In the upside-down economic universe America finds itself in these days, banks can no longer be viable businesses. Due to the government intervention in mortgage finance (e.g. ownership of the Governmental Special Entities like Fannie/Freddie/FHA) it has become impossible for private finance to compete with the artificially low interest rates that the government has on offer. Who would want to get a mortgage from a private bank for 8% when they would qualify for a government backed loan at 5%?
Banks simply don't have access to capital as cheaply as the government, and are therefore unable to lend at a profitable rate. The only market left to banks is lending to those who wouldn't qualify for a government loan, which pretty much means people who are virtually certain to default (i.e. even people with 620 credit scores can get 3% down FHA backed loans).
Sure, US banks are still making loans, but if you look closely the vast majority of those loans are government backed, in one way or another (GSE/FHA). Banks have simply stopped putting their own money at risk. Why should they, since they can't possibly get the rates they need that is commensurate with the true risk? This leaves banks with nothing much more than a transaction fee.
It is hard to see how any banks can possibly heal themselves, restoring their balance sheets, as long as the government continues to subsidize lending.
Ironically, the more the government bails out, or seizes, struggling financial instutions, the more difficult it becomes for the banking industry make money and establish a firm footing.
23 September 2008
22 September 2008
The Hunger That Never Ends
The Paulson plan to relieve hundreds of billions in seriously de-valued assets from the financial industry can’t possibly succeed. The more successful the government is in purchasing “toxic” assets, the more they will be squeezing private money out of the global economy and preventing the natural discovery of market prices and the re-allocation of resources to where they will be productive.
Instead of stopping the collapse in house and debt instrument prices, this massive bail-out will instead speed up the deflationary process by hovering up whatever capital still remains. For every dollar the US government raises by auctioning off a treasury bond for the bail-out that is one less dollar available for raising capital and purchasing assets in the private market. Banks will find it even harder to raise additional capital (which would enable them to lend more freely) than it already was since the US government is sucking all the capital out of the system. Which pension fund, sovereign wealth fund, or central bank, will want to participate in a CitiGroup share issue in such an uncertain economic environment when they can buy safe t-bills?
Of course, this assumes that this super-sized bail out will even succeed in acquiring the troubled assets it is designed to consume. It is far from clear that this bail-out entity will be willing to offer sufficiently high (above market) prices that the lenders need. There is no way financial institutions will sell their defunct assets at anything close to market prices since doing so will render them immediately bankrupt. It’s possible the government might be willing to pay the high prices these institutions demand, but that is far from clear right now, and we won’t know until the final details emerge.
Worse, even assuming that the bail-out entity does buy derelict assets at inflated prices, the government will further be forced to hang onto foreclosed properties in its portfolio indefinitely, keeping masses of vacant properties looming over the market. Selling these millions of homes at the actual market clearing rates will further drive down prices even more, causing greater financial disruptions (requiring the bail-out entity buy even more over-priced assets), and cause political problems when it becomes apparent that tax-payers will be taking a bath on their investment after-all.
And none of this is even mentioning the difficulties with other forms of toxic debt assets beyond the scope of real-estate. Will the US government also be purchasing GM and Chrysler bonds that have dropped in value?
The more the government buys, the more prices will drop forcing the government to buy even more assets, which keeps the cycle going. At some point the whole bail-out concept will come to an ignominious end.
Instead of stopping the collapse in house and debt instrument prices, this massive bail-out will instead speed up the deflationary process by hovering up whatever capital still remains. For every dollar the US government raises by auctioning off a treasury bond for the bail-out that is one less dollar available for raising capital and purchasing assets in the private market. Banks will find it even harder to raise additional capital (which would enable them to lend more freely) than it already was since the US government is sucking all the capital out of the system. Which pension fund, sovereign wealth fund, or central bank, will want to participate in a CitiGroup share issue in such an uncertain economic environment when they can buy safe t-bills?
Of course, this assumes that this super-sized bail out will even succeed in acquiring the troubled assets it is designed to consume. It is far from clear that this bail-out entity will be willing to offer sufficiently high (above market) prices that the lenders need. There is no way financial institutions will sell their defunct assets at anything close to market prices since doing so will render them immediately bankrupt. It’s possible the government might be willing to pay the high prices these institutions demand, but that is far from clear right now, and we won’t know until the final details emerge.
Worse, even assuming that the bail-out entity does buy derelict assets at inflated prices, the government will further be forced to hang onto foreclosed properties in its portfolio indefinitely, keeping masses of vacant properties looming over the market. Selling these millions of homes at the actual market clearing rates will further drive down prices even more, causing greater financial disruptions (requiring the bail-out entity buy even more over-priced assets), and cause political problems when it becomes apparent that tax-payers will be taking a bath on their investment after-all.
And none of this is even mentioning the difficulties with other forms of toxic debt assets beyond the scope of real-estate. Will the US government also be purchasing GM and Chrysler bonds that have dropped in value?
The more the government buys, the more prices will drop forcing the government to buy even more assets, which keeps the cycle going. At some point the whole bail-out concept will come to an ignominious end.
21 September 2008
Competition: The Key to Restaining Government Power
The famed balance of power between the three branches of the federal United States government is often credited with the success of the American government experiment. While this healthy competition between government powers certainly has some restraining powers, it constitutes only one of the many levels of competition which have slowed the usurpation of power by the government.
At the highest level between governments of countries. A government with poor policies encourages its citizens to emigrate. A sure sign of poor leadership comes in the form of restrictions on emigration. This constraint on poor government is only as effective as the quality of foreign countries willing to accept immigrants. It is also constrained by the natural inclination of citizens to "suffer, while evils are sufferable." Abandoning family and community is not something undertaken lightly.
Competition between government jurisdictions does not always require families to move. Businesses can take some of their operations, like the manufacturing and call centers, abroad without necessarily taking their employees. Such outsourcing is quite simply the result of foreign governments outcompeting ours to attract business. The solution is not laws forbidding such competition between countries, but rather to create a more competitive business environment at home. Government regulation against businesses moving operations abroad, like communist laws against emigration, indicate an unwillingness to accept the hard fact that jobs are leaving because the domestic environment is uncompetitive.
Below the federal level, there is competition between local city and state governments. A poorly run city government is easily evaded by moving outside the jurisdiction of the offending city. The same is true at the state level, albeit a little more inconvenient to move between states than cities. At an even more local level, there is competition between public schools, as families vie to find homes associated with quality schools. Companies shop around as well, looking for the most favorable environment for both the company and its employees.
By removing their ability to create money, the Constitution forces local governments to pay for their decisions through explicit tax revenues, be they immediate or delayed through bond issues. Cities with favorable trade and tax policies, like those of Hong Kong and Singapore, prosper as a result, without any substantial natural resources. Competition between cities, like the competition for Boeing's new headquarters in the early years of the 21st century, is healthy.
The most local level of government, the individual, is perhaps less controversial. That individuals should be judged by those with whom they interact based on how they govern themselves is fairly well accepted. If individuals can't find jobs or spouses, they need to work on themselves, to become more competitive rather than blaming others.
The sharing of power in the United States between the federal and local governments (all the way down to the individual) is a vital competition that has long kept the federal government from expanding as rapidly as it might have liked. Alas, this competition has been breaking down since the Civil War, when the federal government made it clear that secession, another form of peaceful government competition, is not allowed. Instead, the federal government extensively expanded its powers, beyond the intended limits, to include national railroads, national bank charters, fiat paper money, and conscription. In more recent times, the federal government has further eroded competition by increasingly adding social programs and getting involved with traditionally local issues like K-12 education.
