereas I believe the country is better off when the government tends to allow the free market to work, it appears to me that the bastard organizations Freddie and Fannie would work better if they were either totally private or completely run by the government. The way they are currently set up (given my limited understanding of the way they actually work)it appears that they are corruption waiting to happen when those in power in those institutions trade favors with those in power in the government.

    So long as we tolerate corruption in government we will have it. Or as has been said before “We will have the government we will tolerate” or words to that effect. If we want a responsible government we have to be responsible ourselves.

    Wade Mathias

  91. joe says:

    One of the fundamental flaws in the Free Market Philosphy is that it’s based on a false premise: that, if free, people will behave according to rational self-interest.

    I’ve known a lot of people and have, in fact, been a person for some time and I see little to no evidence to back this assumption up.

    How many people die every year because they ran a yellow light to get to 7-11 45 seconds earlier? How many people flip their cars because they were swatting at a bee?

    Granted, my personal experience as a human is anecdotal, and that I’m not that different than most people is a pretty big assumption, but I know that there are many many times I haven’t behaved according to rational self-interest. Smoking, late night drinking binges, sleep deprivation, antagonizing those that are physically stronger than I for no personal gain other than satisfying a whim, and, of course, running yellow lights to get to 7-11 45 seconds earlier in order to literally purchase poison to self-administer can hardly be consdiered either rational or self-interested. Yet I do them. Ho hum.

    Further if even most people behaved according to rational self-interest, there wouldn’t be suicide-bombers, addicts, heart disease and lung cancer would be greatly reduced, etc.

  92. grandpotato says:

    Economics is not a science!

  93. Timothy says:

    “First of all, we need to couple risk and reward again. The simplest way wrt mortgages is to prohibit the secondary market in mortgages. If a financial institution has to hold onto a mortgage, they will make conservative decisions about which ones they issue. If that makes it too hard for some people – because of the risk they pose – then you create a program to address that separately.”

    I disagree. The best way to deal with a problem in your car is hardly to prohibit the ownership of cars. Pretending the problem is not there or trying to avoid it will not solve the problem. Now, who has the largest interest in insuring loans are upfront, honest, and safe? I would suggest that the people who have the largest interest are those who buy the loans and those who sell the loans. How are problems most likely to be solved? I would say that two heads are better than one, thus freedom is the best approach and all the things that come with freedom such as competition, cooperation, competing cooperation, and the pressures and incentives of the free market. This method is much better than unaccountable and monopolistic state authorities. Why? I would say again, because two heads are better than one, especially when they have to think.

    The issue of securities is a red herring. Those securities were only made unstable by government policy in economic circles hoping to achieve a political ideal, in this case universal housing. In the free market behaviors that are unproductive and unsuccessful are eliminated for those very reasons. If ANY business practice causes failure then they cannot succeed because their costs are higher than their revenue and unlike the government they cannot compel people to finance them. There is no logical reason why an unproductive method of doing business would need to be outlawed because if it is unproductive then it will not survive.

    “Second, you need to have reasonable limitations on the amount of interest that you can charge, both in mortgages and in consumer debt.”

    Prohibition has never worked. It doesn’t work for drugs, it didn’t work for alcohol, it has never worked for prostitution, and the side effects have always been the same: black markets. The last thing we need are more laws the create loan sharks. What we need is for governments to start treating us like adults rather than children. Government should protect the right to life, liberty, and property; don’t kill me, don’t violate me, don’t rob me. Anything and everything else requires a violation of one of those three rights and thus should not occur by government. Freedom is not just a practical ideal, it is a philosophical ideal as well. The voluntary exchange of ideas, services, labor, and goods should not be obstructed for yes practical reasons, but moral reasons as well.

    “Shermer speaks of natural business cycles. Yes, there is a natural ebb and flow, but allowing behavior that amplifies any natural fluctuations isn’t in the nation’s (or the world’s) best interest. Hundreds of millions of people have had their lives altered in important ways, and not for the better, while thousands to hundreds of thousands have made out like bandits.”

    I contest your phrase that people are “allowed” to behave in certain ways. In a free country and in objective reality people can do whatever we wish with or without the permission of any body that claims to be an authority. The proposition therefore cannot be whether or not something is allowed, but rather the proposition is whether or not taking action against certain people for certain behavior is legitimate.

    Perhaps you do have a point though. I mean, people loaning out and borrowing money based on mutually agreed terms that satisfy their own individual self interest and maximizing utility all done voluntarily without coercion…there ought to be a law against that.

    “The reason that’s a fallacious cause is because mortgages are secured by a real asset. Even if you see a higher default rate than you expect on a class of loans (for the interest rate you offered), you still own the houses, so the additional risk is very low. Sure, in some cases you get it wrong, but it’s easy to see from the numbers that this is a small order effect, and is unlikely to effect profits more than a percentage point or so.”

    To the contrary. When prices are artificially inflated by government mandates businesses would normally compensate by raising interest rates, but when government also forces lower interest rates then quantity demanded (in this case houses) increases rather than tapering off due to higher interest rates. People buy the houses with the loans you as a bank would give them, but at a higher than market price so even though you can take the house if the loan defaults the house will be worth less because people are defaulting collectively as the bubble pops. There is also the common reality that high risk people are degenerates who trash the homes before they default on the loan. Then there is also the fact that unoccupied homes (that will be the collateral you had from the loan) are magnets for squatters and drug dealers further deteriorating the value of the property.

    To call somebody stupid for recognizing this simple reality that government mandating higher risk clients to receive low interest loans is simply not supported by the evidence. High risk loans at low interest rates caused the current problem. What caused the higher rate of high risk loans at lower interest rates is government intervention and regulation of the housing and banking industries.

    There is no point in insulting somebody over semantics, especially if you are wrong.

  94. Timothy says:

    “One of the fundamental flaws in the Free Market Philosphy is that it’s based on a false premise: that, if free, people will behave according to rational self-interest.”

    THE fundamental flaw of the Benevolent Tyranny Philosophy is that they think they will be the ones in charge. There are also other flaws including that since people are not entirely rational that a small handful of these not entirely rational people can correct rather than exacerbate them. Of course viewing people as not entirely rational makes it easier to view other people as children who must be taken care of, and again, THE flaw comes into play as these people who believe in this philosophy assume they will be in charge AND that they are above human nature as they define it.

    Silly…and dangerous.

  95. Harley says:

    “One of the fundamental flaws in the Free Market Philosphy is that it’s based on a false premise: that, if free, people will behave according to rational self-interest.”

    Free market philosophy is not based on that premise. It is based on the premise that when consenting adults perform capitalist acts, neither you, nor the government has the right to interfere whether it is in our true interests or not. I’ll be the judge of what is in my best interest, not Obama, and God forbid, not Nancy Pelosi, or those who elected them.

  96. Timothy says:

    “Further if even most people behaved according to rational self-interest, there wouldn’t be suicide-bombers, addicts, heart disease and lung cancer would be greatly reduced, etc.”

    Fallacy: you are assuming that your definition of self interest is universal. Again, going back to THE flaw that you think you will be in charge, that you set the rules. I have news for you: you can pee on freedom because you’ve had it all your life, but freedom is what allowed you to write your opinion and I assure you, those who deny economic liberty have no qualms about denying political, civil, social liberties as well.

    So as the Chinese say, be careful what you wish for, because you might just get it.

  97. Timothy says:

    “Otherwise I recognize the same degree of immorality in them as I do everybody else. In keeping with that I’m afraid that some regulation is probably needed.”

    You are not keeping with that, you are contradicting that. If there is a degree of immorality in people, why would you give people the power to coerce using force against people who have done nothing but voluntarily interact with one another? Immorality of men is kept in check not by the hyper moral man with a gun who makes sure their interaction is fair in his view, but by the free interaction between men absent of coercion which is decided as fair by mutual and voluntary agreement.

    The middle ground is rarely the right place to be in a battlefield of ideas. There is right and there is wrong, so be careful that the gray area you walk into isn’t a cloud of smoke.

  98. Harley says:

    “If there is a degree of immorality in people, why would you give people the power to coerce using force against people who have done nothing but voluntarily interact with one another?”

    You mean politicians are not immune from immorality? ;-)

    If you think people will buy that, well then, sheesh, you must even think Senate seats could be sold to the highest bidder. How absurd!

  99. Joe says:

    I’m not quite sure how I got turned into a freedom hating tyranny lover.

    All I said was that people are not necessarily rational and to build a system assuming that they are is foolish. I didn’t attempt to posit any better solution, nor did I even propose changing it.

    I am absolutely in love with the freedoms to be as rational or irrational as I choose.

    But there’s the rub. If you allow the freedom of irrationality, one must be prepared to deal with the consequences of that, such as religious zealots, meaningless wars, and the occasional economic collapse.

    This whole dirty business probably could have been avoided with a tightly knit, automated, hyper-controlled economy, but that’s not a place where anyone actually wants to live.

    Plus it likely wouldn’t have reached the highs it did. Whether it was regulation or deregulation or unregulation or non-regulation that caused this, people seem to forget that that same system is also why our culture had the capital to build the electronic infrastructure every single one of us is using at this moment (how many people have affordable high-speed net access?), ipods, HD-TVs, zappos.com and itunes, etc.

    If we’re going to remain a free society, or something similar to it, all we can really do is try to dodge the pitfalls and a hell of a lot of damage control after the fact.

    My prediction for what will happen, for good or for ill, is that our fearless leaders will put yet another band-aid on the problem. Try to put a smarter structure in place that will be far too political and diluted to bring about any real change (and will just be enough so that they can say they’re using that can-do american grit to fix things into the next election cycle) things will slowly get better and, in twenty years or so it will happen all over again. I don’t feel that that’s a natural economic cycle (because economies aren’t a natural force like weather), but it seems to be a persistent one.

    In the meantime, hopefully things are bad enough that a few good ideas will slip through and improve things, but I suspect they’re not. I think that things will probably get a hell of a lot worse until we’re at that really nasty point of desperation that encourages creativity.

  100. Joe says:

    Oh yeah…

    “Again, going back to THE flaw that you think you will be in charge, that you set the rules.”

    Man… I would never EVER want that job. Managing the day to day BS of my own life is hard enough as it is, I don’t want to even think of what it would be like doing even a fraction of that for 300 million people. Sheesh.

    It’s a catch 22. People that want to lead are crazy enough that they shouldn’t be allowed to.

  101. Dojo Man says:

    Terrible! Is this what passes for logic around here? Or was this an exercise in trying to get us to count the logical fallacies?

  102. Dojo Man says:

    One more thing:

    If you’re calling the Federal Register, “the list of new regulations called the Federal Register”, then you simply don’t know what the Federal Register is. Sorry!

  103. Saint Gasoline says:

    “In time the economy will recover. It always does. Don’t regulate. Be patient.”

    How can you be so confident a freer market would recover if given time? There doesn’t seem to be anything about free market economics in principle that would necessarily prevent the economy from totally collapsing. You can liken it to a similar process guided by an “invisible hand”: evolution by natural selection. The fact that natural selection may be optimal for the survival of organisms owing to the intricacies of attempting to account for countless genetic and ecological variables doesn’t imply that natural selection will inevitably ensure survival. In fact, what we see is that extinction and waste is quite common, and that life in fact rests on a precarious balance. What is it about laissez-faire economics, then, that gives you such faith that the markets can and will recover if left to their own devices?

  104. For a balanced and targeted discussion of regulation and the free market, see Everything For Sale (The Virtues and Limits of Markets) by Robert Kuttner, The University of Chicago Press, 1996.

  105. Stacy Kennedy says:

    97: “You are not keeping with that, you are contradicting that. If there is a degree of immorality in people, why would you give people the power to coerce using force against people who have done nothing but voluntarily interact with one another? Immorality of men is kept in check not by the hyper moral man with a gun who makes sure their interaction is fair in his view, but by the free interaction between men absent of coercion which is decided as fair by mutual and voluntary agreement.”

    Who is talking about “giving people the power to coerce using force….”? We were talking about market regulations, not about rescinding habeus corpus or shooting people. Or is it the possibility that humans might impose restrictions upon one another’s behavior that’s got you in such a self-righteous lather? (I believe that’s called “Law”).

    If you and I freely and without coercion mutually and voluntarily agree to make a tidy profit by scamming Joe Blow, then we belong in jail (where we can whine to our hearts’ content about how all the nasty freedom-hating liberals will be coronating Big Brother any minute now).

    Get a grip, boys. Timothy, your prose style imititates Ayn Rand’s, and she was a perfectly dreadful writer. Further, your emotionalism should suggest–if you have an ounce of honest self-appraisal left–that you are defending a religious dogma, not a rationalist one.

  106. Robbie says:

    What a response.Here was I believing the financial crisis was caused by good old fashioned greed,by both rich and poor alike.Now it appears that so many of you know what caused it,well I have to ask”Why did it happen?” when you could have all stopped it.As usual of course,it’s easier to write about it,that’s sitting on your backside,but getting up and doing something,well,that means movement and I’d say most of you aren’t too keen on that.Good on Michael Shermer for at least getting you up on your high horses

  107. RSA,

    Who says you would need to pay separately? In many cities, there is an easy-pay system (eg, Oyster in London, Octopus in Hong Kong). These systems (were created and) are run by private enterprises and are miles better than the previous solution (paying with coins). As for the issue of security, does every toll or highway have security now?

    There is a cost to these things, I will admit. But there is the cost of taxes as well. You have hit upon the right question: which is cheaper in the long run? I will admit, I don’t know and I believe it differs in different situations (tax rate, size of country, usage of roads, etc). I was merely providing a scenario.

    I understand it is a libertarian argument. I was asking for you to flesh out the argument from both sides a bit more (why they believe it’s bad and why you think it’s good).

    Grumpy Owl,

    The problem of fiat money is an old one. Yes, paper money has no (significant) intrinsic value. But the problem of money is not one of faith in it, but in what it represents. Figures are figures and don’t mean anything. You cannot know what 1000 units of something is worth if you do not have something to measure it against. That’s why we have a price level, an inflation rate. Money is meant to be a store of value. It is meaningless to compare nominal values of decades ago with those now, without comparing the real values.

    As an aside, economics is not focused entirely on money. There is economic study of barter, for example. (Micro-)Economics, in general, is about incentives and our response to them.

    joe,

    “Smoking, late night drinking binges, sleep deprivation, antagonizing those that are physically stronger than I for no personal gain other than satisfying a whim, and, of course, running yellow lights to get to 7-11 45 seconds earlier in order to literally purchase poison to self-administer can hardly be considered either rational or self-interested.”

    You haven’t thought this through. Becker and Murphy took on things like smoking and binge-drinking in their paper, “A theory of rational addiction”. The fact remains that everything we do (even crossing the street) has a cost, AND a benefit. Calculating the cost of running the yellow lights, for example, involves weighing the chance you will die and/or get caught and/or crash against the benefit(s) of saving time. I’d recommend Tim Harford for more on stuff like this.

  108. E.P says:

    Shermer really oversimplified this. What a wasted post.
    All y’all hush up and read this, which really nails it:
    From a post today at Truthout.org, http://www.truthout.org/121008R

    “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.”

  109. Harley says:

    “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.”

    Poppycock. The market is self-adjusting. This is an adjustment and government’s role should be minimal.

  110. Harley says:

    “Who is talking about “giving people the power to coerce using force….”? We were talking about market regulations, not about rescinding habeus corpus or shooting people. Or is it the possibility that humans might impose restrictions upon one another’s behavior that’s got you in such a self-righteous lather? (I believe that’s called “Law”).”

    Oops, Stacy misses the point. Timothy believes there should be Law, just not law that prevents or regulates capitalist acts between consenting adults. And such regulations are coercive, since they are enforced by taking people’s property, or putting them in jail. I imagine you think it is proper that you should have the liberty to do many things without government interference. So does Timothy. He just draws the line in favor of more liberty in the economic realm. If you want to show he is wrong, you will need a better argument than this :-)

  111. Harley says:

    “What is it about laissez-faire economics, then, that gives you such faith that the markets can and will recover if left to their own devices?”

    Because exchange is as natural as breathing.

  112. Brent says:

    1000 babysitters with their hands tied behind their backs by Reaganites and Bushitters can do less to stop Dennis the Menace than one fully-empowered babysitter. Numbers are worse than meaningless in this discourse, and deceptive, Michael.

    Exchange might be as natural as breathing, but so are deception and greed. As has been pointed out many times by skeptics on other subjects, natural does not equal healthy, and adding hemlock to our economic diet because it is natural is sheer stupidity.

    For years, I have preferred WordPerfect over Microsoft Word, yet the sheer numbers force me to buy a product I only use because documents produced by others don’t always translate properly. The term “free market” is a deceptive misnomer; in truth, we have a coercive market that treats independent thinkers like the church treats freethinkers. How, Michael, can you argue that churches shouldn’t be allowed to coerce people yet at the same time argue that wealthy people should have that right?

  113. mick bates says:

    I’m a free market believer like you, but boy was that week! In principle, capitalism is the best system for human endeavor yet devised, but it is not perfect and in practice it falls apart in three areas. First, true capitalism is based on competition, but no human ever born actually wants competition and will therefore try every manner feasible to forestall competition. I have read that you have a science degree. If you do then you know how easy it is to make drugs, (You need a recipe and some glassware.) but you can’t make drugs. Only nine companies are allowed to make drugs in the USA and if you (Mr. Shermer) are not allowed to make drugs to compete with the nine drug companies, then there is absolutely no competition in the drug manufacturing business. No competition means no capitalism. Anyone who says, “I don’t want socialized medicine in the USA.” is an idiot. The government already regulates medicine and regulation is socialism.

    The next area where capitalism falls apart, which may be a sub category of competition avoidance, is in conglomeration. The idea that a company can be too big to fail destroys the check that is absolutely necessary to balance a capitalistic system.

    The last area where capitalism falls apart is in inheritance. 69% of our nations wealth is distributed by inheritance and that 69% is outside the principles of capitalism put forth in Wealth of Nations, by Adam Smith.

    It is these three imperfections in the capitalist system that have caused this and every other financial disaster, so use you intelligence to address and fix the failings of capitalism instead of using it to rationalize an obviously flawed system.

    MB

  114. Harley says:

    Brent writes: “Exchange might be as natural as breathing, but so are deception and greed… natural does not equal healthy”

    1) I wasn’t arguing free exchange was healthy, I was arguing it is rather inevitable since the guy asked how we can know if it will rebound.

    2) If deception and greed are natural, then it will naturally infect government control. Where is your argument that the greed and deception of government is less harmful than the greed and deception of free players in the market place.

    3) There are other ways to deal with greed and deception than government control. Buyer beware. Civil courts, etc.

  115. Harley says:

    “The last area where capitalism falls apart is in inheritance. 69% of our nations wealth is distributed by inheritance and that 69% is outside the principles of capitalism put forth in Wealth of Nations, by Adam Smith.”

    Inheritance is a perfectly just form of transfer. Why in the world would you think that Obama’s and Nancy Pelosi’s presumed right to take my property and distribute it according to their pet projects, outweighs my right to dispense of my property as I wish – give it to my children to whom I owe more than strangers (since I brought them into existence after all).

  116. Harley says:

    “It is these three imperfections in the capitalist system that have caused this and every other financial disaster, so use you intelligence to address and fix the failings of capitalism instead of using it to rationalize an obviously flawed system.”

    Bravo. You have discovered capitalism has flaws,(though I disagree with your specific choices).

    Government intervention at any level has flaws too. Now where is your argument that the level of government intervention you espouse has fewer flaws and more benefits, than the flawed free market that you don’t espouse?

  117. Grumpy Owl says:

    It seems to me the purpose of regulations is to reassure investors they can have a certain faith their money is safe. The root cause of these regulations is actions by the monied class which undermines confidence in the system. The problem is in the last years the regulations have been treated as window dressing because of non-enforcement. Their has never been an occurance I am aware of where cancelling governemnt regulations in favour of some sort of self policed regulations or no regulations has ever benefited the general public.
    As I recall, things like safety regulations in the transportation industry were the result of the lack of concern by the transport companies for the safety of their passengers. The regulations in the various branches of finance to reduce the outright robbery of investors by the finance business. To be sure, such robbery still occurs, but no longer especially by “legitimate” finance businesses. Of course, when politicians conspire with financial institutions to rip off the public, we can sometimes change the politicians and demand our money back. In Canada, we have something called deposit insurance which allows us to get much of our money back from the bank if they carelessly loose it or someone within commits fraud. We also have disclosure laws which means the investment sellers must disclose the risk, and thus if we loose everything in an investment, (we had a little company called Bre X which sold shares in nonexistent gold mines for considerable profit) and which cleaned out many of the punters. Fortunately, I knew a mining engineer who told me the chief business of mining companies is mining investors.
    For all the flaws in the over regulated Canadian System, we don’t loose our houses because our banks lost all their money in some fly by night scheme or other and thus need to call our loarns and our banks, like most banks in the world, have lost piles of money in the US Markets. Even so, there are still those who want to deregulate the banking system and make it easier for them to rip us all off.
    I must admit I enjoy all these attacks and defences of free markets and capitalism. In the first place, the big companies manufacturing transportation items, would not be half so big without the obscene amounts of money spent by the various military establishments of the world. There is no doubt, these amounts fuel continued unrest to kept military budgets justified. Military spending is not subject to free markets. The fact of only a few drug companies is to be sure not a free market business, due in part to safety concerns and testing, cost of research, and the capitalist notion they should be allowed massive profit on investment which they use to buy up smaller companies.
    The cost of the health care systems world wide is because in the first place is because the professional staff expects and is routinely granted large wages, though it seems by keeping the wages of non-professional staff low. It seems to me the rise in infectious diseases in hospitals must in someway be related to the lowering of cleaning standards within the sytem. As well, having all the new expensive toys available has something to do with it as well. Then there are admistrative costs, far higher in the US than Canada, but even so more than high enough.
    In any case, regulation is a symbol of the equality of opportunity for everybody and the strength of the regulation as sign of the strength of community. Those opposed to regulation as a matter of course, are in fact opposed to the very community which allows them to enjoy such gains as they have made. Arguments against regulation are actually arguments against social cohesion. On this I must admit the myth of the American West, every man for himself, and the Cult of the Individual which is the principal gift of America to the world.

  118. Harley says:

    “For years, I have preferred WordPerfect over Microsoft Word, yet the sheer numbers force me to buy a product I only use because documents produced by others don’t always translate properly. The term “free market” is a deceptive misnomer; in truth, we have a coercive market that treats independent thinkers like the church treats freethinkers. How, Michael, can you argue that churches shouldn’t be allowed to coerce people yet at the same time argue that wealthy people should have that right?”