Freedom, by definition, is the retention of decision-making power as locally as possible. In the upcoming U.S. Presidential election, it is important for voters to remain vigilant in not only seeking candidates who have noble intentions, but who want issues to be dealt with at right jurisdictional level. May we vote to localize power and maintain domestic competition between jurisdictions. May we vote for freedom.
At the highest level between governments of countries. A government with poor policies encourages its citizens to emigrate. A sure sign of poor leadership comes in the form of restrictions on emigration. This constraint on poor government is only as effective as the quality of foreign countries willing to accept immigrants. It is also constrained by the natural inclination of citizens to "suffer, while evils are sufferable." Abandoning family and community is not something undertaken lightly.
Competition between government jurisdictions does not always require families to move. Businesses can take some of their operations, like the manufacturing and call centers, abroad without necessarily taking their employees. Such outsourcing is quite simply the result of foreign governments outcompeting ours to attract business. The solution is not laws forbidding such competition between countries, but rather to create a more competitive business environment at home. Government regulation against businesses moving operations abroad, like communist laws against emigration, indicate an unwillingness to accept the hard fact that jobs are leaving because the domestic environment is uncompetitive.
Below the federal level, there is competition between local city and state governments. A poorly run city government is easily evaded by moving outside the jurisdiction of the offending city. The same is true at the state level, albeit a little more inconvenient to move between states than cities. At an even more local level, there is competition between public schools, as families vie to find homes associated with quality schools. Companies shop around as well, looking for the most favorable environment for both the company and its employees.
By removing their ability to create money, the Constitution forces local governments to pay for their decisions through explicit tax revenues, be they immediate or delayed through bond issues. Cities with favorable trade and tax policies, like those of Hong Kong and Singapore, prosper as a result, without any substantial natural resources. Competition between cities, like the competition for Boeing's new headquarters in the early years of the 21st century, is healthy.
The most local level of government, the individual, is perhaps less controversial. That individuals should be judged by those with whom they interact based on how they govern themselves is fairly well accepted. If individuals can't find jobs or spouses, they need to work on themselves, to become more competitive rather than blaming others.
The sharing of power in the United States between the federal and local governments (all the way down to the individual) is a vital competition that has long kept the federal government from expanding as rapidly as it might have liked. Alas, this competition has been breaking down since the Civil War, when the federal government made it clear that secession, another form of peaceful government competition, is not allowed. Instead, the federal government extensively expanded its powers, beyond the intended limits, to include national railroads, national bank charters, fiat paper money, and conscription. In more recent times, the federal government has further eroded competition by increasingly adding social programs and getting involved with traditionally local issues like K-12 education.
Freedom, by definition, is the retention of decision-making power as locally as possible. In the upcoming U.S. Presidential election, it is important for voters to remain vigilant in not only seeking candidates who have noble intentions, but who want issues to be dealt with at right jurisdictional level. May we vote to localize power and maintain domestic competition between jurisdictions. May we vote for freedom.
Fascism: A Cure-all?
As diverse as the dissatisfaction with the economic, environmental, government status quo might be, there seems to be general agreement in the continued strengthening of central governments. The only disagreement lies in whose desires this power should obey. Virtually nobody suggests that strong central power will always attract a variety of powerful interests willing to pay to access that influence.
The environmentalists rejoice at the idea of using this power to force environmental legislation more universally upon the populous. They dream of invisible wind farms forests, and solar panel lakes, funded by government grants and subsidies, which are then funded by suffocating taxes on conventional nuclear and carbon-based power generation. Were such changes economical, they might happen in a free market, so implicit in these desires is the fact that they will reduce our quality of life, and must thus be achieved through via an enlightened, powerful government.
Likewise, a wide variety of conspiracy theorists, ranging from gold bugs to Lyndon LaRouche believe that big business interests control our current regime, but their solution is not to reduce government power, but to centralize it even further and put it in their enlightened hands.
The status quo major political parties also want more centralized power. Fascism, with a powerful central government exerting extensive control over private citizens and companies is the undisputed mainstream government of choice. The dominant parties differ only in how they propose to use that power and how enlightened a despot each leader claims to be. Though they may not have a complete plan for recreating utopia, they generally favor of bigger government, regulating more of our lives in everything from investment banking to education and health care. The resulting potpourri of policies are concocted with the intent of trying to please a wide variety of interest groups. A dollop of environmental legislation, a pinch of business deregulation, and a spoonful of income tax mollification.
Rather than continuing to dream that centralized power can avoid attracting power-mongers of all colors, perhaps we should consider allowing the markets to function. We can count on governments doing nothing efficiently and selling their influence to the highest bidder, so let us return government to its proper role defined in the Declaration of Independence. Alas, governments seldom willingly relinquish power. Any cure to encroaching fascism will likely involve war, revolution and depression. Let us hope, against most historical precedents, that the governments which follow such upheavals will protect our natural rights and freedoms, leaving market competition to bring sustainable prosperity to ourselves and our posterity.
The environmentalists rejoice at the idea of using this power to force environmental legislation more universally upon the populous. They dream of invisible wind farms forests, and solar panel lakes, funded by government grants and subsidies, which are then funded by suffocating taxes on conventional nuclear and carbon-based power generation. Were such changes economical, they might happen in a free market, so implicit in these desires is the fact that they will reduce our quality of life, and must thus be achieved through via an enlightened, powerful government.
Likewise, a wide variety of conspiracy theorists, ranging from gold bugs to Lyndon LaRouche believe that big business interests control our current regime, but their solution is not to reduce government power, but to centralize it even further and put it in their enlightened hands.
The status quo major political parties also want more centralized power. Fascism, with a powerful central government exerting extensive control over private citizens and companies is the undisputed mainstream government of choice. The dominant parties differ only in how they propose to use that power and how enlightened a despot each leader claims to be. Though they may not have a complete plan for recreating utopia, they generally favor of bigger government, regulating more of our lives in everything from investment banking to education and health care. The resulting potpourri of policies are concocted with the intent of trying to please a wide variety of interest groups. A dollop of environmental legislation, a pinch of business deregulation, and a spoonful of income tax mollification.
Rather than continuing to dream that centralized power can avoid attracting power-mongers of all colors, perhaps we should consider allowing the markets to function. We can count on governments doing nothing efficiently and selling their influence to the highest bidder, so let us return government to its proper role defined in the Declaration of Independence. Alas, governments seldom willingly relinquish power. Any cure to encroaching fascism will likely involve war, revolution and depression. Let us hope, against most historical precedents, that the governments which follow such upheavals will protect our natural rights and freedoms, leaving market competition to bring sustainable prosperity to ourselves and our posterity.
Reining in Government: Sound Money
The United States Constitution is a marvel to behold for its clarity, brevity and limitations on government power. Some of its unfortunate compromises, like the protection of slavery, are understandable given the context in which it was written, but others are perhaps less comprehensible. In the case of money, the founders understood intimately the dangers of issuing paper money, stating that, "No State shall...emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts." Such restrictions were unfortunately not placed on the federal government, allowing the Congress the vague rights to "To coin Money, regulate the Value thereof, and of foreign Coin," which have become (mis)interpreted in conjunction with the elastic "necessary and proper" clause to allow for the creation of fiat paper money.
While it is understandable that the founders were frustrated with Britain's restrictions on coinage in the new world and the general shortage of coin that resulted, they neglected the market alternative of allowing private mints to competitively create coinage. In a competitive currency environment where merchants have the freedom to accept or reject any form of currency, there is a natural incentive for mints/banks to create reliable, quality currency so as to not have their currency rejected.
In any monopolistic currency regime, the temptation to use the monopoly to tax users of the currency via inflation and debasement of the money supply is irresistible for the monopoly issuer. The main restrictions on such inflation, revolution, emigration and foreign currency competition, have delayed and muted effects proportional to the size of the domestic economy. Large economies, like that of the United States, can force domestic acceptance of the national currency, thereby taxing the substantial domestic wealth. Debtors, who benefit from inflationary monetary policy, then provide democratic support for the perpetuation of such policies, along with the largest debtor of all, the government.
Sound money favors prudence and saving, punishing excessive risk-taking and debt with bankruptcy and failure. While sound money does allow for periodic fluctuations in the value of currency, be it through changes to the supply of precious metals, wars or other exogenous events, such fluctuations are minor in comparison with the rampant inflation caused by fiat money. Small fluctuations are even healthy because they can be both inflationary and deflationary, rewarding the prudent and punishing the over-extended.
Without access to the ability to monetize debt, governments are unable to bail out industries as the U.S. government recently did with Fannie Mae, Freddie Mac, AIG and the bad debt purchases. Indeed, such industries would never have been allowed to become so insolvent without the rampant encouragement of debt possible in a fiat monetary system.
Unfortunately, rather than calls to return to private, competitive money, the general cry is for more government inflationary and regulatory intervention. Regardless of the outcome of the upcoming U.S. elections, the resulting regime will surely comply, inhibiting market forces in the financial markets until such time that the necessary re-alignments lead to depression and revolution. Is there an alternative route?
While it is understandable that the founders were frustrated with Britain's restrictions on coinage in the new world and the general shortage of coin that resulted, they neglected the market alternative of allowing private mints to competitively create coinage. In a competitive currency environment where merchants have the freedom to accept or reject any form of currency, there is a natural incentive for mints/banks to create reliable, quality currency so as to not have their currency rejected.
In any monopolistic currency regime, the temptation to use the monopoly to tax users of the currency via inflation and debasement of the money supply is irresistible for the monopoly issuer. The main restrictions on such inflation, revolution, emigration and foreign currency competition, have delayed and muted effects proportional to the size of the domestic economy. Large economies, like that of the United States, can force domestic acceptance of the national currency, thereby taxing the substantial domestic wealth. Debtors, who benefit from inflationary monetary policy, then provide democratic support for the perpetuation of such policies, along with the largest debtor of all, the government.
Sound money favors prudence and saving, punishing excessive risk-taking and debt with bankruptcy and failure. While sound money does allow for periodic fluctuations in the value of currency, be it through changes to the supply of precious metals, wars or other exogenous events, such fluctuations are minor in comparison with the rampant inflation caused by fiat money. Small fluctuations are even healthy because they can be both inflationary and deflationary, rewarding the prudent and punishing the over-extended.
Without access to the ability to monetize debt, governments are unable to bail out industries as the U.S. government recently did with Fannie Mae, Freddie Mac, AIG and the bad debt purchases. Indeed, such industries would never have been allowed to become so insolvent without the rampant encouragement of debt possible in a fiat monetary system.
Unfortunately, rather than calls to return to private, competitive money, the general cry is for more government inflationary and regulatory intervention. Regardless of the outcome of the upcoming U.S. elections, the resulting regime will surely comply, inhibiting market forces in the financial markets until such time that the necessary re-alignments lead to depression and revolution. Is there an alternative route?
20 September 2008
Capitol Hill beats physicists to create black hole
The more I hear about the US government plans to accumulate bad loans and "toxic" assets from financial institutions the more it sounds like an astronomical phenomena: a black hole.
Not only is this new bail-out entity supposed to suck any tainted assets within its gravitational pull, but these assets will somehow be placed into an alternate universe, permanently removed from human contact. It is not enough to just buy these assets at above market prices to prop up the financial system, but it is also critical that the underlying assets (e.g. foreclosed homes, etc) never come on the market to be sold at cut-rate prices. Doing so would drive down other asset values which would in turn make even more assets insolvent (continuing to undermine the health of the financial system).
This is NOT a Resolution Trust Corporation 2.0. The intent of RTC 1.0 was to quickly dispose of seized assets in an orderly fashion. The purpose of this bail-out is to magically transmogrify vacant real-estate into nothingness.
This sounds very much like a black hole to me. Perhaps the $700 billion going towards the bail-out will result in the creation of the biggest under ground super-collider ever seen, running from Maryland and Pennsylvania to DC and Virginia. Who would have thought our politicians would beat all the world's physicists in creating a black hole?
Not only is this new bail-out entity supposed to suck any tainted assets within its gravitational pull, but these assets will somehow be placed into an alternate universe, permanently removed from human contact. It is not enough to just buy these assets at above market prices to prop up the financial system, but it is also critical that the underlying assets (e.g. foreclosed homes, etc) never come on the market to be sold at cut-rate prices. Doing so would drive down other asset values which would in turn make even more assets insolvent (continuing to undermine the health of the financial system).
This is NOT a Resolution Trust Corporation 2.0. The intent of RTC 1.0 was to quickly dispose of seized assets in an orderly fashion. The purpose of this bail-out is to magically transmogrify vacant real-estate into nothingness.
This sounds very much like a black hole to me. Perhaps the $700 billion going towards the bail-out will result in the creation of the biggest under ground super-collider ever seen, running from Maryland and Pennsylvania to DC and Virginia. Who would have thought our politicians would beat all the world's physicists in creating a black hole?
19 September 2008
it's official: depression just ahead...
The US government’s decision to step in and acquire hundreds of billions of dollars worth of bad loans at above market prices pretty much guarantees that what was already looking like a dismal economic future will be an out and out disaster. I do not use the word lightly, when I describe the virtually certain outcome as a depression.
As much as policy makers have attempted to avoid repeating the mistakes of the past (e.g. Messr Bernanke is an expert on the ‘30s depression) they have wound up following the script of past catastrophes to a T. Just as Hoover and FDR fell over themselves to attempt to bail-out the economy as dark clouds mounted, the global governments are doing the same thing today. In the feverish effort to stop the immediate pain, we are actually making it increasingly harder to come out the other side.
Not only have we not learned the lessons from the Great Depression, but we haven’t even learned the lessons from the .com bust of 2001/2002. Recall that in order to avoid a significant recession the Federal Reserve dropped interest rates to historic lows, and pumped masses of short-term liquidity into the financial system. The policy makers succeeded in preventing any serious economic contraction but wound up blowing another bubble into the real-estate and M&A sector --the mess of which we are dealing with now. What Bernanke et all failed to realize in their studies of the past is that when the apocalypse is staring you in the face, policy makers will always cave-in and try and attempt to bail things out. The only real choices occur in the decades before the crisis hits.
The irony is that every bail-out and intervention merely drives more good money out of the system, ensuring that more bail-outs will be needed. Every government subsidy, or bail-out, makes it that much harder for the private sector to be profitable on its own. Who would want to get a 30 year fixed mortgage from the private sector at 12% when they can get a government guaranteed loan for 5.5%?
There are so many bail-outs and interventions under way that I don’t even know where to start, and I am sure this is only the beginning. To take just one bone-headed idea, let’s look at the decision to ban short sales of financial stocks. This is tantamount to killing all the “repulsive” carrion beasts to prevent them from dis-respecting the deceased. Unfortunately, the dead animals are still with us and will just take MUCH longer to finally rot away. This is just another superb example of how the desire to stop short-term pain only makes things more dire.