    Huh? That’s like arguing that since all the other kiddies want to play baseball, and you want to play cricket, then you are being forced not to play cricket. :-)

    By coercion, force, we mean having your property taken from you, or being thrown into jail. See the difference? :-)

  119. RBH says:

    As one who works in the industry trading for a hedge fund, I can assure Schermer that he is blathering nonsense. As others have pointed out, the issue is not quantity of regulation, it’s quality. The changes in regulations of the financial industry over the last 10 or so years, two of them noted by Aaron Golas in comment #26, had the effect of reducing transparency and thereby increased the risks to investors without a compensating prospect of reward.

    Grumpy Owl wrote It seems to me the purpose of regulations is to reassure investors they can have a certain faith their money is safe.

    No, the purpose of regulations is to increase transparency so one knows what the risks are and can therefore make informed decisions.

    I’m disappointed in Schermer. He constructed a straw man, provided irrelevant statistics in an effort to blind the reader, and thereby abandoned his professed stance of rational skepticism.

  120. J. Gravelle says:

    I’ve addressed the ridiculous notion that the SEC/FTC regulations have declined in ANY capacity, and Dr. Shermer’s article (and these ensuing diatribes) is/are reminiscent of that posting, referred to in the following blatantly self-promotional link disguised as a reference source:

    LINK – Schmegulation article w/aforementioned cite

    We can perhaps all find neutral ground for a civil agreement in the axiom that:

    “Government is a necessary evil.”

    I’ll admit it’s necessary, if you’ll admit it’s evil…

    -jjg
    DailyScoff.com

  121. Vin says:

    As many above have pointed out pointing to regulation counts is a pretty ridiculous argument. What does that have to do with anything? Did the regulations actually cover the areas where the problems occurred? No. A central story of this crisis is the growth in lending from unregulated or mostly unregulated mortgage companies. This is not my opinion, this is a fact. How much did the finance industry grow in the same period? The answer there is an enormous amount. It was during this time period that finance took over from manufacturing as the largest sector of our economy. So of course the costs to regulate an exploding industry went up! I hope at the very least those dollar figures are inflation adjusted. I assume so since that would be too pathetic even for Shermer.

    What I find amusing is that in the final paragraph he once again asserts that the problem was Fannie and Freddie even though he was thoroughly debunked on that last time he posted it. Never mind that the Traiger Hinkley study showed that the CRA actually impeded bad lending not caused it. Never mind that the 2002 HUD/Fannie/Freddie standards did not allow the kinds of loans that the Traiger Hinkley study showed were the most likely to fail. Nevermind the study that found that 85% of securitized loans were not CRA loans. Nevermind that only 1 of the top 25 sub prime lenders were covered under CRA. Nevermind that Fannie and Freddie lost market share during the subprime boom. Nevermind that Fannie and Freddie were not the first to fail and when they did fail it was due to their borrowing costs and not the derfault rates. Nevermind that even now there is a possibility Fannie and Freddie will end up making money. Nevermind all those pesky little things called facts.

    Those aren’t things that matter for kooks like Shermer. Patience is what is needed he asserts sans evidence. This is part of the business cycle he asserts. What if people have different values. I mean, no one has come close to proving markets are especially efficient, and a lot of recent work from people like Stiglitz call that strongly in to question, but lets grant the premise. Markets in the long run will always find the most efficient solution. So what? A human life is only so many years. How many of those should be taken up by suffering from the results of the sacred cow called “the market”.

    In his last foray in to this subject Shermer used a football analogy. Football teams are being “greedy” when they try to win every game but we don’t seem to care about that. (Hmmm salary caps anyone? maybe we do care how they do it but lets put that aside for a sec). What if the players as they ran down the fireld were allowed to do whatever they want. Stab other players, shoot them in the head, you name it. Think of all the suffering it would cause. The players, their families, the kids that idolize them. If that was the way football was (the way Shermer wants the market), would everyone still be ok with it? I think we all know the answer to that one. But , at least Shermer would still go to the games.

    Still, I ask. What is the original post doing on a skeptical blog? Is this again an illustration of the kind of sloppy fact-free thinking we are to avoid? Or is it being suggested that this kind of drivel should become part of the things skeptics educate others about?

  122. J.F.Soti says:

    Dr. Shermer is right on again.

    Do people realize that the regulations are created by mostly dilatants i.e. politicians (Sophists) who themselves corrupt the process? Who reads all those thousands of pages of garbage? By the time you read it, it’s time to drop dead. So you get your army of lawyers to read it. After they read it all, they start looking for loop holes and the unintended consequences of the regulations. What a big waste of time and energy.

    Instead of regulations let’s bring back debtors’ prisons. Let companies be fiscally responsible. If GM goes bankrupt, lock up the corporate leaders and union heads that created the mess. With that kind of liability you’ll see how fast they make things work. And if that doesn’t work, GM will just have to go the way of the dinosaurs.

    It’s a shame so many Americans have become financially and economically illiterate. It’s not taught in schools and in college it’s so much easier to sit around and complain about capitalism like Karl Marx did, than to go out and do or create something useful.

  123. Joe Chip says:

    Great post, Mr. Shermer! While I don’t expected this on a skeptical blog, I am happy to see that you try to make some controversial Blog posts and rock the boat a little.

    About regulation page count, government employee count and actual regulation: While I agree that they aren’t equivalent, they correlate very strongly and are good indicators of actual regulation.

  124. Chukar says:

    1). If you can’t blind them with brilliance, baffle them with BS.

    2). An excellent way to hide a needle is to put it in a haystack. A few enormously important deregulations buried in a pile of minor nitpicks can more easily pass unnoticed (as they did in 1999 when Phil Gramm slipped one in ) and again later in 2003-04.

    3). There IS no such thing as a free market. Someone will always try to gain as much market share and power as humanly possible, by fair means if possible, by foul if necessary. The purpose of regulation is to try to reduce foolishness and corruption as much as possible.

    4). Why bother to regulate streets with stop signs and stoplights and not regulate a multi-trillion dollar, international industry.

    5). The people who whine most about too much regulation are specifically those who don’t want their financial “magic tricks” observed.

  125. Harley says:

    “4). Why bother to regulate streets with stop signs and stoplights and not regulate a multi-trillion dollar, international industry.”

    Because, you should not be allowed to kill people in your car. But, if you are a consenting adult, you should be allowed to commit capitalist acts (exchanges) without dopes like Nancy Pelosi ad like-minded control freaks preventing you, or telling you how to do it. It’s called LIBERTY.

  126. “2). An excellent way to hide a needle is to put it in a haystack.”

    I completely agree. That’s why we need fewer, simpler regulations.

    “3). There IS no such thing as a free market. Someone will always try to gain as much market share and power as humanly possible, by fair means if possible, by foul if necessary.”

    I completely agree. That’s why we need to de-centralize power, so no one person has the ability to loot the system.

    “5). The people who whine most about too much regulation are specifically those who don’t want their financial “magic tricks” observed.”

    I disagree. Often the most heavily regulated industries are the ones lobbying for more regulations, to prevent pesky little people from innovating their way into their industry.

    Oh, and a random footnote: As for road signs– it turns out people don’t pay very much attention to road signs, and streets just might be safer if we had fewer of them. And we’d be better off with fewer traffic lights and more roundabouts, too… (see http://www.howwedrive.com for more fascinating traffic facts from Tom Vanderbilt)

  127. Stew says:

    A just published article addresses the issue of regulation quantity vs. quality. It does so in terms of total regulation dollar cost to the country. (The decision as to whether a regulation is good or bad in its other effects is too subjective to be measured.) The article generally supports Shermer’s position. The article is available on line at

    http://www.reason.com/news/show/130328.html

  128. fashioncritic says:

    Just posting to say I agree with Shermer.

    Free trade, open markets and Laissez-faire capitalism are really the only way to go.

  129. Richard says:

    I was livid. The Democrats gave us the crisis and then proclaimed themselves the saviors. The problem is too much regulation and micro-management. Barney Frank, Chris Dodd, and Maxine Waters et. al. urged (if not required) Fannie Mae and Freddy Mac to buy up sub-prime loans and encouraged banks to make the loans and sell them to Fannie and Freddy. The plan was based on the assumption that real estate and housing in particular was a sure and safe investment. Even if there would be people getting loans who were high risk, it did not matter. The banks could just forclose and sell the property to someone else and get all their money back. Remember the commercials offering to let your borrow over 100% of your home’s value? Those loans were sold to Freddy and Fannie, who took them gladly. They were sure that these were a no-risk deal. Freddy and Fannie stock was purchased by various investors as a safe haven for their money. “Can’t lose on real estate!”

    As long as the home prices continued to escalate, it worked fine. Everybody was happy, more people owned homes than ever before. Nay sayers who spoke up, were ignored or even shouted down. Bush II bought into the conventional wisdom of the no-risk housing markets.

    Then the crash came and everyone was leverage up to their ears. Many had to bail out at a loss or pass that property back to the banks (and Fannie and Freddy) which could not sell it for as much as they loaned on it.

    Then the dominos started to fall and here we are.

    The only problem I can see is that we are going to get a bunch of government programs to fix a problem that the government caused. And that will be complements of the well-meaning block-heads who gave us the problem in the first place.

  130. Stacy Kennedy says:

    > Timothy believes there should be Law, just not law that prevents or regulates capitalist acts between consenting adults. And such regulations are coercive, since they are enforced by taking people’s property, or putting them in jail. I imagine you think it is proper that you should have the liberty to do many things without government interference. So does Timothy. He just draws the line in favor of more liberty in the economic realm.

    I understand this aspect of Timothy’s belief, Harley. My post didn’t actually address the economic argument itself: it addressed Timothy’s hyperbole, which I suggested reveals something about the nature of Objectivist belief.

    In your recast, Timothy has a perfectly rational POV. What he actually wrote, however, was that regulation equals “the power to coerce using force”, which he typified as “the hyper moral man with a gun.” (Earlier he equated regulation with tyranny.) This is mighty loaded rhetoric, and it gets my BS meter to jumping.

    Now, of course, I feel like I’m ragging on Timothy–and in the third person, as it were, no less! I apologize, T, I’ll bet you’re really a swell guy–this isn’t personal! But you knew that. (Jeesh, I am not cut out for this blogging commentary thing.)

  131. Don says:

    In response to your question Dr. Shermer “If deregulation isn’t the problem, then what is”?

    We are all to blame for the current economic slow down; we have become fearful that we don’t know what are economic worth is any more. What we do know that our worth is determined by what others think our worth is though, lately we have come to learn we’re not worth as much as we thought we were.

    If you want to blame the housing market then this is an easy fix. Put your house on the market for what you think its worth, and wait, if you sell your house great you know what your house is worth. However if you cannot sell your house for anything close to what your willing to part with, I would suggest start taking your house apart nail by nail, board by board and placing everything in your front lawn. Sell each piece until you have nothing left, then you’ll know what your house is worth.

    Skeptism and economics are a dangerous mixture. To analyze the economy one would have to assume that we can control for everything that could disrupt our study. That would mean we would have to take into account for the butterfly that flapped it’s wings in China that caused the hurricane that cost billions of dollars of damage.

  132. imajication says:

    I can’t believe such ideological dogma can be put on what claims to be a skeptic sight. That people who call themselves skeptics have such faith in free markets is akin to the deep religious feelings of some scientists, and perhaps more harmful.

    I’m not so much upset that you take such a free market position (which I don’t happen to agree with), but that you state it with such confidence and back it up with such flawed statistical reasoning goes against the spirit of everything skeptical. Making arguments like this weakens any case you could make against faith healers and NLP proponents.

    Though a lot of this has been covered in previous posts, I will state my objections (note all examples are hypothetical, I have little knowledge of actual SEC regulations):

    - Count sheer number of regulations is a poor indicator of the amount of regulation going on. For all we know, many of these regulations might have made it easier for businesses to be opaque, like a regulation exempting businesses from having to disclose a certain type of asset.
    - Increase in number of regulations doesn’t mean that those regulations are good or in the right domain. Regulation on telling you submit a 501-waist-of-time form every time you trade a treasury bond will not have much effect on Credit Default Swaps)
    - Generally, number of regulations increases over time, because more laws are passed and refined. Depending on how you’re counting them, even the repeal of a previous regulation might be considered a regulation (since it is a separate piece of legislation).
    - The Bush administration has been notorious about not enforcing regulations, in the SEC and other departments.

  133. Harley says:

    “I can’t believe such ideological dogma can be put on what claims to be a skeptic sight. That people who call themselves skeptics have such faith in free markets is akin to the deep religious feelings of some scientists, and perhaps more harmful.”

    This is nothing more than ad hominem – mere assertion that support of free markets is based on faith and dogma rather than reason. One could as easily argue your objections to free markets are the the result of faith or exceesive Kool- Aid.

  134. Virginia Skeptic says:

    Regulations are produced by governments. The one thing we know about government services is that they are more expensive and deliver lower quality than what the private sector provides. So why would we want rules made up by those that provide less for more?

    I assume people are smart. I assume they understood what they were doing when for years it appeared that there were problems with the mortgage industry. Despite seeing increasing failures these same loan types that were turning sour were being made. I am making the assumption that people were smart enough to understand what they were doing. So when government officials are praising the failing loan types and when business is pushing these failing loan types I am assuming that they were aware that this was happening. I do not follow the financial news and I was aware of it. I think it is safe to assume that these other people were as well.

    I agree with RBH that regulations should provide transparency to transactions. In this case it was transparent to me. People were not paying their loans and that was news often. Real estate in Florida was tanking with entire neighborhoods going belly up. Neighborhood associations were attempting to be reimbursed through foreclosures.

    Still the selling of bad loans went on.

  135. Hank James says:

    The current Ponziconomy, supported by both the political Left and Right, must have growth in population and consumption to generate such wealth in such a short time. It allows the Right to pander to the greedy and the Left to pander to the lazy at the same time (so everyone’s happy!) but it is using up our planet at an unsustainable rate.

    We need creative group problem solving in local, national and international levels rather than the high school style ideological debates we are getting. Check out George Prince’s “The Practice of Creativity: A Manual for Dynamic Group Problem Solving” and consider Lateral Thinking along with Critical Thinking. The world has tripled it’s human population in my lifetime yet this rate of growth is treated as a constant. Any good biologist knows this will be catastrophic but we keep arguing our academic points of view rather than define and solve the very real problems. – Hank

  136. Jon Echs says:

    On the issue of blind faith in religion I follow you 100%. However, your blind faith in the righteousness of the free market is itself a religious instinct which I find disturbing. A well run, humane -and ultimately, civilized – society, is only possible when the dog-eat-dog proclivities of free-market capitalism are proscribed by effective rules which protect the non-players.

  137. Alan Hoch says:

    This sounds like yet another retelling of the classic Libertarian Myth — deregulation always works. It’s presented as a matter of fact and evidence, but it’s really more accurately seen as a statement of faith. That’s because the belief is non-falsifiable — no matter how deregulated it gets the claim we be made that it wasn’t “really” deregulated and, golly, if we just deregulate even more then things really will get better. And, if they don’t? Well, then obviously things are still “regulated” and need to be “deregulated” even more. Round and round it goes and at each step the great “deregulation” myth remains intact.

    This is basically what apologists for Communism do — insist that the Soviet Union (et al) wasn’t “real” Communism and if we just try the “real” thing it would work so much better. Likewise, in this case our economic woes brought on a lack of oversight were, surprise, surprise, really caused by TOO MUCH oversight. Up is down; black is white. The failure of the myth becomes the justification for taking to the next level.

  138. J. Gravelle says:

    “Can one be sane and at the same time hold that ours is an unregulated laissez-faire economy?”
    -Prof. Walter Williams
    Source: Capitalism and the Financial Crisis

    -jjg
    DailyScoff.com

  139. Alan Hoch says:

    That’s another part of this great Libertarian Myth — call any attempt to relax rules and regulation “liberty” so it sounds good. In reality, it’s more like getting out from under responsibilities and civic duty. ANY liberal (small l) society is based on the premise that certain ideals and rights are inherent to everyone. But, those ideals need some level of enforcement. The libertarian view amounts to thinking that if we somehow remove all rules and responsibilities that magically everyone will act in some idealized way. This is an Utopian fantasy on par with the idea that if we just do away with ownership we’ll have the perfect (socialist) society because everyone will play nice.

    Truth is that any just society needs to promote and defend its ideals. In our society the NECESSITATES that the powerful sacrifice a bit of their power to make sure that the non-powerful have their basic right. To put it another way, the powerful need to be regulated. Take that away and you don’t get a libertarian Utopia, but rather a law-of-the-jungle, survival-of-the-fittest society where the strong prey on the weak and all that matters is power.

  140. imajication says:

    Harley sez:

    “This is nothing more than ad hominem – mere assertion that support of free markets is based on faith and dogma rather than reason. One could as easily argue your objections to free markets are the the result of faith or exceesive Kool- Aid.”

    I might have been a tad combative, for which I apologize, but I don’t think anything I said fell into the realm of ad hominem. As far as I know, MICHAEL SHERMER is a great person.

    The main point of my post wasn’t defending Post-Kensianism, which could be a different discussion. I was criticizing Shermer’s points, which are contra-skeptical. Skeptics sites should be picking apart statics used in this manner, not celebrating them.

    I think declaring anything in real-world economics with the certainty that Sherman does is erroneous. I have my own opinions on why what happened happened, but I would never presume to be sure. Economics is a complicated issue. It is difficult to make absolute statements about it, and even things I think there is evidence for are not definite.

    The reason I was upset is that putting something like this on a skeptics blog feels like sticking the Friedman and Austrian schools of economics on par with Darwin and putting Keynes and Minsky in the shoes of young earth creationists. The issues are not as cut and dry as that, and saying they are is silly.

    I would also object to an equally specious point being made against free markets. Such an argument could be effectively debunked on this site, and I would shake my head in dismay at the fellow lefties supporting their strong ideals with weak data.

    But once again, I’m not arguing that any specific ideology is right, just that the logic touted in this blog entry is WRONG.

  141. RSA says:

    Well said, Alan Hoch. Libertarianism is as extreme and unrealistic as communism. Both ideologies are based on flawed views of human nature.

  142. Stacy Kennedy says:

    It’s really the principle of market regulation that’s being argued here. Are we better off with it, or without it? That question cannot be answered by counting regulations.

    You may as well count the number of individual laws addressing the basic problem of homicide (murder, manslaughter, negligent homicide, etc.) If the number of such laws increases in a given year, and murder rates increase anyway, at best you might be able to argue that existing laws are redundant or ineffective, but it would be unwarranted to then proclaim that laws against homicide don’t work and the notion they do is a “myth”. Perhaps laws DON’T work; maybe we could decriminalize homicide and homicide rates would stay substantially the same. Maybe. But can you deduce that from from such a simple analysis? Homicide is a complex thing, and homicide rates may increase or decrease year by year due to multiple, complex factors quite unrelated to how many laws are on the books.

  143. Harley says:

    “I might have been a tad combative, for which I apologize, but I don’t think anything I said fell into the realm of ad hominem. As far as I know, MICHAEL SHERMER is a great person.”

    Well, you did say, “That people who call themselves skeptics have such faith in free markets is akin to the deep religious feelings of some scientists, and perhaps more harmful.”

    You did not provide any evidence that skeptics who tout free market ideas base these ideas on faith. So, this part of your post is mere rhetoric, regardless of you want to classify it as ad hominem. Assuming you and others have shown Shermer’s argument to be a bad one, how does this show his free market ideas are based on faith?

    And, I think the skepticism toward the claim that deregulation is the cause of the melt down is perfectly in line with the skeptical tradition which includes questioning topical bandwagon hysterias and conventional wisdom – and it seems obvious to me that the melt down was caused by too little regulation is conventional wisdom.

  144. Harley says:

    Alan Hoch says: “ANY liberal (small l) society is based on the premise that certain ideals and rights are inherent to everyone. But, those ideals need some level of enforcement. The libertarian view amounts to thinking that if we somehow remove all rules and responsibilities that magically everyone will act in some idealized way.”

    That’s not really accurate. Libertarians believe in the rigorous enforcement of negative rights – the rights of non-interference (see for example, Mill’s Principle of Libery). Liberartarians just don’t believe in positive rights – like a right to health care (that some people must provide to others). Very few libertarians are anarcho-capitalists (no government whatsoever). They believe some government is necessary. The difference between you and a libertarian is that libertarians prefer more individual freedom and liberty, while you seem to prefer more security, “community.” I can understand your preference, but you should not discount the libertarian’s as somehow invalid. Since, it is unlikely that libertarians can successfully secede and create their own libertarian society, all we can do is defend our positions in the market place of ideas, and may the best win. ;-)

  145. Libertarians distinguish themselves from every other political philosophy in that they do not believe they have the right (and wisdom) to impose their own beliefs on others. Libertarians eschew the initiation of violence (but mostly believe in self defense). Those who subscribe to the Church of Benevolent Government are generally convinced that THEY THEMSELVES (and those who they agree with) are smart enough to make wise and good decisions, but that ALL OTHERS are morally and intellectually deficient in this regard and have to be made better by force. That’s one thing.

    The other thing is that anybody who seriously thinks the current economic crisis was ultimately caused by the ‘unfettered free market’ is simply ignorant. As a general rule, these people couldn’t even begin to define how much regulation would be too much, and how to figure out how much regulation is too much. The silly meme of ‘smart regulation’ is simply a cop-out, because it fails to address the basic question of what the role of regulation should be. It’s not as if anybody is advocating ‘stupid regulation’. I have yet to meet anybody who consciously and deliberately proposes ‘stupid regulation’ instead of ‘smart regulation’.

    Define what you mean by ‘smart regulation’, and specify who you distinguish ‘smart’ from ‘stupid’ regulations, and you may have a leg to stand on. Otherwise, you are just wasting air time.

  146. bj says:

    who cares ?

  147. Beelzebud says:

    The term “Ownership Society” did not originate from Clinton, it came directly from George W. Bush.

    The fact that you could get something that simple to fact-check wrong, says a lot about this piece, and your motives for writing it.

    This is disappointing. I had just found this blog tonight, and was looking forward to reading some good skeptical articles. Instead I’m met with this Free Market libertarian horse crap.