Perhaps the most maddening thing of all this is how utterly ambivalent the public is to all of this. Hardly any voices are raised in protest. Expert after expert chimes in with agreement that all these interventions are simply “necessary”, albeit regrettable. Does no one realize that all of these interventions come at the price of shackling the global economy in even more red-tape and regulation? The politicians will want their pound of flesh in return for their help, in the form of extensive (and muscular) new regulatory regimes that will hold back economic growth for decades. Even the Wall Street financiers who ought to know better are begging for government help in their hour of need.
It’s like some medieval village that begs a Knight to defend them from a barbarian horde headed towards their town. The knight and his pals may well defend the town, preventing mass rape, looting, and death. The price, however, is that the goodly Knight will henceforth treat the villagers as his chattel, forever taking away their freedom. Sometimes rape and pillage is preferable to the cost of temporary salvation.
Yes, the governments of the world might succeed in delaying the onset of severe economic distress through their interventions, but they will ultimately push us even deeper into a long, dark, abyss. It would be far better to allow the real pain to be felt through the economy now, thereby allowing it to start recovering quickly thereafter.
As much as policy makers have attempted to avoid repeating the mistakes of the past (e.g. Messr Bernanke is an expert on the ‘30s depression) they have wound up following the script of past catastrophes to a T. Just as Hoover and FDR fell over themselves to attempt to bail-out the economy as dark clouds mounted, the global governments are doing the same thing today. In the feverish effort to stop the immediate pain, we are actually making it increasingly harder to come out the other side.
Not only have we not learned the lessons from the Great Depression, but we haven’t even learned the lessons from the .com bust of 2001/2002. Recall that in order to avoid a significant recession the Federal Reserve dropped interest rates to historic lows, and pumped masses of short-term liquidity into the financial system. The policy makers succeeded in preventing any serious economic contraction but wound up blowing another bubble into the real-estate and M&A sector --the mess of which we are dealing with now. What Bernanke et all failed to realize in their studies of the past is that when the apocalypse is staring you in the face, policy makers will always cave-in and try and attempt to bail things out. The only real choices occur in the decades before the crisis hits.
The irony is that every bail-out and intervention merely drives more good money out of the system, ensuring that more bail-outs will be needed. Every government subsidy, or bail-out, makes it that much harder for the private sector to be profitable on its own. Who would want to get a 30 year fixed mortgage from the private sector at 12% when they can get a government guaranteed loan for 5.5%?
There are so many bail-outs and interventions under way that I don’t even know where to start, and I am sure this is only the beginning. To take just one bone-headed idea, let’s look at the decision to ban short sales of financial stocks. This is tantamount to killing all the “repulsive” carrion beasts to prevent them from dis-respecting the deceased. Unfortunately, the dead animals are still with us and will just take MUCH longer to finally rot away. This is just another superb example of how the desire to stop short-term pain only makes things more dire.
Perhaps the most maddening thing of all this is how utterly ambivalent the public is to all of this. Hardly any voices are raised in protest. Expert after expert chimes in with agreement that all these interventions are simply “necessary”, albeit regrettable. Does no one realize that all of these interventions come at the price of shackling the global economy in even more red-tape and regulation? The politicians will want their pound of flesh in return for their help, in the form of extensive (and muscular) new regulatory regimes that will hold back economic growth for decades. Even the Wall Street financiers who ought to know better are begging for government help in their hour of need.
It’s like some medieval village that begs a Knight to defend them from a barbarian horde headed towards their town. The knight and his pals may well defend the town, preventing mass rape, looting, and death. The price, however, is that the goodly Knight will henceforth treat the villagers as his chattel, forever taking away their freedom. Sometimes rape and pillage is preferable to the cost of temporary salvation.
Yes, the governments of the world might succeed in delaying the onset of severe economic distress through their interventions, but they will ultimately push us even deeper into a long, dark, abyss. It would be far better to allow the real pain to be felt through the economy now, thereby allowing it to start recovering quickly thereafter.
17 September 2008
Government Bailouts Reinforce Irresponsibility
The recent bailouts of Fannie Mae and Freddie Mac, not to mention AIG, are indicative of a government determined to keep foolish investers from learning the necessary lesson about the risks they took when the bought into these companies. In fact, the bailouts rescue the most foolish of the investors, the ones who didn't get out earlier when it was clear that there were problems.
While it is not new for the U.S. government to use taxpayer money to bailout the creditors of failing companies, it is a trend that needs to stop if we don't want to strengthen the existing moral hazard. No company is too big to let fail and there is no "optimal" moment in the economy to let companies fail.
It is understandable that the government wants to avoid letting big financial institutions fail in the hopes of stemming a trend, in order to bail out foreign investors (especially foreign government investors), and in order to avoid letting the derivitives on the books of some of those institutions establish the new market price by which comparable derivitives on the books of other institutions must be measured. All of these reasons are short-term delays in the inevitable purging of over-extended companies and poor investments. Such interventions serve the political imperitive to postpone the inevitable pain of foolish investments, but may well make it worse and more prolonged in the process by deepening the moral hazard.
The standard response in times of crises of "we need more regulation" doesn't address the more fundamental problem of not letting investors bear the full risk of their investments. No matter how much regulation there is, if investors can count on being bailed out by the government when things get bad, they will make risky decisions assuming that the government will never force them to bear the full risk of their investments. There is only one clean remedy, let poor investments be liquidated automatically by the market.
04 July 2006
Consumer Report: Socialized Medicine
Growing up in Canada, I was oblivious to the fact that there were alternatives to many of the government programs that were an integral part of life. Government medical care was one such service. As I child I had little need for medical care, except when I broke bones or such similar childhood mishaps, which wasn't often. Such minor problems were quickly and cheerfully treated. As I grew older and more aware, I witnessed friends receive contaminated blood because the Canadian government had decided to save money by not testing for HIV and Hepatitis long after blood screening was systematic. Later, I visited Cuba to discover first hand that many basic ailments - including broken limbs - sometimes involve weeks of waiting lists to receive treatment, often without painkillers. Here in the UK, I had multiple first- and second-hand experiences where basic care was appalling. On one occasion, for example, the admitting nurse in the emergency ward perfunctorily asked me to wait while she sat and ate a sandwich for half an hour while I writhed in pain before her - before admitting me or even asking me why I had come to the emergency room. In the UK, it is not uncommon to wait for months, even years to receive an MRI and subsequent surgury or treatment. In the US, such waiting lists would be considered inhumane.
For those who consciously choose to live under socialized medicine, I can respect the trade-offs that they implicitly accept with that decision. If every one is to receive free care, then it must be rationed as there are limited resources. They are effectively accepting mediocre universal health insurance with premiums paid indirectly and disproportionately through taxation instead of having the option of choosing their own insurance provider. My concern lies rather with those who criticize private medical systems, even ones that are becomingly increasingly socialized and regulated like that of the USA. For all of its imperfections, I have received more prompt, friendly and effective service in the US under private insurance than I have experienced under various socialized systems.
For those who consciously choose to live under socialized medicine, I can respect the trade-offs that they implicitly accept with that decision. If every one is to receive free care, then it must be rationed as there are limited resources. They are effectively accepting mediocre universal health insurance with premiums paid indirectly and disproportionately through taxation instead of having the option of choosing their own insurance provider. My concern lies rather with those who criticize private medical systems, even ones that are becomingly increasingly socialized and regulated like that of the USA. For all of its imperfections, I have received more prompt, friendly and effective service in the US under private insurance than I have experienced under various socialized systems.
True Poverty = Starvation
There is some confusion regarding definitions used in discussing poverty in industrialized countries. Proponents of minimum wage laws and welfare refer to the number of people considered to be "in poverty" based on some arbitrary definition of a poverty line. Aside from discussing whether their proposed policies help or hinder "the poor" - usually, legislation to help the poor has quite the opposite effect of its intent - I take issue with the basic definition of poverty.
Poverty is fundamentally a question of basic human needs. Truly poor people are not obese, they're under-nourished. In America, like most industrialized country, there are relatively few who are truly poor. The very fact that there are so few truly poor people in countries which have better-defined property rights and more capitalism is itself a strong hint as to the true solution to poverty (http://fte.org/capitalism/introduction/). While it is not uncommon to hear disparaging comments about the alarming degree of poverty in America - including rising obesity - I would entreat such commentators to remember that the poor do not include the fat.
Poverty is fundamentally a question of basic human needs. Truly poor people are not obese, they're under-nourished. In America, like most industrialized country, there are relatively few who are truly poor. The very fact that there are so few truly poor people in countries which have better-defined property rights and more capitalism is itself a strong hint as to the true solution to poverty (http://fte.org/capitalism/introduction/). While it is not uncommon to hear disparaging comments about the alarming degree of poverty in America - including rising obesity - I would entreat such commentators to remember that the poor do not include the fat.
08 June 2006
another lost cause: Canada in Afghanistan
The Canadian government has just decided to keep throwing good money (and people) into the growing sink-hole that is Afghanistan. It’s all well and good to want to help other countries (as Canada prides itself in doing with peace-keeping), but there is no point in expending precious resources when the effort has no realistic prospect of success.
It’s been 4 years since the over-throw of the Taliban, but Afghanistan has little to show for it. The national armed forces are still useless, the government is rife with corruption, and reliant on war-lords. All the while opium production, and the narco-economy, has become ever more firmly entrenched. Oh, and let’s not forget that the Taliban is actually posing a bigger threat today than it did when they were originally deposed in 2002.
The die is already cast: the central Afghan regime is growing increasingly weaker, as war-lords and the Taliban seize tighter control of the regions. The Afghan military and policy are degenerating even further (hence the reliance on regional thugs). Reconstruction efforts are continuing to shrink as the security situation deteriorates.
So remind me, please, just what Canada hopes to accomplish by continuing to have its soldier’s killed in Afghanistan with car bombings and sniper attacks? Is it to build Canadian prestige abroad, by demonstrating the nation’s ability to project force? Maybe this is just a way to get the US off Canada’s back for its refusal to get involved in Iraq (another futile foreign imbroglio).
Unfortunately, Canada has a long history of involving itself in foreign conflicts for all the wrong reasons. Canadadian politicians viewed the Boer, and both world wars, as great opportunities to burner world prestige, and gain greater independence from the motherland (i.e. the United Kingdom). I am sure that made all those mothers who lost their sons at the Somme just thrilled that they were able to contribute to Canadian independence.
At the very least, Canadian policy makers should be asking themselves the very realistic question as to what criteria they are looking for to convince them that a withdrawal from Afghanistan is necessary. Would Canada withdraw after 8 years of peace-keeping if the country isn't any better off? What about increasingly higher Canadian casualty rates over a couple years?
Whatever the reasons for Canada being in Afghanistan, it will all be for not when the Canadian forces eventually withdraw, their tails between their legs, letting Afghanistan tear itself even further apart. But I won’t blame the lowly Canadian military, they are just dealing with an impossible task foisted on them by timid leaders who don’t know how to say “no”. Clearly there must be some point at which Canada's leaders would decide to cut their losses and bring the troops home. Let's just hope it is sooner rather than later.
It’s been 4 years since the over-throw of the Taliban, but Afghanistan has little to show for it. The national armed forces are still useless, the government is rife with corruption, and reliant on war-lords. All the while opium production, and the narco-economy, has become ever more firmly entrenched. Oh, and let’s not forget that the Taliban is actually posing a bigger threat today than it did when they were originally deposed in 2002.
The die is already cast: the central Afghan regime is growing increasingly weaker, as war-lords and the Taliban seize tighter control of the regions. The Afghan military and policy are degenerating even further (hence the reliance on regional thugs). Reconstruction efforts are continuing to shrink as the security situation deteriorates.
So remind me, please, just what Canada hopes to accomplish by continuing to have its soldier’s killed in Afghanistan with car bombings and sniper attacks? Is it to build Canadian prestige abroad, by demonstrating the nation’s ability to project force? Maybe this is just a way to get the US off Canada’s back for its refusal to get involved in Iraq (another futile foreign imbroglio).
Unfortunately, Canada has a long history of involving itself in foreign conflicts for all the wrong reasons. Canadadian politicians viewed the Boer, and both world wars, as great opportunities to burner world prestige, and gain greater independence from the motherland (i.e. the United Kingdom). I am sure that made all those mothers who lost their sons at the Somme just thrilled that they were able to contribute to Canadian independence.
At the very least, Canadian policy makers should be asking themselves the very realistic question as to what criteria they are looking for to convince them that a withdrawal from Afghanistan is necessary. Would Canada withdraw after 8 years of peace-keeping if the country isn't any better off? What about increasingly higher Canadian casualty rates over a couple years?
Whatever the reasons for Canada being in Afghanistan, it will all be for not when the Canadian forces eventually withdraw, their tails between their legs, letting Afghanistan tear itself even further apart. But I won’t blame the lowly Canadian military, they are just dealing with an impossible task foisted on them by timid leaders who don’t know how to say “no”. Clearly there must be some point at which Canada's leaders would decide to cut their losses and bring the troops home. Let's just hope it is sooner rather than later.
02 June 2006
don't punish the soldiers
The US administration is at it again, punishing the lowly soldier for war crimes that were the inevitable result of the precarious situation these patriotic warriors were placed in. The prosecution of marines for a civilian massacre in Haditha (Iraq), will result in the same hollow justice found in the aftermath of the Abu Ghraib prisoner abuse.
Don't blame the soliders. They have been placed in an impossible position, fighting for their lives in a hostile country where everyone is a possible enemy. It only makes sense that there will be over-reactions, now and again, with the tragic loss of innocent life. The people who deserve the real responsibility are the leaders who put these soldiers in a no-win war, that destroys the psyche.
No matter. The US administration will get it's mug-shots of disgraced marines to parade in the media, allowing it to demonstrate it's commitment to justice for the Iraqi people.
Of course, no one will ever comment that the real solution to avoid future such civilian massacres by US troops is to get the hell-out-of Dodge, and leave Iraq to it's own devices. Sure, Iraq will descend into messy civil war, and cause great instability (and possibly terrorism) if the US withdraws, but the presence of US forces isn't making things better and only delays the inevitable.
Don't blame the soliders. They have been placed in an impossible position, fighting for their lives in a hostile country where everyone is a possible enemy. It only makes sense that there will be over-reactions, now and again, with the tragic loss of innocent life. The people who deserve the real responsibility are the leaders who put these soldiers in a no-win war, that destroys the psyche.
No matter. The US administration will get it's mug-shots of disgraced marines to parade in the media, allowing it to demonstrate it's commitment to justice for the Iraqi people.
Of course, no one will ever comment that the real solution to avoid future such civilian massacres by US troops is to get the hell-out-of Dodge, and leave Iraq to it's own devices. Sure, Iraq will descend into messy civil war, and cause great instability (and possibly terrorism) if the US withdraws, but the presence of US forces isn't making things better and only delays the inevitable.
15 March 2006
only one choice for US in Iraq: cut and run
There comes a time in every war where the the eventual outcome is already decided, it's just that the participants haven't realized it yet. Such a pre-determined outcome is now obvious for the American nation building exercise in Iraq.