  148. Emil says:

    There sure is a lot of ideology being thrown around here by supposed skeptics on both sides of this issue. For the record, I don’t hold with “free market” theory, Libertarianism OR support of big intrusive government. No ideology or theory of economy or government on its own has ever been complete enough to truly encompass, explain or create a functioning economy or society.

    American society is an oxymoron of democratic (well, republican really) (small d, small r) politics combined with a capitalist monetary system. When it works well it is because these two fundamentally opposed ideas are in relative balance.

    As a previous comment stated, there is no evidence to suppose that government is somehow above corruption, which makes reliance on government regulation in this area suspect. On the other hand, however, free market theory doesn’t account for corruption within the market place–an outcome which is almost inevitable if there aren’t some type of extra-market prohibition against it.

    We have gone through a long period of market deregulation pushed primarily by the executive branch ever since Reagan. (and yes, I include Clinton in that statement.) As has been previously stated repeatedly, counting the number of pages or the raw budgetary data is no true measure of regulation or deregulation.

    Additionally–especially in the last 8 years, but by no means exclusively–there is a continued shift of power within government from the congress and judiciary to the executive which has decreased the effectiveness of the checks and balances designed into the system in the Constitution. These checks and balances were included to help prevent government corruption and were removed primarily by the same free market ideologues who now point to government corruption as a reason for deregulation.

    The upshot is that (at least in my opinion) the balance of the system is off. The freemarket proponents and “neoconservatives” have had their way for quite sometime now, and it’s time to get back to some reasonable protections for the average citizen and reasonable checks on corporate and government greed and corruption. It’s a question of pragmatic balance not ideology.

  149. fatherdaddy says:

    Not to diminish the financial institution’s responsibility for their part in the current economic situation, at what point does the consumer of all this debt become responsible? We seem to ignore the people like my coworker who bought a house he could never afford over the long term. What about the people who max out their credit cards so they can have the latest gadgets or take that dream vacation? We have decided that we have a right to these things and it’s someone else’s fault we can’t afford it. Those who borrow without thinking about the future are as responsible for this mess as the banker whose only goal is to make the quarterly earnings look good.

  150. Emil,

    what exactly is free-market about neocons? Neoconservatism is massive state intervention on many levels, including military intervention in foreign countries. Contracting out army supplies is NOT free market, it’s not even privatization, for example.

    And regarding ‘nobody fully accounts for all aspects of society’ or something along those lines. This is not about arts and culture, this is about economics and government, and if you would read the theorists of libertarianism, you should realize that they have gone a long way to build a consistent and realistic model of society.

    I wonder if you have ever read von Mises, Rothbard, Nozick, Oppenheimer, or even Murphy.

  151. fd: absolutely. The warning signs were there. All those folks who can barely add up their grocery bills without a calculator were suddenly financial wizards and clever jugglers of ‘opm’. ha ha.

  152. Geoff K says:

    I caught something in an early post – Mr Frank Ross, Herbert Hoover was a self-identified Progressive and even FDR criticized him for ‘spending too much’; he was *very* definitively *not* a free-marketeer, and brought about much of what Keynes claimed was a sign of a market in distress (‘Sticky Wages’, for example, were the result of the meeting between HH and I think it was 9 of the biggest businessmen of the era, who came to an agreement on price controls and setting current wages as minimums). Note: My understanding should be considered largely elementary and is primarily from second-hand sources. However, HH’s progressivism and his meeting with top businessmen of the era is something fairly easy to check, I think both can be found on wikipedia.

    Imajication, I’m going to agree with your post 141 in that the skeptical ought to constantly recheck their own arguments, and add that economics especially ought to be considered suspect. The arguments for economics are becoming nearly religious in nature, wherein regulation, government intervention, social programs, and the like are becoming more a matter of contention where ‘deregulation’ or ‘regulation’ are pointed as grails without giving real argument as to why either one is good or even works.

    My own view, in brief, is that regulation of the markets does two things:
    one, makes it more likely that all the businesses in a field are going to make the same mistake at the same time (since all businesses will have a similar amount of ‘learning’ from past mistakes in the form of laws;
    second, does not ensure that best regulation exists by forcing everyone to follow the created regulation usually at great cost, meaning self-regulation is unfeasible and the creation of a number of different self-regulations, some of which are better than others, are foregone; meaning the one-at-a-time trial-and-error method of the government regulation will take several generations to be made effective. In the self-regulated manner, effective regulation is created in just a single generation. Further, the government regulation will more likely lose progress towards effectiveness as the market/environment changes, whereas the self-regulation will again find effective regulation in a shorter period of time.

    If one finds self-regulation to be unlikely, I’d like to put forward the idea that the most recent piece of large regulation was Sarbanes-Oxley after the collapse of Enron, WorldCom, and other companies which (please correct me if I’m wrong) were largely government-created monopolies; they had little true prospect for growth, but also little true prospect for shrinking; the goal of the leaders of that company was to acquire as much of that finite resource for themselves in as short amount of time as possible. Since there were few alternative options (mergers, acquisition of other companies, change in business model or new, better products), the leaders used embezzlement to achieve their goal. While it is arguable that this is a failure based on greed, I’d argue that the failure and lack of self-regulation was based more on a top-down, government regulation that enabled embezzlement as a viable option while discouraging methods that would have lead to gains for the leaders of those companies via growth and competition; or to use the ‘folk wisdom’ phrase, “Idle hands are the devil’s playground”. (full disclosure: I consider myself an atheist, but was raised a Catholic and attempted for a time to justify religious beliefs by looking for the points at which these beliefs benefit their constituents; the Kosher diet’s healthiness is a notable example)

  153. carnegis says:

    Shermer is right.

  154. Tiktaalik says:

    Like several other commentors, methinks you confuse bureaucracy with regulation. The myopic obstancy of the worshiped Alan Greenspan, the envy of investment banks and the (always present) gullibility of the rabble are what set up the inevitable collapse.

  155. did my previous post get deleted for overly strong language??

  156. Well, I came here because Bob Carroll was touting Shermer. I’ll tell you the same thing I told him, Michael:

    Smith’s “invisible hand” came directly from the metaphysical pages of Deism and is totally unscientific. Shermer knows better that there is neither an “invisible hand” nor a “free market.”

    I do hope Bob and SD aren’t back to the days of Penn and Teller’s quondam pseudoskepticism.

  157. Alan Hoch says:

    “The good news is this: In time the economy will recover. It always does. Don’t regulate. Be patient.”

    I just wanted to add that this statement of the author may be the most irresponsible I’ve seen all year. A true triumph of ideology over reality. The economy is heading off the cliff and his recommendation is to turn up the radio and read a magazine? Has nothing been learned from the Great Depression? Unless we want another Great Depression or “merely” something like Japan’s lost decade intervention is our only hope. The real struggle is going to be that such intervention is handled fairly and effectively. My worry is that the same forces that got us into this mess will use the bailout just to return to their old ways. This is why I champion regulated capitalism — sure, make money, but you got to play by the rules (like having real transparency).

    However, nothing would be worse than to do nothing which is what Shermer is claiming.

  158. GK says:

    The ‘invisible hand’ is simply a pretty term for ‘evolution’. Statist talk about ‘failure of the free market’ is the intellectual equivalent to creationist talking about ‘irreducible complexity’ – a complete admission of ignorance about the basic mechanisms of nature. The ‘free market’ fails about as much and about as frequently as ‘evolution’. Nature is a ‘free market’. The thing most regulation supporters ignore is that regulation does not suspend the workings of economic laws. All regulations can do is add inefficiencies into the market, without altering the underlying mechanism.

    In a way, economic regulations are like species protection – in the long run, they are futile.

    The current economic crisis is simply the unavoidable result of interference into the workings of the economy. All attempts to prevent the current economic system of state-managed money and regulated business from failing are futile in the long-run. What they do accomplish is the destruction of the still-remaining functional elements of the economy.

    It is not by accident that there is no currency in circulation today that is more than 200 years old, and there are almost no currencies that are more than 100 years old. All state-issued fiat money will eventually collapse to zero. Get used to it.

  159. GK says:

    Alan – every single political measure to ‘save’ the economy is doomed to failure. Politics is the negation of Economics. Economics is voluntary exchange between individuals using their own resources for mutual benefit, while Politics is the forceful redistribution of resources at the expense of some for the benefit of others.

    There can be no political solution to economic questions. This basic fundamental understanding is what’s lacking in the current debate.

    What is generally forgotten is that Economic life predates Political life. There can be no Politics without Economics, but Economics can function just fine without Politics.

    Of course, almost nobody today – with a few exceptions – even understands the use of these words in this sense, which is the main reason we are in the current mess.

  160. Drew Kime says:

    Question for GK and all you other “free-market as evolution” believers: Do you ever see a doctor?

    Natural selection dictates that more physically fit (for their current environment) organisms are more likely to reproduce, while less physically fit (for their current environment) organisms are more likely to die without reproducing.

    But for some reason we’ve decided that we don’t like that system so well. We have doctors and surgery and medicine, so that even people with conditions that would have been fatal as recently as a few decades back can live full lives … and reproduce.

    The moralistic explanation for this behavior is that we value people more highly than we value nature, so we strive to overcome natural law.

    The scientific explanation is that our intellectual capacity *is* a form of selection, granting us fitness that goes beyond simple physical attributes.

    Either way, we’ve decided that because we *can* overcome random chance, we *will* do it. We prefer to influence the game in favor of the current players, even at the expense of possible future players who might be more “fit”.

    So it is with the economy. We *could* choose to let “natural” forces play out without interference, letting some people lose everything in favor of more fit competitors. This might even produce a more fit economy in the long term. But we can’t know that for sure. Some evolutionary paths are a dead end.

    That’s why we have regulation. It’s medicine for the economy. Just as doctors sometimes subscribe to the wrong idea — bleeding people to release bad humours, for instance — regulators sometimes enact the wrong policy. But over time, medical knowledge grows and we end up extending life and improving average health. Why shouldn’t we expect that economic regulation would follow the same trend?

  161. Beelzebud says:

    It still astounds me that this type of drivel is on this site.

    I used to be a supporter of this TV show taking off, but if this is the type of skepticism that the show will feature, it’s not something I can support at all.

    I could tune into about 10 different shows on cable news that sing the glories of the free market.

  162. Of course Shermer is right.

    We don’t have regulation for any of the reasons given in the comments. Regulation favors the regulators, Congress, and those who are regulated. It has nothing to do with consumers, now or future.

    Cross country comparisons clearly show that regulation squashes growth, health, and well-being. Even a time series comparison in the US shows that innovation is diminished by regulation.

    Regulation dumbs things down. Have you ever been in a regulatory hearing or talked with regulators or their staff? You would not believe the disconnect with the real world in the arguments, the data, or the issues.

  163. GK says:

    Drew – you missed the point. Politics does not offer a solution to economic questions. Economic problems can only be solved with economic solutions. Politics is fundamentally different from economics in that it operates on completely non-economic principles. Political interference into the economy is not the same as administering medication to a sick body, or setting a broken leg. Political solutions for economic problems are about as sensible as political solution to medical problems. You can chose to punish healthy people for not becoming sick, just as you can chose to punish economically successful people for becoming wealthy. This does not make the sick any better off, it only makes the healthy worse off.

    What those in favor of regulation miss is this: there is NO evidence AT ALL that government regulation of the economy has improved economic life for everybody. Government regulation of the economy is ALWAYS the result of rent-seeking, and it always results in rent seeking.

    The argument of free market proponents is NOT that the free market results in the best imaginable outcome. The argument is that the free market results in the best possible outcome. Proponents of government regulation believe that when the market does not deliver the best imaginable outcome it has failed, and then believe that government can rectify this. This is, however, magical thinking, because it supposes that while people engaged in economic activity fail to achieve the best imaginable outcome due to human imperfection, humans engaged in political activity are suddenly less imperfect and can take actions that are better.

    Proponents of political regulation try to correct real-life problems of economic life with idealized solutions of political life.

    The Poor will always be with us, regardless of whether there is a free market or whether the government controls the economy. The argument of the free market proponent is that in a free market, there will be fewer poor with us.

    Proponents of political solutions to economic problems – such as medical care for the poor – tend to assume that people engaged in economic activity (free exchange) are morally inferior to those engaged in political activities (forced redistribution). For some reason, they believe that while people in a free market will not voluntarily help the poor, the same people will suddenly help the poor when forced to do so by others – forgetting, of course, that the ‘others’ would in a free market be just as self-centered. The question proponents of political solutions never ask – and hence fail to answer – is this: what is it about Politics that makes people morally better than they would otherwise be?

    What stops people concerned about the poor from helping the poor in a free market when they will help the poor through politics? The answer to that is, of course, very obvious. And the answer to that also undermines the moral position of those advocating political solutions to economic problems.

    Proponents of political solutions to economic problems all share a fundamental assumption about human nature that proponents of the free-market generally do not share: humans are inherently non-cooperative creatures who will always put their own immediate needs above that of everybody else. As wrong as this assumption is empirically – and logically – as hard it is to argue against.

  164. Drew Kime says:

    What a steaming pile of poor logic that is.

    “Political interference into the economy is not the same as administering medication to a sick body, or setting a broken leg.”

    No, and neither does medical school set a leg. What it does is pass on the accumulated wisdom of what does and doesn’t work.

    Further, “political interference” in medicine dictates who is or is not allowed to practice medicine. And holds practitioners accountable when the care they provide is harmful. It doesn’t accomplish either of these goals perfectly, but your own argument is that we should not compare a solution to an imagined ideal but to the possible alternative. In this case the possible alternative is third-world butches who routinely kill patients. (That our current medical system is unaffordable is a different question from whether it is effective at treating people.)

    “What those in favor of regulation miss is this: there is NO evidence AT ALL that government regulation of the economy has improved economic life for everybody.”

    Straw man. Is there evidence that regulation of the economy has improved economic life for *anybody*?

    “Government regulation of the economy is ALWAYS the result of rent-seeking, and it always results in rent seeking.”

    Assuming the motives of those you disagree with, and attacking the motives.

    “The question proponents of political solutions never ask – and hence fail to answer – is this: what is it about Politics that makes people morally better than they would otherwise be?”

    You invented the position that regulation was about moral betterment. Regulation is about proscribing *behavior*. No moral aspect required.

    “Proponents of political solutions to economic problems all share a fundamental assumption about human nature that proponents of the free-market generally do not share: humans are inherently non-cooperative creatures who will always put their own immediate needs above that of everybody else.”

    Again, assuming the motives of those you disagree with. If you’d like to argue against a posited assumption, try this one: “*SOME* humans are inherently non-cooperative creatures who will always put their own immediate needs above that of everybody else. *THOSE* humans need to be reigned in by regulation.”

    Laws restricting behavior are only required by the people who otherwise would engage in that behavior. The cost of complying with those laws is borne by *everyone*, whether they personally need the restrictions or not.

    If you have a proposal for how to apply restrictions only to those people who would otherwise abuse the system, I’d be glad to hear it.

  165. Jeff says:

    Ick! I’m sorry, but I couldn’t get past the second paragraph where you’re trying to draw a conclusion by counting the number of pages in the Federal Register. Aside from ignorance about what’s in the Federal Register, this just doesn’t come off as a sound argument, but rather as the same sort of hand-waving apologist arguments employed by creationists and others whose pre-ordained conclusion comes first.

  166. GK says:

    You invented the position that regulation was about moral betterment. Regulation is about proscribing *behavior*. No moral aspect required.

    Of course it’s about morality, how else do you know what behavior to proscribe? There needs to be a rationale for regulation, no? Not sure how you can justify regulation without appeal to morality.

    But, that’s one of the key problems in this whole debate. No serious thought about fundamental assumptions.

    The rest of your argument breaks down accordingly.

  167. Drew Kime says:

    “Of course it’s about morality, how else do you know what behavior to proscribe?”

    That’s the assertion on which you base your entire position? Interesting that it’s the exact same position fundamentalists use to attack atheists. Because without a God-given moral code, how could anyone know what is right and wrong?

    It’s a strawman when they make that argument. Which means … oh, I’m sure you can make the next step in this line of reasoning.

  168. GK says:

    Drew – are you arguing that one can proscribe behavior WITHOUT reference to morality? NOTA BENE: I do NOT want to POLITICALLY proscribe behaviour. YOU are.

    So, back to the starting line: you say that some behavior should be politically proscribed. You say this can done without appeal to morality. I ask you: what criterion/a do you use to decide which behavior to proscribe and which not to proscribe, and… how do you establish this without appeals to morality?

    I don’t think there are any objective criteria for right and wrong. I assert there are only preferences. It is YOU who seems to think there are objective standards – or do you simply want to prohibit things YOU don’t like, and allow what YOU like?

    Help me out here.

  169. Drew Kime says:

    Should there be laws against murder? Rape? Child abuse? Of course. And I don’t need to appeal to a higher power to assert that. Is it just because *I* don’t like them that I favor laws against them? No, I don’t think so.

    Your position seems to be that *any* proposed regulation of the market can be justified by nothing better than, “Because I know better than you, and will use the political process to impose my will.”

    Is that, in fact, your position? And if so, does that *also* suggest that you oppose laws against murder, rape and child abuse?

  170. Alan Hoch says:

    GK — You are missing a fundamental reality — “Economics” aren’t some law of nature that exists in the same way as Relativity or Newton’s Laws of Motion. Rather, any economic system is an ARTIFICIAL creation of mankind. As such it can be manipulated and restructured as mankind desires. Likewise, in practice there is no important difference between politics and economics. Same process, but one has the aim of making money and the other governance. You are offering up an artificial and arbitrary distinction where one does not exist — and, a convenient distinction at that as it gives you the excuse to keep pretending in the supposed sanctity of the economic system. You get to label ideas you dislike as “politics” and those you like as “economics” and dismiss the former out-of-hand because, well, politics are “bad”. That’s not skepticism or economics, but a statement of faith.

    The end goal of any social system — like economics — is to serve human needs. As such they need to be managed to bring about such an end. Our system has clearly gotten away from that and no amount of pretending that economics are some pristine law of nature that man “doth not mess with” can avoid the basic fact that an artificial human social construct can, by definition, be altered by humans.

  171. Drew Kime says:

    Alan, you make an excellent point. I think our arguments are complimentary in that you point out, quite rightly, that any economy is inherently a man-made construct. While I argue that even when we are dealing with fundamental aspects of human nature, we *still* have no reason to blithely let the system do what it will without our input.

  172. GK says:

    Alan:
    ““Economics” aren’t some law of nature that exists in the same way as Relativity or Newton’s Laws of Motion.”

    While economics only exist where there is human life (at least on this planet, and as far as we can tell), this does not mean that they do not follow inherent natural laws. One can chose to ignore them, or to take them into account, but it is impossible to stop them from working.

    “Any economic system is an ARTIFICIAL creation of mankind. As such it can be manipulated and restructured as mankind desires.”

    Which is why rent controls don’t result in shortages, why rationing does not create black markets, and why Mises’ calculation problem does not exist for centrally planned economy.

    regarding Drew: you are dodging the question. Are you saying that laws are not based on morality, but are in fact value-free? That there are things which in and of themselves are objectively bad without any reference to any kind of standard we have to agree upon beforehand?

    Is there a law of nature that can be objectively determined that makes murder and rape bad, or is this simply a socially agreed upon codex we all subscribe to, more or less?

  173. GK says:

    Alan, one more thing:

    “You get to label ideas you dislike as “politics” and those you like as “economics” and dismiss the former out-of-hand because, well, politics are “bad”. That’s not skepticism or economics, but a statement of faith.”

    I have defined economics in a very precise way, and I have defined politics in a very precise way. I don’t say that politics is ‘bad’, I say that Politics is NOT based on the voluntary exchange between two actors that are ex-ante perceived as mutually beneficial, but rather on the violent (as in: failure to agree will result in violence) imposition of transactions at least one of the affected parties would not agree to without the threat of violence.

    If you think that what I describe as Politics is bad, that’s your choice, and maybe you should draw the appropriate conclusions from that. But don’t try to say that my distinction is invalid simply because you don’t like the implication.

    This distinction, by the way, goes back at least to Franz Oppenheimer (and probably further back than that).

  174. Drew Kime says:

    “Are you saying that laws are not based on morality, but are in fact value-free? That there are things which in and of themselves are objectively bad without any reference to any kind of standard we have to agree upon beforehand?”

    I’m not saying value-free. I’m saying not based on *morality*. Laws that cause the most benefit to the most people should be preferred over laws cause more harm than benefit.

    Historically, times of steady growth benefit more people than violent ups and downs, which lead to some big winners but many more big losers. Excessive limits on upside potential stall growth completely but there can, I believe, be a balance between stasis and radical fluctuations.

    “Is there a law of nature that can be objectively determined that makes murder and rape bad, or is this simply a socially agreed upon codex we all subscribe to, more or less?”

    Socially agreed upon codex we all subscribe to? Sure, why not? I suspect this is a setup for a point you want to make, but any reasonably free, reasonably democratic society has to be based on a set of premises we all subscribe to, more or less.

    “I don’t say that politics is ‘bad’, I say that Politics is NOT based on the voluntary exchange between two actors that are ex-ante perceived as mutually beneficial, but rather on the violent (as in: failure to agree will result in violence) imposition of transactions at least one of the affected parties would not agree to without the threat of violence.”

    You don’t say it’s bad, you just say it’s the violent imposition of one person’s will on another person. That’s a dishonest argument and I think you know it.

    You have taken a term with a commonly understood definition and broad application, and redefined it for the sake of your argument in a very narrow way. Your definition is not even a subset of the common meaning, but in fact directly counter to how most people understand it.

    When a family votes on what to get on their pizza, they have just practiced politics. There is no violent imposition of will involved, but rather mutual consent. And, if all parties are able to agree on the toppings without anyone being disappointed, then no one is having anything imposed on them that they would not agree to.

    Your argument amounts to:

    1. I have an artificial and inherently negative definition of the term “politics”. Call it politikz.

    2. Economic regulation is the result of politics.

    3. I can tell people they’re wrong, because they don’t know that they’re talking about politics but I’m talking about politikz.

  175. GK says:

    “I’m not saying value-free. I’m saying not based on *morality*. Laws that cause the most benefit to the most people should be preferred over laws cause more harm than benefit.”

    Oh well, I can live with that. You call it values, I call it morality. If you have an issue with the term ‘morality’ because of whatever reason, that’s fine. So, laws are based on values. Values defined by people. Which means that they are subjective. Which means that if you base a legal system on them, you are creating a legal system based on subjective values that are open to negotiation, or that can be dismissed. That’s all I was trying to say.