Instead of greatly increasing troop strength, and taking back control of a powerless (and partisan) local government, the United States has instead chosen to hunker down and pass the responsibility for containing communal violence to the incompetent native Iraq security forces. If the US really wanted to achieve a victory, it would have committed 500,000 to 1,000,000 troops on the ground in Iraq, and taken full responsibility for administering the country for many years, rather than trying to throw some make-shift government together, and partisan native security forces dominated by local militias.
If the US isn't willing to do what it takes to win in Iraq, then the only alternative is to accept defeat. We already know the US will cut-and-run, we just don't know the date.
The only thing President Bush's exhortations for patience, and perserverence, will accomplish is a greater loss of money and blood.
True, the consequences of American defeat in Iraq are not pretty. US prestige will take quite a beating, and the middle-east will be an even more chaotic, and dangerous place. Iraq could very easily descend into a bloody civil war without the American presence, keeping things only at a slight boil.
But these terrible consequences will happen just the same whether the US pulls out in 4 years, or 3 months. So why wait?
Instead of greatly increasing troop strength, and taking back control of a powerless (and partisan) local government, the United States has instead chosen to hunker down and pass the responsibility for containing communal violence to the incompetent native Iraq security forces. If the US really wanted to achieve a victory, it would have committed 500,000 to 1,000,000 troops on the ground in Iraq, and taken full responsibility for administering the country for many years, rather than trying to throw some make-shift government together, and partisan native security forces dominated by local militias.
If the US isn't willing to do what it takes to win in Iraq, then the only alternative is to accept defeat. We already know the US will cut-and-run, we just don't know the date.
The only thing President Bush's exhortations for patience, and perserverence, will accomplish is a greater loss of money and blood.
True, the consequences of American defeat in Iraq are not pretty. US prestige will take quite a beating, and the middle-east will be an even more chaotic, and dangerous place. Iraq could very easily descend into a bloody civil war without the American presence, keeping things only at a slight boil.
But these terrible consequences will happen just the same whether the US pulls out in 4 years, or 3 months. So why wait?
Let Iran have it's nukes
I just had to laugh, reading that the US administration is warning Iran of "serious consequences" for pursuing nukes.
What are they going to do? Shake a finger at the Ayatolla? Declare Iran to be in the "axis of evil" in a State of the Union address? Wait.... they already did this.
Who do they think they are kidding? There is NO way the UN security council is ever going to pass serious sanctions (i.e. that would stop the flow of Iranian oil). And it is also inconcievable that anyone would undertake military action against Iran (i.e. because it would be ineffective, and US politicians would anger voters and be turfed from office). Not as if sanctions have ever worked, but that's a different subject.
The US administration should just shut up and drop the whole issue of Iranian nuclear development before it looks even sillier than it already does. All these toothless admonishments only serve to underline how little influence, and power, the US has in this situation.
What are they going to do? Shake a finger at the Ayatolla? Declare Iran to be in the "axis of evil" in a State of the Union address? Wait.... they already did this.
Who do they think they are kidding? There is NO way the UN security council is ever going to pass serious sanctions (i.e. that would stop the flow of Iranian oil). And it is also inconcievable that anyone would undertake military action against Iran (i.e. because it would be ineffective, and US politicians would anger voters and be turfed from office). Not as if sanctions have ever worked, but that's a different subject.
The US administration should just shut up and drop the whole issue of Iranian nuclear development before it looks even sillier than it already does. All these toothless admonishments only serve to underline how little influence, and power, the US has in this situation.
01 December 2005
The French Riots: The Fruits of Nihlism and the Welfare State
Critics of the French Riots and the government response have sought explanations for the events by assuming that there is necessarily a specific motivation for the violence. Some postulated that it was because of the initial deaths by accidental electrocution, others believed it was simply a result of long-brewing discontent with the segregation and lack of economic opportunities.
While these factors may have played some minor role, I believe the fundamental cause is much deeper and pervasive. The primary cause is the amorality of permissive pragmatism which has for generations increasingly permeated our society. This is not to say that the problem lies in a decline in religion, but rather a decline in principles more generally.
Up until the late 19th century, there were generally held beliefs in most western countries that man has certain natural rights, including his right to life, liberty and property. These rights were not rights to the production of others, but rather to retain one's own freedom of action and the right to keep one's own production. People were believed to ultimately be responsible for themselves, and the role of the state was largely to defend those natural rights. While it is true that not all western countries followed this principle equally consistently, each country generally thrived to the degree to which it adhered to this simple principle.
People understood that by working and trading together, everybody's life improved. To abuse a shopkeeper or be generally disrespectful was a recipe to not only social issolation, but self-induced economic autarky from the benefits of exchange. In short, disrespect of others led to misery by the refusal of others to trade un such terms.
As the role of the state grew to include provisions for the material well-being of its people and to arbitrarily legislate arbitrary morality, the concepts of individual responsibility and respect began to fade. The state increasingly started taking wealth from those who had earned it and gave it to those who hadn't. Increasingly arbitrary laws were passed, like rules requiring mandatory schooling, minimum working ages, minimum wages, political correctness, affirmative action and conscription. Social programs like unemployment insurance, the dole and pensions further deteriorated the general principle of self-reliance.
Whereas in earlier times, people learned responsability and respect for others and property by virtue of having to provide for themselves, we now have created a "give me!" culture where people consider the fulfillment of all of their basic needs to be a right.
It should not surprise us when such wards of the welfare state shoot at rescue helicopters during natural disasters like Hurricane Katrina or indescriminately burn vehicles and properites in riots in France. It is not because such people have valid values or even particular grievences and are simply protesting injustice. It is because they have been raised with no concept of values to the point where they are biting, burning and shooting the hand of the state that feeds them. Curiously, the response of the state is not to give such ingrates a chance to achieve a sense of self-worth by withdrawing all social programs, but rather to further accentuate the entitlements and resulting decline into amorality.
The solution to modern amorality is simple. Dismantle every aspect of the welfare state and return our government to its limited role of protecting rather than abusing the life, liberty and property of its citizens.
While these factors may have played some minor role, I believe the fundamental cause is much deeper and pervasive. The primary cause is the amorality of permissive pragmatism which has for generations increasingly permeated our society. This is not to say that the problem lies in a decline in religion, but rather a decline in principles more generally.
Up until the late 19th century, there were generally held beliefs in most western countries that man has certain natural rights, including his right to life, liberty and property. These rights were not rights to the production of others, but rather to retain one's own freedom of action and the right to keep one's own production. People were believed to ultimately be responsible for themselves, and the role of the state was largely to defend those natural rights. While it is true that not all western countries followed this principle equally consistently, each country generally thrived to the degree to which it adhered to this simple principle.
People understood that by working and trading together, everybody's life improved. To abuse a shopkeeper or be generally disrespectful was a recipe to not only social issolation, but self-induced economic autarky from the benefits of exchange. In short, disrespect of others led to misery by the refusal of others to trade un such terms.
As the role of the state grew to include provisions for the material well-being of its people and to arbitrarily legislate arbitrary morality, the concepts of individual responsibility and respect began to fade. The state increasingly started taking wealth from those who had earned it and gave it to those who hadn't. Increasingly arbitrary laws were passed, like rules requiring mandatory schooling, minimum working ages, minimum wages, political correctness, affirmative action and conscription. Social programs like unemployment insurance, the dole and pensions further deteriorated the general principle of self-reliance.
Whereas in earlier times, people learned responsability and respect for others and property by virtue of having to provide for themselves, we now have created a "give me!" culture where people consider the fulfillment of all of their basic needs to be a right.
It should not surprise us when such wards of the welfare state shoot at rescue helicopters during natural disasters like Hurricane Katrina or indescriminately burn vehicles and properites in riots in France. It is not because such people have valid values or even particular grievences and are simply protesting injustice. It is because they have been raised with no concept of values to the point where they are biting, burning and shooting the hand of the state that feeds them. Curiously, the response of the state is not to give such ingrates a chance to achieve a sense of self-worth by withdrawing all social programs, but rather to further accentuate the entitlements and resulting decline into amorality.
The solution to modern amorality is simple. Dismantle every aspect of the welfare state and return our government to its limited role of protecting rather than abusing the life, liberty and property of its citizens.
08 November 2005
Assimilation in France is alive and well: immigrant riots prove it
While many obsrervers have taken pains to describe the alienation and discrimination that has driven the poor French (immigrant) youth to their desperate acts of violence and civil unreset, their behaviour is actually evidence of something else entirely: that these immigrants have been so assimilated that they are adopting the great Gaulic tradition of manning the barricades and achieving goals through intimidation.
The swarming Parisien teen-agers on scooters with molotov cocktails have far more in common with the peasant farmers dumping produce in the streets, or electricity workers cutting power to whole neighbourhoods, than they do with Muslim radicals in the Gaza strip or Iraq.
What could be truer to the barricaded streets and bonfires of the French revolution than torched automobiles and shopping malls?
Instead of wondering at why 3rd generation African immigrants are upset, it would be a far better question to ask what it is about French society that tolerates terrorism and extortion on a grand scale? Why is that every French government (regardless of stripe) always caves in to the demands of protesters, whether it is angry pilots who want a government bail-out, or truckers who are upset about gasoline prices? Already the French politicians are falling over themselves restoring funding for suburbs, putting money into apprenticeship programs, and other largesse for the poor.
The only mystery here is why it took the teaming underclasses of the French Banilieu so long to finally take to the streets and demand their own piece of the French tax-payer.
Now there is someone who really has a reason to go on a riot...
The swarming Parisien teen-agers on scooters with molotov cocktails have far more in common with the peasant farmers dumping produce in the streets, or electricity workers cutting power to whole neighbourhoods, than they do with Muslim radicals in the Gaza strip or Iraq.
What could be truer to the barricaded streets and bonfires of the French revolution than torched automobiles and shopping malls?
Instead of wondering at why 3rd generation African immigrants are upset, it would be a far better question to ask what it is about French society that tolerates terrorism and extortion on a grand scale? Why is that every French government (regardless of stripe) always caves in to the demands of protesters, whether it is angry pilots who want a government bail-out, or truckers who are upset about gasoline prices? Already the French politicians are falling over themselves restoring funding for suburbs, putting money into apprenticeship programs, and other largesse for the poor.
The only mystery here is why it took the teaming underclasses of the French Banilieu so long to finally take to the streets and demand their own piece of the French tax-payer.
Now there is someone who really has a reason to go on a riot...
03 November 2005
The Virtues of Discrimination
There was once a day, even in my brief life experience, when it was a compliment to call somebody a discriminating person. This was to suggest that they were astute enough to distinguish sound ideas and activities from frivolity. Unfortunately, it is increasingly becoming a criminal indictement to be considered discriminating.
Two recent articles, one on Rosa Parks and another on Greek ostracism help to illustrate that discrimination is one of the cornerstones of a moral, free society. This is as true for god-fearing societies as much as for their atheist counterparts.
In a free society where goods and services are produced privately, voluntary discrimination acts as a regulator of behaviour. It financially punishes businesses who discriminate on arbitrary racist or sexist grounds by reducing their revenues and profits, allowing them to be overtaken by their non-racist, non-sexist competitors. Only by securing government regulations and legal enforcement of irrational discrimination can the impartial hand of markets be stayed from punishing such irrational policies as racism and sexism.
The Rosa Parks article linked above illustrates this poigniantly by reminding us that the private bus owners and drivers protested and resisted the Jim Crow laws that required blacks to give up their seats because of both the injustice and the marginal loss of revenue that such laws entailed. Even if some bus operators were personally racist, their desire for profit led them to oppose racist practices that would reduce their revenues and profits.
In a free market, businesses are successful proportionally to the number of customers that they can please and have every incentive to treat customers with respect, even when a customer is wrong or impolite. Maintaining a positive reputation is paramount to developing a large, loyal customer base, even if that involves some minor losses along the way. The liberal product return policies and satisfaction guarantees offered by most successful American businesses attest to this fact.
Conversely, the right to descriminate allows businesses to refuse service to those who are excessively rude and abusive. This forces such unpleasant people to either be polite and respectful or lead a lonely life of ostracism. The Rosa Parks incident demonstrates that self-interest keeps businesses from discrimating arbitrarily, but does not discourage them from refusing service to abusive customers whose presence is both unpleasant and unprofitable. Businesses will only refuse service when the amount of additional revenue the refused customer might bring them is outweighed by the trouble or cost of dealing with the customer.
Private citizens should and do also discriminate. They should choose wisely which establishments they patronise and whom they associate with. This is - thankfully - still generally legal, though there is strong societal pressure to encourage such discrimination to be applied irrationally. For example, consumers are encouraged to make decisions based on the location of the product producer rather than the quality and price of the products. This is usually packaged as "Buy Scottish" or "Buy American" type campaigns that ignore quality in favour of blind patriotism. There is also often a sense of guilt brought upon the successful to "give back" to the poor, suggesting that they took something from them in the first place or contributed to their miserable condition when neither may be the case.
For discrimination to function properly, two things need to change. Firstly, it has to be perfectly legal for all private businesses and individuals to discriminate on whatever grounds they see fit. Secondly, it is vital to minimize the presence of the state in the economy. The state does not have the same right to discriminate as long as it is funded involuntarily by taxpayers. Because they have paid for the services of the state via their taxes, all tax-payers conceivably have some right to expect access to all state-provided services.
A resounding re-instatement of the right of private individuals and industry to discriminate will cause a renaissance of good-manners and morality, not the opposite. It is no coincidence that the times when it was a complement to be discriminating corresponded to times when people feared less and respected one another more. Let us all be more rationally discriminating.
Two recent articles, one on Rosa Parks and another on Greek ostracism help to illustrate that discrimination is one of the cornerstones of a moral, free society. This is as true for god-fearing societies as much as for their atheist counterparts.
In a free society where goods and services are produced privately, voluntary discrimination acts as a regulator of behaviour. It financially punishes businesses who discriminate on arbitrary racist or sexist grounds by reducing their revenues and profits, allowing them to be overtaken by their non-racist, non-sexist competitors. Only by securing government regulations and legal enforcement of irrational discrimination can the impartial hand of markets be stayed from punishing such irrational policies as racism and sexism.
The Rosa Parks article linked above illustrates this poigniantly by reminding us that the private bus owners and drivers protested and resisted the Jim Crow laws that required blacks to give up their seats because of both the injustice and the marginal loss of revenue that such laws entailed. Even if some bus operators were personally racist, their desire for profit led them to oppose racist practices that would reduce their revenues and profits.
In a free market, businesses are successful proportionally to the number of customers that they can please and have every incentive to treat customers with respect, even when a customer is wrong or impolite. Maintaining a positive reputation is paramount to developing a large, loyal customer base, even if that involves some minor losses along the way. The liberal product return policies and satisfaction guarantees offered by most successful American businesses attest to this fact.