    “3. I can tell people they’re wrong, because they don’t know that they’re talking about politics but I’m talking about politikz.”

    Regarding my definition of politics: it’s a rather common definition of politics in libertarian philosophy. You may disagree with it, that’s fine. The dichotomy between the two types of human interaction Libertarians define as Economics and Politics remains. You may call it what you want, I’m not an essentialist, i can live with different terms.

    “You don’t say it’s bad, you just say it’s the violent imposition of one person’s will on another person. That’s a dishonest argument and I think you know it”

    Well, since I am arguing from the position of Libertarian philosophy, my argument is not dishonest, simply consistent. You seem to be completely unaware of Libertarian philosophical ideas, which renders any discussion on Libertarian ideas with you pointless.

    “I suspect this is a setup for a point you want to make, but any reasonably free, reasonably democratic society has to be based on a set of premises we all subscribe to, more or less.”

    Well, what about people who don’t subscribe to these premises? I guess your argument is that they can just move, right? You probably accept the concept of ‘implicit consent’, as in: since you are born in this society, and since you didn’t chose to kill yourself as a result, you have implicitly accepted it. You are allowed to argue on the technicalities, but not to question its fundamental assumptions.

    By using the words ‘reasonable’ – probably in the same sense as Rawls – you have immunized your argument against all criticism. Disagree with you on the fundamentals simply proves that your critics are not reasonable. End of argument. That’s neat, self-immunizing contemporary liberal argumentation – if you read your Popper, you know what that means.

    The fact remains that without a clear understanding of the logic of pure economics, most discussions about the economy are little more than the exchange of platitudes.

    Anybody who seriously believes that the laws of economics are infinitely malleable – or malleable at all – has put himself into a position where anything he says becomes irrefutable. The funny thing is that despite all the ‘empiricism’ of our modern economic science elite, there is an almost total lack of coherent theory. Again, anybody who has read his Popper even superficially should understand what that means.

    But, you can have your just-so-story-based political economy. Since the laws of economics are malleable and humans can make economics do whatever they want, this economic crisis should be over the day the stimulus package hits the fan, and with plenty of government regulation, smart regulation of course, we’ll be just fine.

    And if things don’t work out? Well, just blame it on human nature, and the greed of those not yet fully, and smartly, regulated. Or blame it on bad regulation, as opposed to smart regulation. Just about everything, except the basic premises, because they are, of course, unassailable. :)

  176. GK says:

    Oh, I missed one key aspect of your post, Drew:

    “And, if all parties are able to agree on the toppings without anyone being disappointed, then no one is having anything imposed on them that they would not agree to.”

    Is THAT how you think this whole democracy cum economic regulation thing works? nobody disappointed, nobody having anything imposed on them they would not agree to?

    I agree that is such a case there would be no problem, but, this is not how it works, since at least one person – I – does not agree with it. So, at the very least I am being imposed upon. Not a great family.

  177. Drew Kime says:

    “The dichotomy between the two types of human interaction Libertarians define as Economics and Politics remains.”

    It’s a false dichotomy, as well as an abuse of the common definition of the terms.

    “You seem to be completely unaware of Libertarian philosophical ideas, which renders any discussion on Libertarian ideas with you pointless.”

    Not at all. What you’ve missed is that I’m not discussing Libertarian ideas. I’m discussing economics. And I don’t mean the alternative-definition Economics that you’d like to take as a premise.

    “Anybody who seriously believes that the laws of economics are infinitely malleable – or malleable at all – has put himself into a position where anything he says becomes irrefutable.”

    Go back to what I wrote about medicine. The law of natural selection is not malleable. Yet we still decide to take actions that produce results counter to what would occur naturally.

    Libertarian definitions of economic laws are useful when they are merely descriptive: These are the factors that influence an economy. It’s when you make the leap to prescriptive philosophy that it fails, when you say that because these factors exist, we should not try to influence outcomes within those constraints.

    Let me try a more pragmatic argument. Do you believe it’s possible for people, through regulation, to cause a negative outcome compared to an unregulated economy?

    If not, then your whole argument is pointless, because we can’t make it worse no matter what we do.

    If so, then you accept that it is possible for regulation to influence the economy.

    If it is possible for regulation to influence the economy, the alternatives for a given regulation are:
    1. It must cause a negative outcome.
    2. It may cause a negative outcome but never positive.
    3. It may cause a negative or positive outcome.
    4. It may cause a positive outcome, but never negative.
    5. It must cause a positive outcome.

    Can we agree that alternative 5 is clearly wrong, on purely logical grounds, and that 4 is wrong based on empirical evidence?

    That leaves, in my opinion, alternative 3 as the logical assumption. To support either of the first two alternatives, you would have to prove that regulation *could never* produce a positive outcome, compared to an unregulated economy.

    So which argument are you making? That no regulation can have *any* effect on the economy, in which case this has been an exercise in mental masturbation? Or that no regulation can have any *positive* effect on the economy?

  178. GK says:

    “What you’ve missed is that I’m not discussing Libertarian ideas. I’m discussing economics.”

    You probably do not realize the amount of mirth this statement caused me. Libertarian ideas and economics are inextricably linked. Economics is the BASIS of Libertarian thought since Oppenheimer (whom you have evidently neither read nor heard of)

    “then you accept that it is possible for regulation to influence the economy.”

    I never said anything that could be construed that regulation cannot influence the economy. What I said is that regulation cannot change the logic of human economic behavior. Price ceilings below clearing price cause shortages, non-price-based rationing of goods where demand exceeds supply creates black markets, centralization of economic planning (including in private enterprise) results in inefficiencies.

    All political regulation that prohibits economic behavior (as defined above) necessarily decreases the subjective well-being of all those who would have preferred to engage in the activity proscribed, and hence the outcome is negative.

    Political Regulation that proscribes only those behaviors people would not voluntary agree to are redundant.

    The Libertarian argument against political regulation of the economy (as opposed to the self-regulation of the economy ) can be boiled down to this:

    a) Political regulation of the economy is at best ineffective, but otherwise reduces aggregate economic production

    b) Political regulation of the economy creates unearned income for some, and reduction in earned income for others

    c) Political regulation of the economy is unjust, and hence immoral.

    a and b are positive statements. They can be deduced logically from the basic laws of economics, and can be proven empirically. It is completely plausible that one accepts a and b as necessary to achieve fairness. Here is where Libertarians differ from most other moral philosophies by making the normative statement c.

    Disputing a and b simply betrays ignorance. Arguing against c is simply the expression of a value system that differs from Libertarianism.

    Libertarians argue against the political regulation of the economy from two independent starting points: one is purely economic, the other is purely moral. An economy unregulated by political factors tends to be more aligned with libertarian morality than an economy that is politically regulated.

    You may still not like the way I use the words political and economic, but you are free to replace them with whatever alternative terms you like. I’m more concerned with the definition than the terms. Call what I call Economics Baru, and call what I call Politics Mogga, and everything still works the same.

  179. Roy Edmunds says:

    Hi, I am 62 years old. An Australian. Deregulation? Heaps. When I was 23 I went for a house loan. The Bank took only my earnings into account. Divided the gross income by four and told me what I could borrow. We built a new five bedroom home on a quarter acre block. My wife could plan our family, with the options of going back to work as her choice, not necessity. I was able to provide easily while she was off having children.
    Imported goods versus locally made products?? Australia had a manufacturing base. We now not only import just about everything from China, but in the not too distant future we will be importing a sizeable amount of food. Why? Because for the last thirty years deregulation of tarriffs has meant that our industry has competed with workers who have no rights, no safety, no health insurance, and for many no income, to speak of. Australia has now a trade imbalance of around $600 billion and climbing each quarter. We have sold the farm, are mining the guts out of the country, up until recently, and cannot compete with the exploitation of cheap labour in Communist China which reflects the de regulated markets of 19thC capitalism. 2250 million Chinese are doing quite well while the others wait for the trickle down. The peasants being last in line get nothing. So, where do we go from here when we have gone down this crazy, greedy, multi national grab for exploiting cheap labour where ever it may be found in the world, and markets without restriction for products which are not for sale in our own country because of the danger to human health. Not only has there be destruction of the environment due to de regulation, but a loss of moral integrity. Greed, corruption, stupidity amongst our politicians. All for the sake of the dollar. We are about to pay a terrible price. This depression will be worse than the great depression. Why? Because the world has changed. My Grandmother made sandwiches every day for the knock on the door each day. A cuppa,(tea) and probably the only meal that stranger would have that day. And the rule was that you never went back to the same house twice!! Yet my grandmother was also struggling but just a little better off to be able to share what she had with strangers. Can you see us doing that again? I doubt it. And that was the general thing back then don’t forget. My grandmother was the norm not the exception. Good luck America. Australia is stuffed and on the way down. Sad to see my childrens children struggling for the kind of dignity I enjoyed under a regulated society which I took for granted. I hang my head in shame for what I allowed to happen on my watch. My generation did this and we are now about to pay the piper.

  180. Roy Edmunds says:

    I didn’t proof read the above. I meant 250 million Chinese,(a very rough approximation)of those who live quite well indeed. There is a growing middle class in China, but they are kept under control through a stick and carrot method. Remember Tiaennmen (spelling) square massacre? That was meant to drive home the message that democracy was not an option. If you are ex communicated in China you are truly out in the cold. No safety nets, as in other aspects of their industry there is little or no regulation apart from that imposed by foreign industry on the standard of the product made for the world market and the overall approach by the Chinese Govt. that you do it our way or you are out of the race. But we see now China going down because they have relied on America consuming on borrowed funds, as Australians have done for a generation. Our own personal debt is astronomical. So, as a friend said to me recently, the world has changed. There is a new day dawning. One which we created. Those who thrive and survive will have no debt, they will have gold, and they will grab the bargains at basement prices. Many folk became rich in Australia during the great depression through investing in property which was purchased for a song. The rich who are truly rich,and not those who are massively in debt, will prevail and their children and childrens children will benefit. So, debt is alright provided you have the capacity to repay it during a cyclical and temporary downturn in the economy. Debt is not riches. I say good luck to those who did what was the sneered at thing not so long ago. Paying cash, or just managing debt sensibly. But they were on their own because the Govts de-regulated common sense. Thats what it is all about.

  181. GK says:

    Well, Roy, what you fail to see is the increased wealth in China. Those workers w/o rights that you pity so much are much better off today than they were 40 years ago.

    It may be cheap labor to you, but its more work and more dignity for them. Not as much as one could hope for, but more than they have had. Regarding moral integrity: I’m not entirely sure that Australia 40 years ago was morally superior to Australia today. Your aborigines are likely better off today than they were then (not that they are well off by any standard, but at least its no longer legal to abduct their children). And I’m not even going to talk about the kind of society Australia offered to other non-Whites 40 years ago.

    Maybe Australia could become more productive if it removed all these barriers to work and entrepreneurship that make it less competitive. That’ll hurt in the short run, but in the long run, that’ll be better.

    What you fail to ask is this; why were these ‘protections’ removed in the last decades? A quick look at Australia’s fiscal imbalances provides a good answer to that. Your dignity was based largely on public debt that needed to be paid back.

    The complaints of Americans, Europeans, and others about the terrible adjustments they have to make is akin to the complaint an over leveraged debtor makes when the payments finally come due and there is no extension.

    If it weren’t for the cheap imports – how much better do you think you would be off today? Would you be able to AFFORD a made-in-Australia TV?

    The idea that domestic production is better than imports per se has been beautifully refuted by Bastiat in The Law (The Candlemakers Petition). http://en.wikipedia.org/wiki/Candlemakers%27_petition

    In the end, it’s not greed that destroys society. It’s greed combined with violence that destroys society (and originally brought about the State, as Oppenheimer shows in his masterwork “The State”).

    But, be my guest, start a protectionism party in Australia and stop importing. More for the rest of us.

  182. GK says:

    Roy: “Those who thrive and survive will have no debt, they will have gold, and they will grab the bargains at basement prices. Many folk became rich in Australia during the great depression through investing in property which was purchased for a song.”

    Absolutely. That’s as it should be. Those who save deserve to be rewarded, while those who do not serve have brought their fate upon themselves. Those who consumed less than they earned were able to save enough to buy gold. I, for example, don’t earn much money, but I have saved enough money to have bought a few ounces of gold.

    Should the current monetary system go down the drain, I’ll be just fine.

  183. Drew Kime says:

    “Libertarian ideas and economics are inextricably linked. Economics is the BASIS of Libertarian thought since Oppenheimer (whom you have evidently neither read nor heard of)”

    Keep making assumptions about who I have or haven’t read, if it makes you happy. There’s a difference between not understanding your point and thinking that you’re wrong.

    A subset of libertarian ideas overlaps with a subset of economics. And that overlapping subset is merely the portion of general economic theory with which you agree. So all you can say about libertarian ideas and economics is that both groups happen to contain some of the same things.

    I think most libertarians are like most people: They have certain beliefs, and profess adherence to a philosophy that lines up with their beliefs. The small percentage — of libertarians or others — who have taken the time to study the foundations and premises of their philosophy, and who find positions they can’t accept, are more likely to change their asserted philosophy than to change their beliefs.

    “Political regulation of the economy is at best ineffective, but otherwise reduces aggregate economic production”

    If by “political regulation” you mean the violently coercive brand of regulation you set up as your strawman, then yes. But regulation *can* lead to overall increases in economic production.

    Two examples: 1) Publicly funded research. Some speculative research is so divorced from obvious return, and has such a long payoff horizon, that few private organizations would do it. But the returns to the economy in unanticipated ways can be enormous. Like this internet thing we’re using right now.

    2) Pollution standards. In a radio interview several months ago (No, I can’t find a reference online) an un-named power company executive said that her company once privately lobbied Washington to *tighten* pollution standards. They wanted to switch to new, more-efficient technology, but the acquisition costs were extremely high. No power producer would be the first to convert, since the projected break-even was more than three years out, and during that time they would be losing money compared to the rest of the industry. But if there were legislation mandating the change — on the basis of reduced emissions — the entire industry would move in the same time frame. And within three years the entire industry would have made back the initial investment, and been on the next generation of technology.

    So your first premise is wrong.

    “Political regulation of the economy creates unearned income for some, and reduction in earned income for others”

    That assumes a zero-sum game, without any supporting evidence. And the antiseptic term “unearned income” is heavily laden with other connotations. It’s not “fair” that some people get income they haven’t “earned”. If there is a net gain to the economy by providing income to people who haven’t “earned” it, shouldn’t that be considered a good thing?

    “Political regulation of the economy is *unjust*, and hence immoral … It is completely plausible that one accepts a and b as necessary to achieve *fairness* … Arguing against c is simply the expression of a value system that differs from Libertarianism.”

    Your premises are incorrect, and I’m not speaking from ignorance to say that. And your conclusion displays a higher regard for “justice” and “fairness” than for the efficiency that you pay lip service to.

  184. Drew Kime says:

    “That’s as it should be. Those who save deserve to be rewarded, while those who do not serve have brought their fate upon themselves.”

    While I was making the point, you demonstrated it. You’re more concerned with everyone getting what they “deserve” than with what works best for the economy.

    It’s not good for the “winners” in a society for there to exist a huge class of people who believe, rightly or wrongly, that they have been mistreated, and who have nothing to lose, no stake in the economy. Ask the Romanoffs.

    People who obsess over “fairness” and “justice” and whether everyone is “getting what they deserve” give the impression that they would rather see a depression than for some people to get away with bad financial planning.

  185. Roy Edmunds says:

    My point about China is that those who are benefitting are like those who benefited from the fact that they could participate in being at the helm of exploitation of their fellow citizens for the sake of exporting goods to other countries whose citizens could not compete with the low wage and working conditions of the Chinese. I am not interested in bringing Chinese out of poverty when it directly places thousands out of work in my own economy, not because we are inefficient, but because the expectations of our workers for a quality of life became higher due to the freedom under a democratic system to be able to form associations and bargain for better wages and working conditions. As in America, our forefathers battled in the streets to achieve what we took for granted. American workers were shot, Australian workers were beaten and bashed until we achieved some sanity through ‘regulation’. The Chinese were crushed at Tianamen square. The Chinese Govt. is not answerable to the people, as is our Govts.under our imperfect democracies. Regulation means our politicians must submit to the people. Communist Chinese Govts do not have to do this. Can you understand how different this is?
    Our indigenous population suffered through having money thrown at them and a laissez faire attitude of Govts in the eighties. Removing half blood children from bad situations because nobody wanted them was the message in ‘Australia’ the movie. But we never get it right, because children are still at risk in ‘camps’ where there is no regulation. Notice how the word regulation keeps popping up in every sphere of human endeavour. Because? Because we as an animal are a very unstable creature. The development of frontal lobes places us in a precarious position in the animal kingdom because the capacity to imagine outside of the reality of our environment is flawed. We get it wrong so much its threatening our very existence, and that of other life forms on this planet.
    We have an even bigger problem with the indigenous population than ever we had.We have recently had an intervention in the camps because things became so bad, and in fact had been that way for a long time. Terrible conditions, worse than third world, and probably worse than living in a refugee camp in Darfur. Why? No regulation.
    But we also are in the habit of removing children from dangerous situations whether they are indigenous or otherwise. Its still the practice where children come under notice. But even there we manage to get that wrong, and children have died in the custody of suspect parents.
    Australia used to manufacture everything. We did purchase a TV, and it was made in Australia. The facts are that countries who exploit their working population, a working population who have no rights to form association and bargain collectively in a free society, will dominate countries like Australia and America. Chinese women who are not among the ‘rich’ and influential are hunted down and forcibly aborted with a second child, regardless if it is full term!! (Ref.BBC News on our local 1026 am).
    It is a totally different environment sociologically and difficult for us to comprehend. Sure they have their problems dealing with population but this is the reality of human over population of the globe.
    My belief is that democratic capitalism, which is regulated, and a society which sets its standards of living for itself, and not for other non democratic countries is the aim now. Tarrifs must return. Protection not just of the living standards in our society, but the reality of recognising that human nature has not changed and that the grab for cheap labour for that sake alone is at the heart and soul of our demise. It is greed. We just don’t really care about China or its population because we didn’t back those who died for a cause which we fought and died for in the second world war. A war which for Australia left us forever in Americas debt. We are here solely because thousands of Americans gave their lives to defend Australia from certain invasion and defeat. The reality is that a regulated economy protects the weak. And the weak will lay down their lives to protect that right. No democracy means no regulation possible for the meek or the weak. And they won’t inherit the earth in communist China until they rise up and throw out the ‘Nazi like’ rulers who dominate the people at present.
    If there is one thing you learn from the study of human history its that humans learn nothing from history. 1929 is alive and well in human nature. Our markets have now exceeded the dive that occurred in 1929 in Australia, and there is no sight of the bottom yet. We are seeing the unemployment rise week by week. In the US in November alone I see you lost over half a million employed. This has a snow ball effect which now has a life of its own. Throwing more ‘printed’ money at it heads you straight to a Zimbabwe type situation. And ditto Australia. The world has changed. We are going to have to pay the piper.
    This has been coming a long time. It was Kerry (spelling) a Presidential candidate who introduced me to the concept of 40 million working poor in the United STates. We now have the same condition. Ordinary workers who now rely on overtime to be able to survive. Holidays means ordinary time and so many workers now take cash instead of the holiday because they cannot survive!!! So, do I care that 250 million Chinese are doing relatively better than many of my fellow Australians?? Not on your sweet Nelly. Gone is the 8 hour day my forebears fought for.
    Investigative journalism. Huh!! Where do we get the news now, of what is happening in the World? Not from Australian journalists by en large, but from the good old BBC. Fearlessly penetrating stuff where their journalists risk their lives to bring information which is ‘market’ sensitive. I have no respect for Murdoch, a (one time) fellow Australian. He suppressed news from China which put China in a bad light because his business interests would have been affected. Ref.”Investigative Journalism” edited by Hugo de Burgh.
    We are uniformed unless we happen to listen to American Public Radio, or the BBC for the world view. Fearlessly disseminated information is scarce. Like that ‘comedy’ with Jim Carey as the guy in a bubble world, we have all been kept in a bubble. Globalisation being the concept which we have been influenced to believe was the resolution of world conflict and poverty. It has increased the likelihood of conflict and partially shifted some poverty from the autocratic or non democratic economies to the democratic ones.
    Obama will preside over a basket case in the US. Rudd will do the same in Australia. Throwing borrowed or printed money at this situation will not help. It didn’t help in the thirties. Although things started to improve from 1933 onward it was very slow. It was the second world war that brought the economy onto a war footing and employed men and women in the ‘war’ effort. My mother and father worked in the second world war effort. My Grandfather ( a plumber) came roaring out of the depression because of his employment by Govt. to take charge of turning off gas mains when the Japs bombed eventually. Thanks to America boys, the Japs didn’t quite make it. Not to Sydney anyway. (With one exception, a midget sub attack in Sydney harbour) Incidentally, our blokes fought well, but we just didn’t have the numbers and the technology and the equipment.
    Anyway, as Shakespeare had one of his characters say, “the past is prologue” and the unfortunate thing is that our trade with Japan prior to the second war meant that we received much of the pig iron back (and so did your blokes) in the form of shot and shell.
    Regulation is the only way. I want America to lead the way back to protectionism and close shop. Stop trading with ‘Nazi’like Govts in Communist China, and help us out again. We are close and should pull through this together because we have more in common with each other than we do with Communist regimes. Even your losing presidential candidate said he was not happy with getting into debt with China. Although, now, China is in trouble. Like the old saying, if you owe the bank 10,000 dollars your are in trouble, but if you owe the bank 10,000,000 the bank is in trouble. Our banks are in trouble. Merging to survive. We are seeing just the beginning of the slide. Its not going to be pretty. Our own prime minister used the term “ugly” to describe how bad things are going to get. In my entire life I have never hear a prime minister use that term to describe how bad things are going to get. Such is life.

  186. GK says:

    Your conclusion: “So your first premise is wrong.”

    Fighting words. Let’s see:

    “Two examples: 1) Publicly funded research. Some speculative research is so divorced from obvious return, and has such a long payoff horizon, that few private organizations would do it. But the returns to the economy in unanticipated ways can be enormous. Like this internet thing we’re using right now.”

    Post-hoc, ergo propter hoc fallacy combined with wild assertion.

    Just because government funded research led to the invention of something does not mean that a) the thing would not have otherwise have been invented eventually, b) that this was the most cost-effective way of doing so. You say that some research is so divorced from obvious returns that few private organizations would do it. Yes, that is true. And I am fine with that. I think some research is currently so uneconomical, it shouldn’t happen – and some research was a complete waste of money. The space program is a great example how a lot of money was wasted that probably would have been better spent elsewhere.

    See, you again think that your values are absolute. I beg to differ on the assertion that the internet was a good thing to be developed by government. Based on the fact that government developed planes tend to be worse than privately developed planes, and that government sponsored railway lines tend to be less economical than privately financed railway lines, there is little reason to assume that the internet as it was developed by government was the best way to develop an international computer network.

    Of course, the internet is now here, in its current form, and so there is no way to prove my point. But, you can also not prove that private industry could not have developed a better system eventually. And you cannot prove that developing the internet when it was developed made the world in total better off than it would have been otherwise.

    So the argument is moot – there is no way to test it. However, there are good reasons to assume, based on basic economic laws, that overall, we are probably worse off because of government developed internet and space exploration. That cannot be empirically proven, either, but… you set out to refute my argument, so… all I have to do is sit pretty. Since I made a positive assertion, all you have to come up with is a good empirical falsification.

    Now the second one: “No power producer would be the first to convert, since the projected break-even was more than three years out, and during that time they would be losing money compared to the rest of the industry.”

    Ah, the natural monopoly argument in a different disguise and it’s as silly here as it is in general. Simple rule of investment: investors are perfectly happy to invest patient money, if the likelihood of returns is good. A project that could break even in three years is a pretty attractive proposition for any investor with patient money. Three years is nothing. There are plenty of angel venture capitalists who invest in stuff that may not pay returns for ten years – if the pay off is good enough. Have you ever looked at the time-frame for old-fashioned real estate developments outside the madhouse Dubai? Five years in real estate development is fast. Ten years before a profit is made is good.

    So, if that’s the best you can do to prove my first premise wrong…. I can stop worrying.

    “If there is a net gain to the economy by providing income to people who haven’t “earned” it, shouldn’t that be considered a good thing?” Define ‘net-gain’ without resorting to Pareto Equilibrium that assumes that there is an objective measure of value.

    And don’t try to get back to me by pointing out that I argued earlier that there was a loss to the economy. We are moving between different definitions here – all I have to show there is a loss to the economy is by showing that some economic actors were not able to engage in an economic exchange for mutual benefit because of government interference.

    You, however, have a much tougher task: you have to show that regulation empirically improves the economy overall for everybody – AND that losers are compensated (the latter part is more often than not quietly omitted by those who argue with Pareto-Optimality, even though it is a necessary component). I would be amazed if you could do that, since so far nobody has been able to do so (except by quietly ignoring key elements of their own theoretical assumptions).

    Actually, it’s funny that in the context of pollution, you would use this argument, when you have a much better argument in the context of pollution. Pollution is, in fact, probably the weakest spot in the Libertarian armor. There is a way to get around the implications of this problem, but most Libertarians tend not to go there (and it’s not ‘insufficient property rights’, though it can be in some cases).

    I call it the ‘shit happens’ argument, though it is, of course, far more elegant – and possibly my own marginal contribution to libertarian thought.

  187. GK says:

    “While I was making the point, you demonstrated it. You’re more concerned with everyone getting what they “deserve” than with what works best for the economy.”

    Are you accusing me of making a moral argument? Guilty as charged. Please sit down on the bench with the other sinners, my friend. Tu quoque. There’s nothing wrong with a moral argument, it is, after all, what makes us human.

    “It’s not good for the “winners” in a society for there to exist a huge class of people who believe, rightly or wrongly, that they have been mistreated, and who have nothing to lose, no stake in the economy. Ask the Romanoffs.”

    Serfs and slaves do indeed have no stake in the system they live in. That’s why they revolt. Rightly so. That’s what got the Romanoff’s killed.

    In the free market, there are generally very few losers. Of course, some fail to succeed. That’s tough. That does not, however, give them the right to steal, rob, or kill. Or do you base your moral decisions on the question: what will happen to me if I do that? I’m not a utilitarian, since utilitarianism can be used to justify kindergartens and death camps alike.

    “People who obsess over “fairness” and “justice” and whether everyone is “getting what they deserve” give the impression that they would rather see a depression than for some people to get away with bad financial planning.”

    Are you familiar with Austrian Business Cycle Theory? Probably yes. Which is why it should come at no surprise to you that I think depressions are the result of centrally managed state monopoly money, or: regulation. I feel bad for people who suffer because of this obviously bad regulation. (Turns out, even Nash – of Beautiful Mind fame – is coming around to the insight that Central Bank regulation is bad for the economy). Don’t blame libertarians for things the State screwed up. That’s like blaming atheists for the Inquisition.

  188. GK says:

    roy, you said: “I am not interested in bringing Chinese out of poverty when it directly places thousands out of work in my own economy, not because we are inefficient, but because the expectations of our workers for a quality of life became higher due to the freedom under a democratic system to be able to form associations and bargain for better wages and working conditions.”

    Well, since you have no interest in the welfare of Chinese, why should they care for you? Fortunately for you, it is in their self-interest to provide you with cheap goods, such as the computer you are using, which would be unaffordable if made in Australia.

  189. GK says:

    Sorry for hogging, but one more thing, Drew:

    “The small percentage — of libertarians or others — who have taken the time to study the foundations and premises of their philosophy, and who find positions they can’t accept, are more likely to change their asserted philosophy than to change their beliefs.”

    Well, as a former voter for Social Democrats and firm believer in economic central planning, I was forced to change my beliefs as a result of my study of science, which lead me to libertarianism (which I discovered subsequently).

    I prefer logical rigor over feelings.

  190. Roy Edmunds says:

    Its my point you make about the Chinese not caring about us in the slightest except for what they can sell. As far as computers are concerned, Australia was one of the first to have a large computer, but a Prime Minister of the time saw no future in them!!!(Menzies)
    I emphasise that the Chinese people have a problem with an entrenched govt. which leads them by a peg in the nose not by any balanced parliamentary debate with upper and lower houses of parliament where ordinary people are elected to represent their electorate. And when a Prime Minister falls out of favour in this country we can vote him out of office, and out of government through losing his seat. Hey!! Aint democracy great!!
    But the reason why the computer cannot be made in Australia is the most important point you make. Since we were well ahead of the Chinese in producing the first computer here, what went wrong. The issue is once again one of the evolution of social organisation. In Australia, the battles for ordinary working people were fought and won. As in America. In fact one of the most terrible of all battles, the American civil war was fought over the fact that everything the North wanted was produced, stored, transported, packaged, improved, by people who were paid not a living wage but their board and keep. This situation applies in parts of China if your own Time magazine is to be believed. Large percentage of Chinese population has an income of less than $100 US per year. These people, like the people in the South prior to your civil war have no way out from under. They are as good as slaves. So if its alright for your Govt. to justify going to war because half your population isn’t paid the right wage, how can you argue that its now OK to trade with a country that does the same thing as the South did. In terms of human history it was about three minutes ago.Probably less, my math aint that good.
    Your Govt. regulated against the worst that 19thC capitalism could produce with anti trust laws. And sure there have always been cylical up and downs. This aint one them folks. This has never happened before in my life time. Most people alive today who have any memory of the great depression were children. My half sister who is nearing 82 remembers nothing bad. Mainly because when the market crashed my Dad went straight to the boss, (Dad worked for the Vacumn Oil Co. now known as Mobil) and offered to take an immediate pay cut. He kept his job, and bought a house that had been re possessed. The irate previous owner returned to cut down all the trees which my Dad never understood. Incidentally unlike the US, when our homes are re-possessed the Bank will sell it and sue for the balance if the sale price does not cover what you borrowed. You would have to declare yourself bankrupt if you cannot find the money. You many never recover. We in Australia have a sub prime problem, and it is now spilling over into families who had good jobs. Although a smaller population compared to the US we are having homes re-possessed at a rate around 60 per week. This is just the beginning. And as house prices drop, as more homes go to auction and the jobless increase those who lose their homes in their mid forties will probably never own a house in their life time. It is now hard to get rent. People are out bidding each other to get rent. Free trade was always a misnoma. A lot of our problems have always been semantic. We love to argue over “The Poverty of Philosophy” versus “The Philosophy of Poverty” and what constitutes the ultimate conflict in Capitalism. It used to be that where one private individual employs another it ultimately leads to exploitation. But since 1917 we have learned that the ultimate exploitation comes from a monopoly of the state. A state which cannot be confronted in courts or at the ballot box. And that is why your country has the statue of liberty standing proud. Because when all the criticism of our respective systems comes down to the nitty gritty, we can criticise without fear of losing our freedom. In China people are goaled, jailed in your spelling, for speaking out against the Govt. If they protest physically they may be belted at least. But often killed. Thousands are killed each year in China, shot out the back of the police station after what they regard as due process. Its not that the Chinese Communist Govt is 500 years behind in social evolution its that they are not even close to making an evolutionary start. At least there were about 80 attempts to assassinate Hitler within his own country!! Not much likely to be happening in China. Too many too happy with the status quo, and bugger you jack, I’ve got my computer type attitudes. And an army ready to act against its own people. What hope have they got. Separation of powers??? They have nothing in their vocabulary to understand it. Innocent until proven guilty. An independent judiciary.
    Common law decided cases based on fairness. Apolitical, secular Govt??? Forget about it. Hence their systematic abuse of cultures which they reject. Hey, lets trade with these guys, we can get cheap computers. Wow.

  191. Roy – I’m not sure what it is you are trying to get at. If you don’t like Chinese goods, don’t buy them. Buy Australian products only. Just don’t work towards laws that force others to make the same decision. Deal?

  192. Roy Edmunds says:

    The apolitical aspect of our system refers to our public service which regardless of what party is elected is ready to follow new directions and give briefings of an even handed nature to new representatives who may have relatively little understanding of the portfolio they are given. At least that is how it is supposed to work. Our systems work best because of the devolution of power structures. Which is ironic because there is a concomitant inbuilt inefficiency associated with our systems. This is why we have difficulty at times matching the growth of a China type regime. Or a Nazi one as in the last century. There is always a despot waiting, lurking in the wings, ready to pounce if the system allows. Our democracies though not perfect are great for frustrating psychopathic megalomaniacs.

  193. True Skeptic says:

    Judging the degree of financial regulation by citing the number of pages in the Federal Register is, well, I was going to say “as stupid as stupid gets,” but there are dumber things than that. So let’s just say it’s stupid.

    You haven’t even bothered to analyze the content of federal financial regulation. Why not? Too lazy? Too stupid to understand the subject? Or is it that you’re just one more far right-wing ideologue who’d rather skim the surface than really make a meaningful argument?

  194. Roy, historically, despotic countries have had lousy economic performance. The Nazi regime was so indebted due to massive government spending it had to start its campaign of conquest or go broke. The only reason China is actually growing economically now is because it is loosening its political control over the economy.

    The Soviet Union, too, was an unmitigated disaster. With the exception of space exploration and some military stuff, it contributed almost nothing to the total pool of human knowledge and eventually crashed in a pile of rubble.

    IF Australia is really declining economically, there really is only one set of possible explanation: government fiscal mismanagement, failed monetary policies, or an increasingly stifling bureaucracy. I’m not saying that’s actually happening, and I doubt Australia’s economy is declining, but it is as illogical to blame increased global trade for overall economic decline as it is illogical to blame too much oxygen for asphyxiation.

  195. True Skeptic – are able to provide a set of criteria by which to evaluate whether or not there has been regulation or deregulation?

    Set out your criteria, and set out a methodology and then let’s see what’s what. Michael’s methodology is silly. Agreed. But unless you propose anything better, that’s what we have.

  196. Roy Edmunds says:

    In addition, I find Chinese products generally made in accordance with the prime contractors specs. Its not that I object to trading with other countries, for products we need. Its that I object to being lied to by being told that it is about “free trade” and that trading with a country like China has no consequences of a negative nature. There is no such thing as a free lunch or a free trade. The US has been defeated already. It is slowly starting to realise this.Without firing a shot, the once great USA has been reduced to a money printing mess with little hope of getting out of it this century. China will fare better through this because of the reasons I have put forward. They are a Govt. which rules by fear. They are ruthless. And I would rather we stopped trading with this bunch of Nazis despite their vain attempt to sell their system during the olympics. I am not a fan of your President Bush. For a number of reasons. I would rather the people elected McCain because he at least uttered some concern about China. Obama seems like a genuine guy. Good speach maker. We’ll see. He seems to have an approach reminiscent of your NEW DEAL President of the great depression. But that was when men worked with their hands. Like many Australians, Americans work in offices with computers or operate robots, or sell stuff. How are they going to get employment in manual work. Producing your infrastructure. And what of the next five years when some 70 million Americans will be looking for retirement. Where is that finance going to come from. Selling down a dead market?? You guys are a basket case and it concerns me because the only country that has stood between world order and total conflict is the US. The UN has never to my knowledge solved any problems without relying on American muscle. In fact the UN is still there because of the US. When things go wrong in the world everyone who feels powerless looks to the US to volunteer its young men to save the day. Well, whats going to happen when Obama, if he’s smart, pulls out and pulls back. Pull out of Iraq, of Afghanistan, stop helping the world, stop helping Africa, and just sit and watch the world tear itself apart. It was the Americans who saved Europe, it was the Americans who saved Asia and the Pacific, and Australia. And what will happen when Obama concentrates on infrastructure but cannot trade their way out of debt? Will you be happy to see the kind of poverty in America that is to come if you continue to try and match it with Communist China in so called “free trade”? It has taken many decades to reach this impass. The way back is not clear. It is so far into the future it is hard to imagine it. As this crunch develops into a mighty depression I hope that history will declare that Obamas four years was not just a beginning of the end of this madness called globalisation and free trade, and certainly not the beginning of the end of democratic capitalism, but the new beginning of “free” enterprise in regulated environments where the exploitation of ordinary people, regardles of race colour or creed or nationality is made intolerable. And if a country does not meet the human standards required we DO NOT TRADE with them. It is as simple as that. Stop trade with communist China now.

  197. Roy Edmunds says:

    Austalia is in decline. We had a Federal surplus, but that is to disappear and the current Govt. has pledged to borrow us out of debt. Does that sound ridiculous? Each quarter we have billions of dollars trading deficits. We have for over thirty quarters. We seemed paralysed by the new world order. We navel gazed, got it wrong, blamed ourselves for not working smart. Now we are second in the world for hours worked, and commodity rich, well educated population, but like the US we were told in the 80′s that this is the way it was going to be. Our Prime Minister Hawke said that in answer to the inability of our factories to match production costs with China, that we were to face it, that the jobs were simply no longer there. Instead of understanding the sociological differences, the political and legal differences we just assumed that somehow we would find something to trade that would meet the balance of imports. We didn’t and we haven’t. When the next figures come out for our trading deficit, (we are so used to a deficit we accept it as part of our language) despite a slow down in our economy, our balance of trade will blow out still. From last year to this year we went from$476 billion deficit to over $600 billion. We have sold our farm, sold off just about everything the people of Australia actually owned on the pretext that it was not the business of Govt. to involve itself in enterprise. But now, the tax payers money, as in the USA is being used to bail out private enterprise, often after it had been sold from under the people of Australia to a private concern which failed!!! So, what a mess. Obama, as I say has a basket case to tackle. Maybe his inspiring rhetoric will have people opening windows and yelling, “I’m as mad as hell and I’m not going to take it anymore” but unless he tackles the real issues of why a free country like the USA cannot trade its way out of debt he is going to be like the emperor who had no clothes.
    Despotic countries which had no trade with countries like the USA had lousy economies perhaps, lets get that straight. You guys made a mistake. You thought you could trade your way out of debt by opening your shores to countries the like of which you describe. What if the USA had a free trade agreement with Adolf Hitler. And continued with that free trade agreement after Hitler invaded Poland. Eh? Because thats what you have done by trading with communist China. You pretend that somehow, bring some Chinese folk “out of poverty” makes it all right now. Hey, I’ve got news for you. Trading with Nazis is trading with Nazis. You got your hands dirty, and so have we. Its the Govt. that counts and you forget that we ultimately had to bomb the hell out of ordinary Germans, men women and children, because they went in with Hitler. Reluctantly or not. If you fly with the crows you’ll be shot as a crow. We are having to pay the price, as I say, pay the piper for engaging in trade with a Govt. which exploits its people in a manner which is not too disssimilar to the way the South exploited African slaves. And as I have stated, you ultimately shot each other to pieces sorting that one out. What are you going to do about this one?

  198. Drew Kime says:

    “I beg to differ on the assertion that the internet was a good thing to be developed by government. Based on the fact that government developed planes tend to be worse than privately developed planes, and that government sponsored railway lines tend to be less economical than privately financed railway lines, there is little reason to assume that the internet as it was developed by government was the best way to develop an international computer network.”

    You would expect private investors to only support the railway lines that show the best odds of return. Government funded rail lines can be enabling infrastructure that generates more return than the cost to run the line, even though the rail line itself is not as profitable as other lines.

    “Of course, the internet is now here, in its current form, and so there is no way to prove my point. But, you can also not prove that private industry could not have developed a better system eventually.”

    I don’t have to prove that private industry *could* not have developed it. I simply point to the fact that they *did* not. You accuse me of making unfalsifiable, circular arguments, yet you choose to ignore real outcomes on the basis that they *might* not be better than some theoretical alternative that did not happen, and you admit that it never can.

    “And you cannot prove that developing the internet when it was developed made the world in total better off than it would have been otherwise.”

    Why would I want to prove that? Is our standard now that the world in total is better off? By what criteria? We’re already about as fuzzy as you can be and still have an argument, trying to limit the scope to “the economy.” Now you’re setting the bar for me at “make the world in total better off.” No thank you, I’ll refuse that expansion of scope.

    “Ah, the natural monopoly argument in a different disguise.”

    No, actually it is a real-world example of the tragedy of the commons. As long as *some* people put their own short-term profit above the long-term health of the system, the only rational position for all actors is to maximize short-term gain.

    This, I suspect, is the fundamental blind spot for most libertarians. And it is, not surprisingly, the same blind spot afflicting communists. Your theory only works when everyone agrees to play by your rules.

    As I said way back in the beginning, laws are explicitly written to govern the behavior of people who would otherwise act without regard for others’ well-being. As long as one company is willing to risk the long-term health of their industry for the sake of short-term gain, that company will enjoy an advantage over their competitors.

    “We are moving between different definitions here – all I have to show there is a loss to the economy is by showing that some economic actors were not able to engage in an economic exchange for mutual benefit because of government interference.

    You, however, have a much tougher task: you have to show that regulation empirically improves the economy overall for everybody – AND that losers are compensated”

    You set for yourself a standard of, “If one person loses, I am right.” But for me the standard is, “Everyone must benefit, or you are wrong.”

    You’ve already said quite plainly that you won’t even accept evidence of a positive outcome, if you can construct a theoretical alternative that might have been even better. So I’m not at all surprised that you would set an impossible goal for me.

    “In the free market, there are generally very few losers.”

    Which free market is that? Please try to answer without using the same argument as communists, who say there has never been a true example.

    “Of course, some fail to succeed. That’s tough. That does not, however, give them the right to steal, rob, or kill. Or do you base your moral decisions on the question: what will happen to me if I do that?”

    Read more closely. I didn’t say that those who fail have a right to do anything. What I said was that a system that reliably generates “losers” — for lack of a better term — is not generally good in the long term for the “winners” either.

    “Well, as a former voter for Social Democrats and firm believer in economic central planning …”

    Then you share another trait with Shermer. You are both “true believers”. He was a religious zealot, now he is an anti-religious zealot. You were a central planning zealot, now you are a deregulation zealot. True believers don’t moderate their opinions. They hold on to them tightly until the moment they flip to the opposite pole.

  199. Roy Edmunds says:

    I guess we got rid of tarriffs because it was Whitlam, a Prime Minister in the 70′s who unilaterally decided to reduce tarriffs without any debate or discussion. He then proceeded to get Australia into debt. I think the left has always resented the protection enjoyed by Australian industry. They forgot that Australian industry employed all kinds of people with different skills and abilities. They ignored the fact that there was low unemployment. Our umemployment was around 1.5% and up around 3% in a recession. Our Dollar was around $1.10 to $1.30 US. We had overseas reserves. We had a balance of trade, and a capacity to pay off debt from the second world war. We were the lucky country. Our problem was we looked too narrowly at trade. We did not allow for the fact that different cultures, different political structures, different social values meant that there would be things we could not control. Things we could ask for yes, and hope would be engaged by these new trading partners in this new world order. Things like human rights. But it didn’t happen in China. And we ignored that because we got excited about importing ‘cheap’ products. Cheap because somebody somewhere was exploited. And it turned out to be China who was the ultimate in exploiting cheap labour. The China price. Unbeatable. We were warned. Over and over again we were warned. By our own, by business men from free China. But we stuck our heads in the ground and hoped that by working harder and smarter we could match China. We have failed. The USA has failed. And we blame ourselves. Our cars are too big. Our life styles our out of sync. We need to be leaner and meaner.
    So now we are going to learn the lesson again. The same lesson we had to learn in the thirties. Whether it is trade within or trade with another country, you cannot build it on ever increasing debt. You cannot just loan money to people who have no hope in hell of paying the loan off. You cannot loan to businesses who have no track records, no equity to support the loan, and no hope of riding a cyclical downturn due to cash flow restrictions. Just throwing money at the situation is not going to help in the long term. Probably not the short term. Free trade is dead folks. Get used to it. Why? Cause you guys cannot buy anything any more. And printing money aint goin to help. Get ready for a financial armageddon.

  200. Roy Edmunds says:

    It suddenly occurred to me that many Americans are unaware that Honda and Toyota are not American businesses. And maybe Americans are unaware that much of their production by “American” companies is actually produced off shore. We have laws in this country which prevent a company saying the product was made in Australia if it was not. If on the other hand it is Australian made, it may be a company that was or did have local production but shut down manufacturing in Australia and opened manufacturing in , Mexico, Slovakia, China, or anywhere they could find cheap labour. I remember a fellow Rotarian telling me how he had closed down operations in Australia and was making the product in Mexico, and the Phillipines. At a fraction of the cost. He didn’t make the rules, he used what was available to him. This process of Australian companies retaining their traditional trading name, even a token manufacturing address, (like our Hills hoists) but the real manufacturing occurs offshore. I invested in a company in Western Australia who closed down every operation in Australia except one and that was to close as soon as they could find someone to do it in another country. So my point is this. Globalisation is the story of an unashamed rush and grab for cheap labour, to exploit labour in countries where ordinary people have no rights, no organisation, no protection, no safety, no health care, no checks and balances or the ability to challenge their condition in any court in the land. That is what is immoral about this cruel business. So, apologists say, “hey, I am giving these people a chance, and chance that no one else is giving them”. Oh,yeh, so the fact that you pay them peanuts by our standards, and they live and work in sub standard dwellings, have no insurance ,is OK because you have given them employment. The fact that they cannot approach the boss for time off to be with their families, that they work 70 hours a week and cling with desperation to the job because there is always someone ready to take the job from you. This is all OK. It would be like some clothing manufacturer called Levy Strauss, sacking all the workers in the North, and having jeans made in the deep South by slave labour and pretending it was alright because at least they got fed and had a roof over their head. Can you see the point I am making. If its wrong its wrong. You cannot justify slave labour of any kind, whether it is blatant slave labour as it occurred in the South or wage slavery with people who have no rights, no freedoms, to bargain or negotiate for better working conditions. Come on guys. Surely, you can see this.Regulation gave us freedom. Its like saying that road rules for drivers is an unnecessary restriction on our freedom. Road regulations enable us to move freely about the country with a minimum of risk. It is when the regulations are not policed we find people take advantage, and drive drunk with disastrous consequences. It is human nature. Freedom involves setting the boundaries. Laying down the rules of action which keep this unstable animal from absolute anarchy. And policing the rules. To stop people from forming the habit of exploiting others we have to have mechanisms and agencies for people to lodge complaints about their mistreatment, and have someone do something about it. Regulation gives people the freedom to come forward and stand up for their rights. Other wise, it is the wild west frontier, where if you don’t like whats happening you pull a gun and settle it that way. Surely we are not going to return to that kind of frontier mentality. And yet, we will trade with a country which has wild west values. That is China. Thousands of protests a year, few of which we hear about. Ordinary people trying to voice their frustration and getting a good belting for it. Do you guys listen to the BBC? So we say, oh well, at least we gave them a job. Rubbish.

  201. GK says:

    !You would expect private investors to only support the railway lines that show the best odds of return. Government funded rail lines can be enabling infrastructure that generates more return than the cost to run the line, even though the rail line itself is not as profitable as other lines.!

    Drew – there is no reliable way of figuring out whether the gov funded rail line provides an overall benefit. This benefit is simply postulated. This is also single-entry book keeping. You only look at the benefit of the investment, you don’t take into consideration the cost of the investment, and the loss to other economic activities that comes from not having funding available for them (as the taxes used to finance the gov project are funds not available to fund other projects). All you are effectively doing is to argue that the unquantifiable benefit of what you achieve with the gov project is bigger than the unquantifiable loss you create by reducing the funds available for private projects. The multiplier effect of investments made is mirrored by the multiplier effect of investments not made. What you are simply saying is that, by definition, government investment in some cases is more efficient than private investment. The question then arises: why should the government not do all investments? How do we decide when government investment creates more overall benefit than private investment? Your standard is, effectively, whenever an investment is unprofitable, government should do it, because private business won’t do it. Of course private business won’t do it, because its unprofitable. Which then means that for some reason, you – Drew Government – somehow have a method of establishing what is overall more beneficial, and that this method is not available to non-governmental economic actors. Which brings us back again to the simple question of why shouldn’t government do all investments?

    Ok, further:

    “No, actually it is a real-world example of the tragedy of the commons. As long as *some* people put their own short-term profit above the long-term health of the system, the only rational position for all actors is to maximize short-term gain.”

    Yes, common property without established and exclusive ownership rights is a problem that can be solved by establishing ownership rights. The Commons, by the way, only exist where private ownership is prohibited.

    Some things can, by definition, not be privately owned. Like the atmosphere. I’m happy to live with that. It does, in the end, not really create a problem – provided that the surface of the planet, including water surface, is privatized. Then air polluters can be stopped through the economic action of those who are negatively affected, by, for example, organizing boycotts of products made by polluters.

    You say:

    ““And you cannot prove that developing the internet when it was developed made the world in total better off than it would have been otherwise.”

    Why would I want to prove that? Is our standard now that the world in total is better off? By what criteria? We’re already about as fuzzy as you can be and still have an argument, trying to limit the scope to “the economy.” Now you’re setting the bar for me at “make the world in total better off.” No thank you, I’ll refuse that expansion of scope.”

    But… You ARE making the argument that the “Economy” is better off because of the internet. My apologies for saying ‘the world’, so, let’s just limit this to the economy. I will therefore rephrase it by saying:

    “And you cannot prove that developing the internet when it was developed made the economy in total better off than it would have been otherwise”

    But in order to support your argument, You DO have to prove that. Otherwise you are just hand-waving.

    “You set for yourself a standard of, “If one person loses, I am right.” But for me the standard is, “Everyone must benefit, or you are wrong.”

    Drew – that’s Pareto Efficiency, one way or the other. The argument for regulation is based on the assumption that the market is not pareto efficient. I agree the market is not pareto efficient, but I also think that’s not a problem. The problem exists for those who argue for regulation in case of market failure (which in my opinion is a non-existing problem – Kirzner showed quite nicely why). But, Pareto efficiency is only achieved when EVERYBODY benefits, and NOBODY loses – that’s the definition. So, if I show that at least ONE person loses, the system is not pareto efficient. The proponents for regulation have to show that everybody benefits. That, of course, is impossible, which in turn shows that the argument for regulation (which rests on the idea of pareto efficiency) is wrong.

    The only way out is utilitarianism – biggest benefit for the biggest number of people, which in turn creates a massive moral problem, since this principle leads to an incredible mass of highly problematic situations (killing of innocents, slavery, etc), plus: who decides what to measure benefit by (and then it’s turtles all the way down). The negative consequences of pure utilitarianism can only be overcome by postulating a priory moral principles, which in turn undermines pareto efficiency.

    Ok, this line of reasoning is little more than a summary of the argument, but – you will have to address each of these problems (and you should better understand the role of Pareto Efficiency in the argument for regulation).

    “Then you share another trait with Shermer. You are both “true believers”. He was a religious zealot, now he is an anti-religious zealot. You were a central planning zealot, now you are a deregulation zealot. True believers don’t moderate their opinions. They hold on to them tightly until the moment they flip to the opposite pole.”

    Ad hominem proves nothing, since I can flip this nicely around and call you an regulation zealot. Then what do we have? The reason I thought central planning was a good idea was simply ignorance: i was not aware of the calculation problem. When I realize I’m wrong, I change my mind – to paraphrase the insufferable Keynes – what do you do, Drew?

    If you can show me how you can achieve Pareto Efficiency without arbitrarily disregarding the expressed interests of those who disagree with you, then I’m willing to accept your argument for regulation. Solve – and first recognize – the logical problem, and I’m with you.

    See, the beauty of the libertarian position is that it is identical with the position of the atheist: it does not deny, it simply demands proof. Theists and Statists have to PROVE their case, while all the atheist and libertarian has to do is show the inconsistency of the argument.

    Maybe there is a deity, and maybe the State is beneficial… BUT there is so far no good evidence this is the case.

    Once you show me the economic benefit of the State in a logical coherent argument, I will accept it. So far, the arguments for the State boil down to Hobbesian/Lockeian/Rousseauean just-so stories of historical mythology, or one-way arguments that use the standard of Pareto efficiency when talking about the failings of the free market, but not when talking about the failings of State regulation of the market.

    If you base your argument on pareto efficiency – and that you do, even though you seem to be unaware of it – then use it systematically.

    Not well that I do NOT argue based on pareto efficiency. I do NOT argue that the market creates optimal results at any given point in time. That is NOT MY argument, that’s YOURS. But, if the argument against the market is that it is not pareto efficient, should that argument not also be valid against the state when IT is not pareto efficient?

  202. Drew Kime says:

    A further point-by-point analysis would clearly be futile. You’ve confirmed my last assertion, which you classified as ad hominem. You continue to argue from a position of absolutes, and assign me the responsibility of proving an absolute good. If I can’t do that, then the only alternative you allow is that it is an absolute evil.

    Feel free to claim victory. I’m done.

  203. GK says:

    You continue to argue from a position of absolutes, and assign me the responsibility of proving an absolute good.

    You’re not even going to address the problem of Pareto Efficiency as a justification for regulation?

    YOUR Argument RESTS on Pareto Efficiency. Without it, you have nothing to stand on. It’s text-book economics. Open every text-book on regulatory economics, and Pareto is in the first chapter, or at least in the first section.

    Show how State Regulation achieves Pareto efficiency, and I’ll change my mind. NO SINGLE TEXTBOOK on Regulatory Economics shows that Regulation IS pareto efficient in practice. All regulatory economic theory simply postulates that a) an economic system should be pareto efficient, that b) the market cannot produce pareto efficiency, and that c) this necessitates regulation. They never take the next step and show that regulation IS pareto efficient.

    But, pareto efficiency is the ONLY justification for regulation. There is no other (at least not in standard modern economics).

    Of course you won’t address this, because you CAN’T. So far, nobody has done so. Check it out. NOBODY has SHOWN that Government regulation RESULTS in pareto efficiency in the REAL WORLD.

    This, of course, is the dirty little secret of contemporary economic science: it claims to be empirical, but it FAILS to provide empirical evidence for one of its most critical claim.

    IF you succeeded in showing government regulation IS pareto efficient (as opposed to writing down a formula that shows it SHOULD be so), then there is a Nobel Prize waiting for you.

    It would be the Holy Grail of Regulatory Economics.

    ALL you have RIGHT now is hand waving along the lines of: when markets fail, government needs to step in to make things better, and without government intervention, things would have been/will be worse.

    A beautifully constructed argument, since it is completely immunized against empirical refutation.

  204. GK says:

    Oh, and this is not a ‘victory’ for me, since I failed at the most important level.

  205. GK says:

    Roy,

    so you rather have people in poor countries be unemployed and even more destitute? As in: if they can’t get a job that meets your standards, they shouldn’t have a job at all?
    Nice.

  206. Roy Edmunds says:

    I have read much of the comments on this subject. It certainly inspired much debate. I wonder how many Americans know of the debt your country is in. Some of you speak as if you are still top gun. Your country is in deep trouble. I don’t know if you get the news about yourselves that we do in Australia. I have never heard of such debt, I can hardly comprehend the debt you guys are in, and yet you seem to be arguing about the re arrangement of deck chairs on the Titanic.
    I understand you have problems, but the nightmare seems to be like a horrible video I once saw of a large number of American sky divers who somehow got all twisted up together. They were all tangled up with their chutes. As they neared earth the camera picked up the sound of men yelling directions on what to do, and do it quickly. Others seemed paralysed by inaction or were simply too trapped to even try and escape. They all died. You have to examine how you came to be in the mess you are in. And work backwards from that. When you are living beyond your means there are only two things you can do. Earn more or spend less. Its really not rocket science. If you borrow, you make sure you can pay it back. America is in decline. Serious stuff for the entire world. Particularly since you have some pretty serious enemies who must at this stage be dancing with glee to see America in such a state.
    Your foreign policies need to be sorted out with the Middle East as priority. America recognised the state of Israel which had no boundaries. It existed only because of the exodus of the Jewish fraternity from the ill treatment they received in communist Russia and Hitlers Germany. But forming a state which was exclusive to ‘Israelis’ and dislodging Palestinians from their homes and businesses set the scene for what is now destroying America. A war that stems from a deep seated hatred of America for propping up Israel.
    Extremist Islamic Jihadists decided that they would teach America a lesson. And they have gone a long way toward wrecking your economy through the cost to you of waging war in Iraq and Afghanistan. You taught them (the Taliban) how to wreck the Russian economy which occurred as Russia failed in Afghanistan and the USSR fell apart. Not just because of the war, but it did have a significant contribution.
    So, your enormous Federal debt, your failure to be able to trade your way out of debt, but rather trading your way into debt with China has caused a crisis from which I cannot see you guys recovering from this century. Your debts stretch into outer space. If there is any gold in Fort Knox it aint enough. And since China intends to increase its gold reserves by many fold, you may find your Govt. passes a law which makes it illegal for a private citizen to hord gold. I tell you, this is worse, far worse than the great depression. You should cut yourselves off from China now. At least McCain had some understanding of the deep shit you guys are in with China.
    Our Prime Minister comes from a left wing mob who are gleefully getting into bed with communist China and will run our workers into the ground to achieve some parity. So we can all enjoy huge poverty together, with great wealth at the top and nothing in between. Our Australian bureau of stats, some time ago, pointed out statistically that there was a gap growing between the ‘haves’ and the ‘have nots’ and that the middle class was diminishing while others were increasing in wealth. Australia used to have a fairly equitable distribution of wealth through REGULATION. As I have pointed out, regulation came about in this democracy because people were free to protest and engage in debate and form a political party to influence policy making in parliament, hence regulation. And it spurred an evolving qulaity of life which continued well into the 20thC but started to contract with the dismantling of REGULATION. Human nature. New generations emerge with no gut understanding of why the regulation was introduced. Its like, hey, things are good, why do we need this regulation. People won’t do bad things anymore. Lets scrap this regulation. And they do. And the bad things return. Such is life.

  207. GK says:

    Roy, frankly, much of what you write is just haywire, but you are bang on the money with this simple insight:

    “Earn more or spend less. Its really not rocket science. If you borrow, you make sure you can pay it back.”

    That sums up a big aspect of the whole situation.

  208. Roy Edmunds says:

    Thanks GK, I am used to problem solving , and coming at things from many different directions. What you refer to as “haywire” is my brain storming. Comes from having to trace a bad outcome all the way back to where it started. And sometimes there are a number of extraneous influences which are somehow inextricably connected.
    I mention the Middle East because a lot of time and blood has been spent to no avail. You have some formidable enemies who really believe in their cause. And you know what that cost you in Vietnam. We went all the way with LBJ as well.
    The Islamic extremists have you guys (and us now) in their gun sights because of Palestine, but now , for anything else they can bring up which goes to proving their position. It pays to understand the enemy, and listen to what they are saying. Personally, I would insist if I was Obama that Israel sets its boundaries once and for all, and that Palestine becomes a state in its own right, and that compensation be paid to the Palestinians who lost their homes and businesses, whatever the cost. Also, any Palestinians living within Israel should be given full citizenship, and full voting rights. In fact I would go further by giving them an opportunity to elect a representative in the Israeli Parliament. This would go part of the way to make up for the wrongs committed. Wrongs which fuel the hatred of the Israelis and Americans, and give the enemy some moral high ground. I would like to take that high ground away from them and reveal the true nature of their grab for power and space. Just another bunch of Islamic extremist Nazis.
    But if you don’t resolve that conflict it will be a thorn in your side for a hundred years. You don’t think for one minute these people are going to give up do you? And the cost of Iraq and Afghanistan is enormous. You cannot afford the war and cannot afford to lose it. You are well and truly trapped. If you do pull out on all fronts, which is the sensible thing to do if you want to avoid total melt down financially, you hand the Islamic Jihadists the whole of that area on a platter. They know this, you know it. We as Australians cannot help any more than we are as we are about as stretched as you guys.

    The trade side of it is important. It is important because as a Nation, if you are importing more than you are exporting, you have to find some way of balancing the accounts. When you find that your own businesses are sacking Americans in favour of having their products made for your market by Chinese, and Americans are buying those products in preference to locally made competition you need to address the problem. We have had the same problem. The only way our Prime Minister thought to tackle the problem was to make a TV advertisement encouraging Australians to buy Australian where all things were equal. Of course they were never equal and Australians bought the cheaper product. Now, some twenty odd years later we are reaping as we sowed. Finally another Prime Minister decided it was time to wind back all the lerks and perks which our labour force had bargained for over the decades. After all, the Chinese workers had none of these costly extras. And its true. Ordinary Chinese workers do not have hospital, or health cover. In desperation Chinese mothers often dump their sick children at a hospital and walk away. Most Chinese try to avoid their hospitals for good reason.
    However, I digress. So, your country has heavy costs, a major war, and it is unable to match the China price. Or the Japanese for that matter. Which is why Honda outsells in the smaller more economical market. In Australia, Toyota has outsold General Motors only recently. It has been a close battle. General Motors in Australia produce some very good products. The Commodore is still the car. GM.
    But the primary reason for the failure of the US and Australia to be able to balance the trading accounts is that China has access to a captive workforce which works for wages so far below that of our own workforce that we cannot come close. Not just the cost of the workforce, the cost of space. Rent, water, power, taxes, everything is aimed at assisting exports to good ole USA. As your work force shifts from manufacturing to service industries you experience a gradual turning of the vice. Wages are squeezed. Pushing Americans closer to cheaper imports. Clinton decided that debt was good for anyone and everyone, because you simply couldn’t survive by saving money and paying cash. So there were plenty of folk who worked out ways to make debt available. We have the same problem in Australia. As a result we have record private bankruptcies, as well as businesses going out backwards. Because eventually the debt has to be repayed. How simple. The guys who have benefited by all this have payed themselves millions, pulled out to the Bahamas and will rest for awhile. Sail around a bit. Ordinary folk are left with the tab whether you borrowed or not. American people will have to pay the piper. One way or another.
    Regulation protects people from themselves. Sure you can point to people who did run their businesses correctly, and didn’t run up private debt which they could not manage. But if you de regulate an economy to such an extent that ordinary people can just apply and get credit, you have to expect that a sizeable number of people will over reach themselves. And bring everyone else down with them as it turns out. Because the rush for stuff which others had and seemed to enjoy, for a time at least, was too much for the borderline sensible folk who slipped over into excessive consumption. Hey, its ok, we’ll pay it back eventually. It didn’t happen.
    Meanwhile, the US put pressure on China some time ago to float the Yuan. China wasn’t ready. America threatened to place a TARRIFF on Chinese goods. China retorted that it would call in the US Bonds it owned. America went quiet. I don’t know how things quite stand now, but in Australia, our share market has exceeded the 1929 crash % wise, and we haven’t seen a bottom yet. Bond prices are relevant because maybe, just maybe the market may be judged better even though it is high risk, because any sort of return is better than none. Who knows. What is important is the fundamentals. A majority of our market businesses are in over their heads in debt. Enormous debt in some instances. Debt to equity ratios are hopeless.So the fundamentals are not good. We expect 2009 to be pretty “ugly”. To quote our Prime Minister.

  209. Roy, two words: Focus. Paragraphs.

    You are all over the place, try to make one argument at a time. You are welcome to come to my blog and talk there.

  210. Roy Edmunds says:

    James, thanks. Visited your website as invited and enjoyed “The Pretence of Knowledge” which I would recommend every one who has offered opinions on this subject to read. The author of the 1974 Nobel Prize acceptance speech was F.A.Hayek, an economist….”As a profession economists have made a mess of things”….Isn’t that a fact!
    I have run businesses, and borrowed money, made it and lost it. I have never lived through such an entire mess economically speaking. I cannot accept that between our economists and politicians and public servants they could be so stupid as to get it this wrong. But there is an old saying, read it somewher, “by their deeds shall ye know them”…now where did that come from?

  211. Fred Bucheit says:

    There is something terribly wrong when a company (Lehman) can borrow 33 dollars for every dollar of asset they have(or think they have). That is a risk level that will *probably* take down any individual, company, or government. The danger is that these Wall street behemoths became so large that they could take the entire banking system down with them because they are so intertwined.
    To say that the subprime debts that foreclosed (less than 4%) took the system down is to say that a bad rivet took the titanic down. Mr. Shermer, stick with your area of expertise. Your ego is messing with your logic. You are becoming the Ralph Nader of the skeptic movement.

  212. ROCCO MASTRANGIOLI says:

    Greetings:

    As a blue collar hospital employee, my numbers are bit more real, than this regulation article. I get confused by this approach of the Skeptic magazine that advocates the free market ideas. I did my own reseach as suggested by the leaders of skeptic.com and csicop.org, and found that this theory was developed by Milton Friedman along with such thoughts by Ayn Rand. I read a couple of books by each,and this seems NOT to be science, evidenced based system, but a religion. I read counter arugments, recently,”The Shock Doctine” BY Naomi Klein.
    Why would this theory hold more evidence compared to John Keynes theory used for the new deal. If the free market can only be used by dicatorship/oppressive government, why does skeptic.com support it, compared to scientific method needs an open society to function?? ANYONE?

  213. GK says:

    Don’t read Rand, her starting point is mostly based on moral considerations. Regarding economics, a good introduction is Gene Callahan’s “Economics for Real People”, which can be found here for free.

    If you have a lot of time on your hand, try Mises’ On Human Action. A handy Study Guide can be found A href=”http://www.mises.org/store/Human-Action-Study-Guide-P547.aspx”>here for free. You can find On Human Action for free at that site as well.

    All your questions will find answers, hopefully to your satisfaction.

  214. GK says:

    Oh, and Friedman didn’t develop the ideas of the free market at all. He build on the work of, mostly, von Mises and Hayek, and their predecessors. Friedman was actually quite wrong on some key issues – such as monetary policy, though he seems to have become ambiguous towards the end.

  215. DogBreath says:

    Thank you Michael.

    Your factual retort to the lie about deregulation being the cause of the current financial debacle has shown that a large percentage of the SkepticBlog audience to be left-wing loons.

    The current mess has its roots in a number of myths:

    1> Regulation of financial markets works. In the end, lawyers and business people will be smarter than regulators.

    2> An owner occupied house is an investment. Its really not. Its not much different that a car. It wears out and loses value over time.
    2a> Housing values always go up. Except for the land it sits on, there is no reason to expect house valuation to exceed the rate of inflation over time.

    3> Loans to people who cannot pay them back is a good idea.

    4> Government ownership of business (FannieMae, FreddieMac, PostOffice, etc.) is a good thing. Any business that cannot fail is a potential disaster. It competes, knowing it cannot fail.

    We are in the beginning of an unpleasant education process showing us that when these myths come together at the wrong time, all hell can break loose.

    In my mind, the myth most responsible for the current mess is loaning money to people who cannot pay. While there is societal benefit in ownership, unearned ownership is of almost no value.

  216. Beelzebud says:

    “Your factual retort to the lie about deregulation being the cause of the current financial debacle has shown that a large percentage of the SkepticBlog audience to be left-wing loons.”

    Yeah because if you don’t kneel and pray at the altar of the free market you must be a “left-wing loon”!

  217. True Skeptic says:

    True Skeptic – are able to provide a set of criteria by which to evaluate whether or not there has been regulation or deregulation?

    Set out your criteria, and set out a methodology and then let’s see what’s what. Michael’s methodology is silly. Agreed. But unless you propose anything better, that’s what we have.

    “The moon is made of green cheese. Really, it is.”

    “Oh, please. Don’t be stupid.”

    “Unless you can tell me what the moon is made of, that’s the best we have.”

  218. Roy Edmunds says:

    Hot off the press.
    Obama to regulate Wall Street back to basics. I was listening to our news radio down under (Australia) and heard Obama speak. Funny guy. He said that there didn’t seem to be much “adult supervision” out there in Wall Street. I like this guy already. He directly indicated that regulation was necessary to restore accountability and responsibility. This should restore some good old fashioned values and confidence over time. I think you guys elected the right bloke. He sounds like he is going to hit the ground running and he looks fit for the fight. Hope is a great thing. Obama not only inspires with his rhetoric, it appears thus far he fully intends to walk the walk after all that talk. Hey!!! How refreshing for a politician. A real public servant has come out of the word work. Well done America. Hunker down and fight back.

  219. TrueSkeptic: your to-the-point and substantive argument has won me over. Now, what exactly was your argument again?

  220. Beelzebub: anybody who truly believes that governments can maximize material public welfare better than the free market is simply a devotee to the religion of benevolent government. A truly silly religion if there ever was one.

    Free Marketeers are like atheists: give us evidence (not theoretical models) government works better than the free market for the benefit of all, and we will believe government is better for the free market.

    Calling atheism a religion for NOT believing something is as silly as calling free market economics a religion for NOT believing something.

    Any atheist who is not a free marketeer at the same time is simply philosophically inconsistent.

    To believe the State is a necessary condition for the economy is as silly to believe God is a necessary condition for morality.

  221. True Skeptic says:

    TrueSkeptic: your to-the-point and substantive argument has won me over. Now, what exactly was your argument again?

    Who cares? I won you over, didn’t I?

    p.s.: If you want to know my argument, look it up, ya lazy wingnut.

  222. TrueSkeptic – your ability to argue coherently and reasonably is amazing. State worship seems to do miracles to the human mind.

  223. Roy – do you seriously believe that people who enter government are inherently better able to influence the world for the better than people who enter the business world?

  224. True Skeptic says:

    TrueSkeptic – your ability to argue coherently and reasonably is amazing. State worship seems to do miracles to the human mind.

    “State worship,” you say? Exactly when or how did I indicate my involvement in any sort of “worship,” state or otherwise? Be specific, James. Don’t just make it up.

  225. As a general rule, when you call somebody a “far right-wing ideologue” simply because he does not believe that more regulation is better than less, you are a state worshiper. I’m just using the same lame ad hominem State worshipers generally use to attack libertarians.

    So far, every one of your posts was mainly ad hominem attack. Which is typical of state worshipers.

  226. Paul Kohlmiller says:

    Two short comments. Atheists are not at all like free marketeers – the free marketeers do not respond to evidence like a) the government put men on the moon; the free market didn’t; b) the government stopped the Nazis; the free market didn’t; c) this current economic problem and past economic problems which require the government for redress – at least in part. But even more to the point – free marketeers expect to get paid for their “belief” in the form of less taxes; atheists expect no such payback.

    But what worries me most is statements that claim atheism and free marketeers need to be both in order to be consistent. This belief, which I think Dr. Shermer enables most strongly perhaps without meaning to do so, threatens to split the skeptical movement.

  227. Paul – how does the fact that government put people on the moon refute free market theory? Regarding Nazis – the Nazi Government killed millions of people, the free market did not. This current economic situation was largely caused by government controlled monopoly money. Whoever argues that the current crisis was caused by laissez-faire economics is, to put it bluntly, economically illiterate.

    Overall, I am quite happy to have the skeptical movement split into true skeptics – that is: atheist free marketers – and pseudo skeptics – that is: atheist socialists.

    In fact, from a human point of view, I prefer the logically inconsistent libertarian Christians to the equally logically inconsistent socialist Atheists. The former is more likely not to bother me in my private lives.

  228. Roy Edmunds says:

    Hi James R, my experience with picking politicians to run Australia has been an utter failure in the forty plus years I have been voting. Mores the pity. I have also witnessed Union corruption. I have witnessed greedy CEO’s sent to prison on criminal business charges. I have seen lousy, grubby, inefficient management. I have seen people injured through poor work practises. I have witnessed people make fortunes without lifting a wrench, turning the soil, raising chickens or actually selling anything. I am witnessing people ruthlessly sacked on the eve of christmas.
    The good things that politicians did do for this country came usually after some horrendous strike action or industrial battle which has brought home some universal point about being treated fairly as an employee.
    So, to answer your question, it is the battles of past workers trying to achieve some justice which has forced govts to legislate to introduce systems, laws, and institutions which can ameliorate the conflict between labour and capital. I hasten to add that I have a foot in both camps. Having two companys, being and employer, and an employee and contractor. I believe in profit. I believe my workers are the most important asset. I would like to see practical politicking.
    The trouble is, and I have stated this before, the thing you learn from studying human history, is that humans learn nothing from history.
    And finally to answer your question, I think that not only have ecomomists made a mess, but business people, politicians, and ordinary people like myself because we are human. Then every now and then a rare human emerges from the milling throng who observes quite candidly that the emperor has no clothes. When I hear Obama say,” there is no adult supervision out there” I felt a spark of hope. And hope springs eternal don’t it? I am never one to give up. My old dearly departed Dad had a favourite saying, “never say die till a dead horse kicks you”. So now I say, it is time to forget about whose fault it was, and look at regulating the idiocy , dishonesty, and human excess out of the equation.Again. Until the next generation after the next, have no gut memory of the mess we are now in, and do as before, and DEREGULATE. If the price of freedom is eternal vigilance, the price of stability is eternal regulation. Why else would you erect a stop sign at an intersection?

  229. True Skeptic says:

    As a general rule, when you call somebody a “far right-wing ideologue” simply because he does not believe that more regulation is better than less

    I didn’t call the author a right-wing ideologue “simply because he does not believe that more regulation is better than less.” I called him an ideologue because he made a silly, lazy, surface-level argument to bolster his viewpoint.

    Oh, and seeing as how you lied once in calling me a “state worshipper” and again in alleging that I called your buddy an ideologue because he believes in less regulation, I’m going to call you a liar. One lie, well, we can call that a mistake. When you keep lying, it’s another matter.

    This current economic situation was largely caused by government controlled monopoly money. Whoever argues that the current crisis was caused by laissez-faire economics is, to put it bluntly, economically illiterate.

    I’m going to add another ad hominem here: “arrogant wingnut twit.” If you want to start flinging the insults, you can expect to get thrown right back in your wingnut face, and then some.

  230. James Rothfeld says:

    True Skeptic – apart from the irony of your chosen screen name, your approach to debates simply proves my point State worshippers tend to resort to vehement ad hominems as a matter of temperament. And the fact you obviosuly believe “This current economic situation was largely caused by government controlled monopoly money” simply adds to it. Economically illiterate, and a preference for verbal violence. No wonder you love the state.

  231. Roy Edmunds says:

    James,True Skeptic, it would help in your arguments if you could agree on terms. What is a ‘wingnut’ in your vernacular. In Australia a wingnut or butterfly nut is a threaded nut tightened by hand by means of two flat lugs or wings projecting from the central body.(Collins dictionary).
    James, yes, the US govt. has been ‘printing’ money. I ask, was that the root cause of the problem or a desperate final act of acqiescence in the face a hopeless situation?
    True a costly war has not helped the situation. But what about the US failure to balance its foreign trade? China has a surplus. Japan has a surplus. Japanese workers hardly have any of the freedoms American workers enjoy, in terms of the union movement. Japanese unions are company unions. Chinese workers have no unions at all. These facts have to count for something.
    It was the Clinton administration as Schermer says that started the deregulation process to ‘free’ up the market and availability of credit. Australia followed suit. We are now in the same mess as America. For a short time our economic commentators were saying that Australia is better off than America because we are closer to China. Which shows you how dismally unaware our people can be. I was aware of china’s slow down some time ago (long before the press finally ackowleged it) because I know a Chinese expatriot who filled me in on how China was going.
    On the subject of govt. regulation. It has to be judged by its outcome, and intention. I was an investor in a company called Schaffer Corp. In a report distributed to share holders, Schaffer informed us among other things that China was quite able to control importation of expensive foreign cars simply by banning any loan for such. Can you imagine a ‘free’ country accepting that authoritative prohibition by Govt.of an American citizen from borrowing to purchase a BMW or Mercedes. Needless to say that’regulation’ by Govt. across the board has enabled China to maintain a healthy surplus.
    I still think we tend to have a condesension toward countries like China. Because they are ‘poor’? Because they are Chinese and have been in the backwoods? How foolish. The Chinese govern for China, as they see it, and they have only had thousands of years exposure to trade and struggle, while America and Australia have been around three and two hundred respectively. Who has the greater historical thrust in terms of wheeling and dealing? China. Especially as we opened our shores to their workforce and organisation they naturally took advantage of the situation. We thought we were going to do the same. Sure we got it right some time during the 20thC for a short time, but our glory moments have vanished into history. Both Australia and America are now on the back foot. Our own regulation suited our situation while we traded in a protected environment. As soon as we tried to match it with a culture which was totally foreign to our understanding, we lost our way. Maybe the future of Bonds will not attract the re investment of Chinese profits. What will happen then?
    Maybe the US dollar will cease, or is in the process of ceasing to be the worlds reserve currency. I think it is if certain high profile American business men have sold off American dollars. Maybe the Euro will be the next reserve currency. I am still feeling that many Americans are not fully aware that the world has changed. That America is in decline. Seriously in decline for the future of the’free’ world. And that as in the past, when the world is emerging from global depression, wars become the resort of mesmerising megalomaniacs who cease the day in the face of much despair by ordinary folk. Human nature has not changed. Tis a horrible thought.

  232. James Rothfeld says:

    Roy,

    the US has been pumping money into the system ever since 1913, causing the boom-bust of the 1920s and the Great Depression, and the boom-busts that followed. The last big pumping took place since about 1982 to 2000, and after 2000, the pumping was even greater. The goal was to drive economic growth through the inflation of the money supply (‘controlled inflation’) at about 2% or more per year. The inevitable result was malinvestment, and bust. That’s what we are having now. By pumping even MORE money into the system – and introducing massive price controls in those areas of the economy about to bust, such as housing – the pressure on the system is increasing even more.

    ok, that’s all I have time for today.

  233. Roy Edmunds says:

    James, good point re controlled inflation. Our Prime Minister Whitlam, back in the early 70′s adopted a similar approach. Inflation however got out of his control, and in addition he tried to borrow ever increasing sums to ‘pump’ more money into the system. Fortunately, our system works differently from the US and our Governor General dismissed the Prime Minister and called for an election. Whitlam was defeated.
    But Australia has always had a boom bust situation. Our Govt.’s have initiated credit squeezes in the past, or the Reserve Bank has increased credit which has ‘slowed’ the economy down as it had become too ‘heated’. But this was in answer to an imbalance in trade.
    Here is the problem. Toyota is in ‘trouble’ because it has to reduce production. Toyota is a successful manufacturer. I understand that Toyota is in no danger of going bankrupt, and many workers will loose their jobs as Toyota adjusts to lower production requirements.
    What is the major difference between cyclical ups and downs as Shermer puts it, and the current situation?
    The current situation is a kind of repeat of the 1929 bust.
    I heard President Bush say, when he emerged from the G20 Conf. if I can paraphrase it, he said that anyone who knows his history knows that he has always been a free market advocate, until he is told that unless some decisive action is taken we will have a depression worse than the great depression. But then a couple of weeks later he emerges from another meeting about world trade I think, and is heard to emphasise that ‘free trade’ between countries was still an important policy to be maintained.
    This is what I don’t understand. James, why would any leader, and ours is the same, have to cling to positions they have adopted when they are clearly not working.?
    Austrlia has a trade deficit!! China has a surplus!! Sure, like Japan, they , the Japanese,have a problem in that even if you produce products that outsell the competition if the products remain on the shelf then you have a problem. Toyota outsells GM in America, and in Australia, but the two companies are both faced with sacking workers and reducing production. Is the problem that GM and Chrysler borrowed to keep going and now have unmanageable debt? Or What? In the past, Australian companies simply sack workers during a recession, and re employ as production picks up. Cyclical stuff.
    What is different about this cycle? I think it is simply enormous debt.
    But the question of “free trade”?? How can you balance imports with a country that can produce whatever you produce cheaper? And what you trade doesn’t come close to balancing the trade? This would not work in a barter situation. Because in barter everyone winds up with what they need regardless of the finer points of skills, production costs etc. it is a win win situation. I swap eggs with you for bread. I need the bread, you need the eggs. There may be different work values involved but I am not “indebted” to you and visa versa, if we agree that this is a fair swap and that is the deal. If we agreed that two dozen eggs for one loaf was fine, that is our agreement. We could change it, and say one dozen eggs. But still, once the exchange was made both parties would have what they need and neither would be indebted to the other.
    What is happening at present is that the monetary situation is based on stuff which doesn’t exist in the real world. It is like playing games with the tax man. Artificial hurdles are set up for people to jump or dodge. The surplus occurring in exchange for Chinese produced goods is often ‘invested’ back into American Bonds. Interest is paid. But also while that American dollar bought more Yuan it was worth the investment. America has relied on that too much. McCain made a brief reference to it at one point in the campaign. I think that the economists have got it wrong, and it is time to look at the problem of trade in a wholistic way, not trying to squeeze the whole question into neat mathematical equations. Its not working.
    In my opinion its comes down to very basic things. Like watching a guy from Bangladesh pile an enormous number of bricks on his head before turning around on a barge and walking a narrow plank onto the dock and walking a distance to deposit the load. And receiving a small payment at the end of a long day. And then he walks home. Or has a bicycle. Looking closer he has no health insurance. He pays little rent. He basically works to live. To get food, clothing, shelter. Thats it!! His work helps to transform some raw materials from another country into a product which sells on American shelves at a price which would be enough to support his entire family for a year. But the difference is that the American purchaser buys the product on credit. And then goes broke. What has gone wrong? The guy from Bangladesh doesn’t have any credit to begin with so he cannot get into difficulty. But neither can he get ‘ahead’. Maybe that is the problem. Getting ahead? What the hell does that mean?
    I sometimes think that our own indigenous population had it right.
    They hunted and gathered and then danced. They made their own tools and hunting equipment from stuff that was there around them. So was the food so they just walked to obtain it. They lived that way for thousands of years. They had rules and regulations. Highly developed regulations. They had a balance to just about everything. For thousands of years. No money. And when the whites arrived they found a virtual paradise, and almost starved to death because they couldn’t hunt and gather.
    Maybe we have got it totally wrong in every respect. Maybe the Bible is right!! Jesus had some notion about toil and money. Maybe he was right!!

  234. Steve says:

    Just now getting around to commenting. Bad job, Michael. Nobody’s perfect, tho’. Merry xmas.

  235. True Skeptic says:

    And the fact you obviosuly believe “This current economic situation was largely caused by government controlled monopoly money” simply adds to it.

    Theere’s a problem: I never wrote that. Someone else did, you lazy wingnut liar.

    James,True Skeptic, it would help in your arguments if you could agree on terms. What is a ‘wingnut’ in your vernacular. In Australia a wingnut or butterfly nut is a threaded nut tightened by hand by means of two flat lugs or wings projecting from the central body.(Collins dictionary).

    Here in the U.S. there are two definitions of wingnut. There is the one you gave, and then there is this one.

  236. James Rothfeld says:

    “True Skeptic”,

    Sorry, no, it is true you never wrote that “This current economic situation was largely caused by government controlled monopoly money”. I wrote that. What I meant to say is that you obviously do NOT believe that. But, at least now I am certain that you do NOT believe that this current situation was largely caused by government controlled monopoly money’, which makes you economically illiterate, which is what I meant to say.

    It is also typical for dogmatic statists to think that their opponents are deliberate liars rather than, say, ignorant. Like the religious dogmatist, the statist – such as you – cannot believe that anybody could have an honest disagreement with them. No, opposition can only be motivated by evil intentions, not simply differences of opinion. Again, you have exposed yourself as the dogmatic intolerant statist that you so vehemently deny to be. But, you can’t help it – you are simply incapable of being otherwise. I don’t think you do this on purpose, you simply lack the capacity to be otherwise.

  237. True Skeptic says:

    James, you don’t know what I think or don’t think. Stop trying to pretend you do, ya crazy wingnut.

  238. Randy B. says:

    Whether you agree with the libertarian philosophy or not, one thing seems obvious, the American people generally don’t.

  239. James Rothfeld says:

    “True” Skeptic: Frankly, I don’t think you think, or are capable of it. So far, you have shown no evidence of it.

    Randy: Agreed. At least they don’t in practice.

  240. True Skeptic says:

    James, every time you’ve engaged me here, you’ve lied, screwed up, or both. Stupidity, mendacity, self-righteousness, and wingnut politics might be common, and indeed the typical combination, but this doesn’t make it any more attractive a mixture. Next time, re-check your facts, leave your assumptions at the door, and open your mind, such as it is.

  241. James Rothfeld says:

    “True Skeptic” – your continued inability to address anything of substance is amusing. Do you have any comment on what this discussion is about? Such as – the role of monetary policy in bringing about the current economic crisis? Of course not. All you have is insults in lieu of argument. Not surprising, of course, for somebody who refers to himself as “True Skeptic” – a contradiction, if not in terms, then at least in sentiment.

  242. James Rothfeld says:

    Here‘s another excellent commentary on why the mantra of “markets have failed” and “deregulation brought about the current crisis” is completely wrong.

  243. Roy Edmunds says:

    James, I do think markets based on credit, without due diligence applied to their capacity to repay borrowings, have failed.(Australias’ biggest lender, the Commonwealth Bank has 2.5 billion in bad debts, some of which were avoidable if the CBA had done their homework properly)
    I think the misbelief, or plain dishonest use of the expectation of an over heated market continually rising amid much de regulation of plain common sense has brought us to this state.
    I think stupidity, human greed, downright criminal activity with little policing of what regulations were left by authorities (laissez faire) has resulted in this mess.
    The fact is, it has happened before for the same reasons, and undoubtedly will happen again in another fifty years. Why? Because the people who are going to suffer the most from this mess( 70 million US baby boomers) will have been long since dead, and many of their children as well. And those who do remember will have no voice or power to stop it all happening again!!
    So, the sum total of all our highly educated economists efforts (with their pseudo ‘scientistic’ mumbo jumbo) has resulted in a global melt down which may well be worse in many respects than the great depression.
    Back in 1929, sure, money could be wired, but generally it moved at a slower pace and rustled. Now it moves at meteoric speed about the globe changing hands without touching them. Just electronic blips on a screen. With about as much value in some countries. People are payed, pay bills, purchase on credit, just sitting at home in front of the pc. It is way too easy to forget that the electronic blip translates eventually to the hours you spend earning the blips, and if you don’t honestly budget you simply tap away your credit in a flash.
    Still rockn’ roll to me. If you aint got it comin in you caint spend it. There’s only two things you can do. Earn more, spend less. But if you borrow, make sure you can pay it back.
    If you invest in companies look at their debt to equity ratio and whether they pay fully franked dividends and whether they are actually doing business at all, or just paying dividends they haven’t earned.
    Don’t start a business without contingency cash unless you are a gambler.
    If you treat the stock market like a casino you win some you lose some. Make sure you can afford to lose.
    Your health is your greatest asset, your family your greatest resource. Because they love you. And ultimately love, given and received, is more important than creating excess wealth. Provided you can purchase the basics.

  244. BSkeptic says:

    I’ve read about the people whom want more regulation. But, I’m agree with Mr. Shermer, more regulation doesn’t make a better industry. Take the example of Cuba or Venezuela, they both have an overwhelming amount of regulations and they share the overwhelming poverty. I haven’t read nothing about the economic cycle, that is very important. You can see it in one of the most famous Bible tales (I’m not a religion but this ilustrates pretty weel my point) Joseph, the Dreamer, who interpreted in the pharaoh dream of seven fat cows and after that seven thin cows eating the fat cows (something like that) as seven years of prosperity and after that seven years of bad seasons…
    There is no magical solutions and the best way to have a good life is with freedom

  245. James Rothfeld says:

    Roy,

    one of the most devastating regulations today is that banks are legally allowed to have less than 100% reserves. Fractional reserve banking is legalized fraud, and would be impossible on a large scale in a free market based on non-state-controlled money, that is: free banking. In a free banking system, some banks may collapse from time to time due to fraud, but it takes government regulation to perpetuate fractional reserve fraud throughout the entire global banking system – with the Central Banks as the imaginary lenders of ‘last resort’. It is this ultimate cause of the current economic crisis almost nobody talks about, mostly because most people are to ignorant to know about it, and also partially because talking about it would bring down the entire edifice of regulated fraud in one fell swoop.

    The real fraud is and remains the government enforced monopoly of Central Banks over money, and the related fraud of legalized fractional reserves. Anybody who claims to be an economist and does NOT talk about this aspect is an ignorant fool.

    The general public can be forgiven for not knowing about it, but the ‘experts’ really have no excuse.

  246. James Rothfeld says:

    And, Roy, you are absolutely right: “If you aint got it comin in you caint spend it. There’s only two things you can do. Earn more, spend less. But if you borrow, make sure you can pay it back.”

    Absolutely true. But our current monetary-fiscal system is designed in the belief that this basic fact of life can be ignored (as some of the earlier commentators so foolishly asserted, this system assumes that there are no fixed laws of economics).

  247. True Skeptic says:

    If fractional reserve banking is a fraud, then so is the insurance business, because it’s the same thing only with different rules for withdrawals. Own gold then, Jimmy. No one’s stopping you. While you’re at it, put a year’;s worth of beef jerky in the basement like the Mormons do. It’s about your speed.

    • slippery slope says:

      Insurance IS a scam for the most part. You give me some money every month “just in case” something happens. If nothing ever happens over ten, twenty, thirty years- I am just gonna keep your cash, have a nice day. Interest earned on assets owned could provide income down the road…

  248. James Rothfeld says:

    “True” Skeptic – until today I thought your lack of civility prevented you from engaging in an educated debate. Now I realize it is your lack of education that prevents you from engaging in a civil debate.

    If you wanted to make it absolutely clear that you are completely ignorant of banking, you could not have found a better way of doing so than to compare fractional reserve banking to insurance.

    You are either a complete fool, or a very clever troll. In either case, I’ll stop wasting my time on you.

  249. True Skeptic says:

    ‘scuse me Jimmy, but unless you’re a Harvard B-school grad your credentials will pale next to mine. In any case, in this thread you’ve done what all wingnut dweebs do, which is confuse their wingnut paradigms with knowledge. You’ve told outright lies here. You’ve gotten your facts wrong, You’ve made outrageous assumptions about what I think. Now, you’ve committed another whopper, which is to make a hilariously erroenous assumption about my education.

    All of this leaves me with only one question: Jimmy, are you George W. Bush in disguise? I can’t think of anyone who’s dumber, the HBS legacy credential notwithstanding.

  250. Roy Edmunds says:

    James, after the great depression, our banks in Australia had to have a 40% reserve with our reserve bank. This has dwindled to what I don’t know. Successive Prime Ministers allowed the erosion of the reserves for reasons best known to themselves. If the money is just sitting, it is hard to justify it being there in case. In case of what? In case you spend it all and start amassing debt well over any equity or liquid asset you have. I guess, when I started my first self employment I set aside a cash reserve for a worse case scenario, of break downs, illness (couldn,t obtain insurance) etc. It was cash that just sat in the bank at low interest. But it was there, and I guess it was a comfort in the back of my mind. But I never needed it. I think I did it because my old Dad said, “prepare for the worst and hope for the best” and there was a man who lived through and survived a depression. Actually bought a house and kept his job!! Lucky to. But then another saying my old man had was, “I’m a great believer in luck, and I find the harder I work the more I have of it”!! good on yer Dad.

  251. Roy Edmunds says:

    And James, I know of folk downunder who take cash to the bank as collateral for loans. I have done it on occasion. Especially if there is risk your business could go belly up without insurance. If you have borrowed against your own term deposit invested with the bank you borrow from, you don’t have to offer your house as collateral, and the interest is usually cheaper and offset to a degree by the fact your cash earning is compounding while your loan interest is decreasing in dollars. I have done that mainly in high risk businesses. I’m talking trucks in particular. Peace of mind stuff really. Nothing worse than the look on some blokes face when his truck is going to take his home away from him.
    I don’t lease. Rather own and maintain and take a gradual tax write off.
    I do use margin lending for the stock market. Our current interest exceeds what most dividends would pay, and the market is still falling. Not sure where the bottom will be.But again, it is a good policy to have a reserve conservative investment which pays the interest on your margin loan, and is there in case you get a call, in which case you may elect to just purchase more stock and average down. So I am currently sticking to blue chip stuff. But 2009 will not be pretty. Eventually, maybe around and approaching 2015 things will improve and a more sane arrangement may prevail in the market. Obama has presaged “adult supervision” of the stock market. I would like to see a return to real business. It should be about the business and not about the market. Other wise its just casino play where there are winners and losers battling it out in a market which has no relation to anything out there in the real world. Naked short selling??? forget about it!! Lets get back to basics. Get rich quick stuff is just greed and laziness and impatience. Thats why I think kids should start at an early age to understand business. It should be part of high school curriculum. Running a business, starting your own, franchises, employing people. Product development. Managing cash. I think every body should run their own business at least once in their life time. It teaches you so much.

  252. Dean Austin says:

    If you want to read an HONEST rendering on this topic, and not disingenuous Libertarian propaganda, see “Free Market Myth: Regulation is everywhere. Let’s choose who benefits.” by Dean Baker at
    http://bostonreview.net/BR34.1/baker.php

  253. MadScientist says:

    Small businesses are already buckling under regulation; more government regulation means more non-productive paper shuffling. Government should be trying to promote small businesses, not cripple them. In the end, the only thing that makes a good economy is actual production of goods and delivery of services.

    One thing that needs a good rethink is the model for the function of stock exchanges – the current model is little more than a pyramid scheme in its own right.

    As for banks and large corporations – I’m for minimal regulation but I am also absolutely against government sponsorship of badly run businesses. In a ‘fair market’ those entities, large as they are, would simply die and this is simply a part of the capitalist model. Governments acting on behalf of large corporations is just good old fashioned fascism. What the government is currently doing is artificially propping up bad businesses (and rewarding dismal business practices) at the expense of the taxpayers. Some time in the future, someone’s got to pay the piper and I sure as hell don’t want to be part of that.

  254. Dean,

    there a lot of good stuff in that article, except that it fails to recognize, for example, that many libertarians OPPOSE patents and copyright for the same reasons they oppose government regulation of other aspects of the free market.

    Libertarians suggest that trade secrets are sufficient to meet the needs of the market for new products. Drug companies could simply keep their recipes secret – which they would prefer in any case. The only reason they publish them is because they are forced to by law – in the name of public safety. That, however, is not necessary, since public safety could be guaranteed by drug companies being fully liable for any damage the drugs do.

    I agree with the author in so far that CONSERVATIVES are not opposed to regulation of the free market, which is why they are NOT libertarians (and they are not even good economists).

    Neither Conservatives nor so-called ‘liberals’ (who are only socially liberal, not economically liberal) like the free market very much.

    In the context of THIS debate, Baker is absolutely right to say that ”
    Deregulation can be a principled position held by true believers in a free market. But Wall Streeters all wanted one-sided regulation that provided them with an enormous government security blanket”.

    Baker provides a very good critique of Conservatives, but not, as Dean seems to imply, of Libertarians.

  255. Drew Kime says:

    I didn’t read that article as a critique of Conservatives or Libertarians, but rather of the current language being used in the debate.

    Conservatives like to borrow the terminology of Libertarians and frame the debate in terms of more or less regulation, when in reality the two main parties are arguing for different kinds of regulation that benefit different parties.

  256. Drew – agreed. A friend of mine always says the only difference between the left and right is that they cannot agree who the beneficiaries and victims of their respective programs should be.

  257. True Skeptic says:

    For a group of people who’ve never actually run anything, libertarians are uncommonly arrogant.

  258. True Skeptic – you truly are a good representative for state worship. No content, all bluster.

  259. True Skeptic says:

    James, you’re fun. I’ve never indicated here that I worship anything, much less the state. Repeating your lies won’t make ‘em true, Mr. Libertarian.

  260. Roy Edmunds says:

    I find the terms ‘libertarian’ and ‘conservative’ to be somewhat nebulous. Particularly at a time when your USA, stands for “Utterly Stuffed Already”. You are arguing about the rearrangement of the deck chairs on the Titanic. Titanic America is a basket case right now. In Australia we get the news of your unemployment figures.Its like an avalanche. Who gives a continental if you are ‘libertarian’ or ‘conservative’ when all you want is a job, a meal, somewhere to live, and maybe a new pair of shoes to enable you to stand in line for a bowl of soup. You guys crack me up. Your President in waiting is going to spend a trillion you don’t have trying to get you to spend more borrowed money to buy stuff you can’t afford. Ask yourselves how you got into this mess and it will come down to some pretty basic stuff.
    Derivatives. Get rid of them.
    Loans for homes. You take the gross income of your ordinary Joe, divide it by four, and that dictates the weekly repayments on the gross figure over 25 years repayment. You don’t take the wifes income into account because she is going to get pregnant. Would you believe that is the way Australia did it thirty five years ago. Like you guys, we deregulated every which way and loose. So the wheels fell off the cart and Australia is as big a basket case as the US. We are living on borrowed money on borrowed time. Who cares if you are conservative, libertarian, or calathumpian, the ship is sinking. Let it go. You need a new ship and a new captain at the helm. Maybe Obama and his team are the guys, I don’t know. You’d better hope they are, cause you don’t have any time left. This is it guys.

  261. Tinter says:

    I realise this is old now, but the statistics were so dire I could not help but point this out, and wonder how misleading stats fit on a “skeptical” blog post.

    A flat measure of spending on financial regulation is meaningless on its own. If the financial sector has grown larger, we can have less regulations and still spend more on regulating.

    A casual search finds that from 1995 to 2007, derivatives held commercially in the US increased 17-fold, to $170 trillion.

    As for a ratio of GDP… spending on regulation increased by 35% as a measure of GDP from 1980 to 2007? The financial sector as a proportion of GDP increased from 23% to 31%- an increase of 35% as well!

    Only that was from *1990* to *2006*! And no, it didn’t shrink in the 80′s- that was the start of the boom.

    I’m not committed enough to a blog comment to do more research, but given the boom in finances and debt began in 1980- which “just happens” to be where Shermer has taken his figures from- it is unlikely that spending on regulation in this period increased substantially above the increase in size of the regulated sectors turnover. Its ratio to the sectors held assets certainly fell by a long way.

    It is very unfortunate to see a skeptic using such misleading statistics. It is not something that belongs on this blog.

    All the above is made with the caveat that it accepts not only the figures Shermer gives, but that spending by government results in actual regulatory action. It seems strange to me that libertarians will ordinarily declare government spending wastefull and ineffective, but have not questioned that this money all efficently enforced damaging regulation. Wheres the possibility of waste and inefficency where it wouldn’t help your argument?

  262. William Mook says:

    Our present problem stems from our not addressing a host of problems over the past 50 years. So, lets pick a place to start to begin to understand how that works.

    In 1979 the Soviet Union invaded Afghanistan. In 1980 the USA elected Ronald Reagan as President. Reagan administration officials noted that Muslim extremists didn’t like the Soviet invasion. As a result, the ‘Reagan Doctrine’ was created – the CIA was ordered to help organize fund recruit and train muslim extremists focused on opposing the Soviet incursion into Afghanistan. This resulted in the unified Muslim extremist movement that eventually was responsible for the attacks against the USA on 9/11.

    The USA suffered from the 1973 oil crisis, this the result of Nixon going off the gold standard in 1971

    http://www.youtube.com/watch?v=iRzr1QU6K1o

    The oil crisis led to the energy crisis of 1979 which led to an economic crisis by 1980. This led Ronald Regan again to promote and pass the Depository Institutions Deregulation and Monetary Control Act of 1980.

    This killed the S&Ls in the US, and gave absolute control to the commercial banks. To get an idea of what this means, watch ITS A WONDERFUL LIFE – and recall that George Bailey owned an S&L, and the evil Mr. Potter owned a commercial bank.

    This did help, temporarily to end our difficulties by opening up our banking system to foreign investors – but we are paying the price now.

    Back at the end of World War Two President Truman and General Eisenhower organized the USA for constant war footing despite the end of the war. Why? To avoid a ‘nuclear Pearl Harbor’. To pay for this permanent military industrial complex, wise guy economists urged that we rebuild the post-war world in a specific way. This structure was thought to help the USA, but they missed a few points. Since the whole thing was done by wise guys in secret, people either don’t know, or don’t talk about it. But here is what’s going on.

    http://www.youtube.com/watch?v=qdrGKwkmxAU

    The goal is to outspend everyone else on military build up and in that way keep control of the world in the nuclear age and in this way avoid a global thermonuclear war. Got it? So, how to pay for it? By reserving the high value jobs for yourself, and outsourcing all the low value jobs. What’s a high value job? Well, economists in the 1940s noticed that there were three kinds of jobs; low, medium and high value. This arose naturally from the way things worked. Say you had a farmer that made $1 worth of wheat. He sold it to a flour mill that produced $5 worth of flour from it. She sold it to a baker that made $25 worth of puff pastry. Or say you had a miner that dug $1 worth of ore from the ground. He sold it to a smelter that made $5 worth of steel, and then to a fabricator that made $25 worth of cutlery. In short there were three classes of jobs;

    low value: Extraction
    med value: Manufacturing
    high valu: Retail/Banking

    Retail function produces real value. People often don’t get this. Illustrate this with a story. Three people live in a valley. One lives in a forest, and makes baseball bats. One near the river and makes baseball gloves. One in a field, and makes baseballs. In a season each makes 3 balls, 3 gloves and 3 bats. Yet none can play ball until they go to a festival in town and trade a ball for a bat a bat for a glove, now each have a ball bat and glove and all can now play ball. What’s the value of playing ball? About 5x what the things themselves cost.

    So, the USA was going to be the shopkeeper of the world. Our allies would be our manufacturer, and our friends would supply them with raw material. This would also help us fight Communism and Socialism at home, since low value workers were generally more socialist in their political views while high value workers were not generally. This was considered a plus at the time. But, the main benefit was the US could tax at 4% rate, and our allies would have to tax at 20% to match us dollar for dollar, while our friends would have to tax at 100% to match us dollar for dollar, and our enemies, excluded from this scheme, would have to tax about 30% to match US dollar for dollar.

    The system worked, the USSR went bankrupt. But, the USA did also, we just failed to see it.

    That’s because we were like a mining town that just shut down its mine. Sure, the miners didn’t make much, compared to the bankers and shop keepers, the bakers and tinkers. But, the mine kept the town alive, and without it, the town’s fortune decline.

    The same for the USA.

    As the US shifted its manufacturing, farming and other low value jobs overseas, it was shipping dollars overseas and not getting them back. That’s why Nixon had to go off the gold standard. We could play games with money, but it caused commodities to skyrocket. Everything from sugar to oil went up in price. This lead to the oil crisis, and then the energy crisis, which led to the banking crisis.

    But Reagan fixed it right?

    Well, yes and no.

    Reagan did in George Bailey in favor of Mr. Potter because Mr. Potter could package the Bailey home mortgages, car loans, and personal lines of credit in a way that let him sell them to foreigners who were accumulating US greenbacks overseas at an alarming rate!

    So, Americans could buy oil from a Saudi Sheik and that Sheik could buy GMAC credit for American cars. Americans could buy Tee-shirts from the Communist Chinese and the Chinese could buy mortgages on US homes. Americans could buy frozen fish sticks from a Chilean food processor, and that food processor could buy commercial credit from Bank of America.

    All was right with the world.

    Oh, some economists, like Nobelist Wasily Leontief wondered how America could survive. Americans were paid more, worked fewer hours, required more capital, and were less educated than many people who supplied them. How could this be? It could be because the vision of Eisenhower and Truman appeared to be working, once it was fixed by Reagan and Nixon. But, Leontief wondered how long it could last? As long as the USA was a safe haven, free from terror attacks, free from corruption, free from madness, people would continue to invest their wealth in the USA, and US citizens would be beneficiaries.

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

    In 1980 90% of all deposits and 90% of all stocks were held by US citizens. Americans saved 9% of their income and owed 60% of their income in debt. By 2000 30% of all deposits and 30% of all stocks were held by US citizens. Americans saved -3% of their income and owed 160% of their income in debt.

    Then in the 2000 presidential election the purported winner George Bush, son of a previous president, won due to a miscount in a swing state, Florida, whom his brother Jeb, happened to be governor. The flap eventually subsided and the American people accepted the new president. But, foreigners, looked at this a little differently. They thought the election was rigged. The French newspaper LeMonde was very clear in this. This is why the new President hated the French. Money that kept arriving in the USA, started to leave it – as a small minority of foreign investors, began to question the status of the USA as a free and fair country. Markets in Asia China, Brazil and Moscow, benefited greatly from this influx.

    In the Spring of 2001 rumors that Enron may be having financial difficulties. Tyco announced also a deal to acquire CIT Group that same spring. The unraveling of these two well respected giants merely added to the concerns some foreigners had regarding the United States – the flight of capital from the USA accelerated.

    This began causing difficulties in our banking system.

    Alan Greenspan assured us that we could handle these difficulties. Here’s how that worked.

    Capital is loaned out and repaid paying interest. Each dollar of capital supports several dollars in loans. So, if the interest rate is 5% and each dollar of capital supports $5 in loans a trillion dollars in debt will cost the economy $50 billion per year and require $200 billion in capital. Lets say our capital base is reduced to $100 billion. We have to borrow $1.1 trillion against the $100 billion to have the same $1.2 trillion total. No worries, if we can arrange to support $11 in loans for each dollar of capital and lower interest rates so we’re paying the same $50 billion we paid before.

    This works until we reach a tipping point.

    Then, the most highly leveraged, least productive loans would not find the capital they needed to keep the system going.

    We were far from a tipping point according to Greenspan.

    Then there came the attacks of 9/11. Ignored in the USA was the commentary from OBL about WHY he attacked the WTC. He wanted the world to know that the USA was no longer a safe haven and he attacked the WTC in the hopes that he would bring down America’s economic engine. The man was well informed and well trained. After all, the CIA had recruited and trained him to fight the Soviets.

    The world -even the French- initially supported the USA, but the Bush Administration squandered this initial good will in a variety of pugnacious acts and by lying about WMDs in Iraq. In the end we had troops in Afghanistan AND Iraq. We were not greeted as liberators in either place, torture at Abu Al Grahaib, gitmo torture and excesses, collapse of Enron, Tyco, etc., etc., etc… all were viewed by foreign investors as a reason to flee with their investments in the USA – reducing our capital base and our access to capital, while enlarging the capital base of others.

    By summer of 2007 the Beijing Stock Exchange exceeded the NASDAQ for the first time in history. After five years of double digit rate growth staid investment funds were finally allowed to invest in far away markets in China, India, Brazil and Moscow just like any other market. As a result, money flew out of the country as US money joined foreign money overseas.

    In the fall of 2007, the weak link in the chain broke. The subprime housing market collapsed due to lack of liquidity. Due to rule changes in how loans had to be reported, these loans were instantly toxic and corrupted the balance of our banking system.

    Now, this toxicity caused problems. That’s because of recent rule changes related to how loans must be reported.

    Why did the rules change at this time?

    Well, recall Enron collapsed, declaring bankruptcy in October 2001. They fooled a lot of people by playing tricks with loans and how they accounted for loans. Enron followed the rules, and still figured out how to fool people. This led to Congress meddling with how loans could be reported. Congress changed the way loans had to be reported.

    In the process Congress created toxic loans. Something that never existed before. This created new liabilities, which increased the cost of doing business and new liabilities for banks and insurers alie – right at the time we faced the most serious liquidity shortage in our history.

    To put this in perspective lets look at the money involved;

    subprime cost: $ 0.3 trillion
    banking cost: $ 0.9 trillion
    transfer cost: $ 8.2 trillion
    public debt: $12.8 trillion
    Military cost: $14.1 trillion (1960-2010)

    I put the military cost in there because that’s what the whole system was set up to pay for. Note, from 1900-1960 total US military expenditures (which includes WWI, WWII, Korea, Cold wars) total $1.0 trillion!

    Since the collapse we have pointed fingers at poor people who never commanded enough money to make any difference, and then to speculators, who make money off each other while making markets stable, and bankers, the best of which started following money overseas in 2000 leaving the B-team behind.

    Sure there are corrupt bankers corrupt speculators and others, but these are the side shows thrown to the public so they don’t ask difficult questions. Just like corrupt S&L owners were thrown to the press in 1980 to cover up the fact that Reagan had done the S&Ls in in the interests of national security. We see that today even while we pass laws that make it impossible for the USA to compete with China and India Moscow and Brazil to get the money back we lost!

    There are ways we can re-establish our ‘safe-haven’ status in the world and again lead the world. This includes;

    1) reducing our military expenditure to 1/10th current level
    2) solving the energy crisis using US technology
    3) create telerobotic factories and operate them in US
    4) create unmanned factories and operate them in US.
    5) develop ocean floor resources
    6) develop off-world resources
    7) create global business/insurance platform

    Henry Ford created the assembly line and revolutionized work in 1908 by allowing the people who worked at the factories to buy the products the factories make. 2008 saw the 100th anniversary of the assembly line pass without any substantial improvement. People spoke in glowing terms of the umnanned battlefield, but nothing about unmanned factories or farms and what that might mean for the future.

    The world is not the same as 1945. Commodities due to environmental concerns and depletion are not low cost. Labor due to robotics is far more highly valued. Meanwhile, retail and banking functions are highly automated and easily replicated at low cost eroding their relative value. This changes the US business model – and forces us to address our concerns about nuclear conflagration a different way. The forces that are threatening us the most are those forces created by the very systems we put in place to secure us. We suffered another Pearl Harbor style attack, not from some unknown enemy, but from an enemy we ourselves created. We had the opportunity to end the madness each time we faced a crisis. Each time we chose wrongly and enlarged the threats facing us, even while it seemed those threats subsided. It is time we looked clearly at our troubles and take fundamental corrective action – by ending our present approach to statecraft, and military control.

  263. Not Another Libertarian Sales Pitch says:

    Michael is simply parroting what is being echoed in Libertarian forums. Apparently, he felt little need to determine if this was, in fact, the real reason for the economic collapse, and it isn’t. What we do know is that it is much more complex than his rationale leads us to believe.

    Like Penn & Teller, Shermer is starting to cut and paste his belief system from common Libertarian discussions. He’s being entirely unoriginal. For people new to Libertarianism, these might seem like fresh ideas, but to anyone who has spent time discussing them, they’re little more than the standard, Libertarian script.

    Again, I have followed Michael Shermer for a long time, but his increasingly sloppy thinking has effectively ruined my interest in him. If this is the best that he can do, then he should do something else. I understand that Shermer isn’t a serious intellectual figure outside of the relatively small skeptical community, but it’s still a sad development to see a once prominent skeptical figure fall for such a weird belief.

    I suppose that there are always more books to sell.

  264. Not Another Libertarian Sales Pitch says:

    “It’s fascinating that people have forgotten two things about this website: A) It’s a blog. Not a source for anything other than logical argument and a center to argue out aspects of popular culture. B) No one said anyone here will be %100 on everything and people can and have (a few) made some arguments here that bring up relevant points against Shermer’s post. Any personal insult or assumption I’ve read has been a great waste of time.”

    You miss the point by a wide margin. Whether or not this is merely a personal blog, Michael isn’t simply talking about how fat his dog is getting, or some new fashion trend. He is appearing on here as Michael Shermer. He claims that there is only one Michael Shermer. Michael Shermer made his name through the skeptical movement. He professes the principles of skepticism, and requests that others do so as well; or so I believed.

    I don’t see why his skepticism should suddenly be weakened, or abandoned for a personal blog? Is he some kind of superhero who is a principled skeptic by day, and a shallow political pundit by night?

    The problem isn’t so much the discussion; although I think that such discussions about fringe political movements will almost always divide people, and become unproductive. The problem is the repeating of personal opinions, and rumors as facts, and Michael’s overall glibness.

    Of course, we know that this is related to Michael’s adoption of the Libertarian ideology, and he seems determined to use whatever small amount of influence that he has to push it.

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