Conversely, the right to descriminate allows businesses to refuse service to those who are excessively rude and abusive. This forces such unpleasant people to either be polite and respectful or lead a lonely life of ostracism. The Rosa Parks incident demonstrates that self-interest keeps businesses from discrimating arbitrarily, but does not discourage them from refusing service to abusive customers whose presence is both unpleasant and unprofitable. Businesses will only refuse service when the amount of additional revenue the refused customer might bring them is outweighed by the trouble or cost of dealing with the customer.
Private citizens should and do also discriminate. They should choose wisely which establishments they patronise and whom they associate with. This is - thankfully - still generally legal, though there is strong societal pressure to encourage such discrimination to be applied irrationally. For example, consumers are encouraged to make decisions based on the location of the product producer rather than the quality and price of the products. This is usually packaged as "Buy Scottish" or "Buy American" type campaigns that ignore quality in favour of blind patriotism. There is also often a sense of guilt brought upon the successful to "give back" to the poor, suggesting that they took something from them in the first place or contributed to their miserable condition when neither may be the case.
For discrimination to function properly, two things need to change. Firstly, it has to be perfectly legal for all private businesses and individuals to discriminate on whatever grounds they see fit. Secondly, it is vital to minimize the presence of the state in the economy. The state does not have the same right to discriminate as long as it is funded involuntarily by taxpayers. Because they have paid for the services of the state via their taxes, all tax-payers conceivably have some right to expect access to all state-provided services.
A resounding re-instatement of the right of private individuals and industry to discriminate will cause a renaissance of good-manners and morality, not the opposite. It is no coincidence that the times when it was a complement to be discriminating corresponded to times when people feared less and respected one another more. Let us all be more rationally discriminating.
Microsft: a culture of detail
It's taken me a while (5 years, in fact), but I am finally starting to understand the culture at Microsoft, and how to fit it a little bit. It has been quite an uphill climb for me. I have been used to being the wunderkind at every other place I've worked, but here I was just another face in a crowd of tens of thousands. It has been frustrating, and humbling, to realize that my ability to effect change is so limited, and having to re-discover ways to get my voice heard.
And what have I learned?
To be sure, I don't regret for a minute my decision to work at Microsoft. It has been tough, but I've learned a lot (about myself and others). Yes there are lots of things to complain about at Microsoft, but there are lots of great things too. I'll have to write about some of these things in future posts.
.
And what have I learned?
- Microsoft is a detail oriented place
There is a high premium placed on micromanagers, and people who know EVERYTHING.
This has been perhaps the most difficult problem for me to grapple with. By nature I am a broad-brush person who ignores details in favour of the "big picture". At Microsoft, however, this is deadly to your career since no one will trust your recommendations, or judgement, if you can't answer all their questions at the ritual grilling.
I have a tendency to make decisions based on gut feel, and my over-all impression of customer needs, and market. But this kind of instinctual activity does not go down well at Microsoft.
Not that this leads to better decision making. I have seen us make plenty of lousy technical and business decisions, despite (or maybe because of) this detailed fanatacism.
I have heard many a tale of instances where top executives ripped into someone on minute issues that had come up years before. These stories are told with a sense of awe, and admiration, that our great company leaders have such a grasp of detail. Such stories, however, make me wonder if we aren't somehow too obsessed with minutiae. - It's all in the family
Relationships mean a great deal at Microsoft, and there is a strong preference for old-timers who have built a history of trust. It is a cadre of old-timers who really make this company tick, which have built a web of relationships, and trust, that the company falls back on again and again. I would even say that there is an inverse relationship to the level at which one is hired into the company and the success of their career. It is far easier to start as a new staffer, out of college, and work your way up rather than come in mid-career with a lot of experience acquired elsewhere.
To be sure, I don't regret for a minute my decision to work at Microsoft. It has been tough, but I've learned a lot (about myself and others). Yes there are lots of things to complain about at Microsoft, but there are lots of great things too. I'll have to write about some of these things in future posts.
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26 October 2005
A Miracle in Economics Education...
I became a teacher in order to help make the world a more rational place by educating our youth. I choose to teach middle school and high school students so as to have a chance to give them the right tools with which to handle reality early rather than attempting to re-educate them at the university level after their minds have been misguided or neglected from middle school. I also fervently believe that most students are capable of learning most of what is currently reserved for high school while in middle school and what is currently reserved for undergraduate university while in high school. As a teacher, I can only reach 120 or so students per year. At that rate, it will take a long time to educate the world.
Wouldn't it be marvelous if there were an organization to "promote excellence in economic education by helping teachers of economics become more effective educators?" Wouldn't it be even better if such an organization were to train teachers around the country for FREE?
There is such an organization...
I couldn't fully believe it to be true until I actually attended such a course this summer. I took a week-long course entitled Economics for Leaders (http://fte.org/teachers/programs/efl/) and it was absolutely free. It is now my intent to attend every course offered by the Foundation for Teaching Economics (http://fte.org/) at my earliest opportunity. It is an extraordinary organization with a mission that matches my own. They also offer online courses.
Most of their programs are for teachers, but some of them are also for rising high school seniors. I highly recommend FTE programs to any motivated students or teachers who qualify.
Wouldn't it be marvelous if there were an organization to "promote excellence in economic education by helping teachers of economics become more effective educators?" Wouldn't it be even better if such an organization were to train teachers around the country for FREE?
There is such an organization...
I couldn't fully believe it to be true until I actually attended such a course this summer. I took a week-long course entitled Economics for Leaders (http://fte.org/teachers/programs/efl/) and it was absolutely free. It is now my intent to attend every course offered by the Foundation for Teaching Economics (http://fte.org/) at my earliest opportunity. It is an extraordinary organization with a mission that matches my own. They also offer online courses.
Most of their programs are for teachers, but some of them are also for rising high school seniors. I highly recommend FTE programs to any motivated students or teachers who qualify.
15 October 2005
Long Live Globalization!
Our family outing to IKEA today sparked introspection on the numerous benefits of globalization and successful domestic businesses. There can be a good deal of charm in a local mom & pop business that is friendly and well-run, but when a local shop becomes popular and successful enough to grow into a regional, national or international conglomerate, many other people can benefit from that business in addtion to the local neighbourhood of the first store.
It is bewildering to me that there is so much animosity towards successful large coprorations. Organizations like Walmart -- that started as a well-run local Arkensas store -- now bring economies of scale, excellent customer service, low prices and jobs to literally millions of people around the world. We don't have to hope that our local merchant is as efficient as Sam Walton, we can have one of Sam's own stores on our street. Whether local workers labour for Joe's local food store or the local Walmart, they still have a good job. In fact, they can likely get better benefits by working for Walmart because it can negociate better deals with health insurance providers due to its size.
We sometimes forget that these big corporations are really just groups of normal people like ourselves who want to buy a little house, have a family, send their kids to good schools and maybe even go to church on Sundays. The nature of the workers doesn't change with the size of the company for which they work. Each Starbucks, for example, has an ambiance heavily influenced by the workers therein. Further, anybody can be an part-owner of such businesses and share in profits by simply buying shares of their stock. In fact, many of us own shares of Walmart indirectly through the investment holdings of our retirement savings plans.
There is often particular antipathy toward foreign companies and products made abroad. That foreigner, however, is a normal human being like the rest of us. If you met him on a train, you might even become close friends, but somehow when a product he made is anonymously labelled as being from a foreign country, it is somehow less desireable than a locally made product. Political borders are arbitrary and often ephemeral. To take a simple example, it might be far more "local" geographically for somebody in Alaska to trade with British Columbia or Yukon Territory, but those are 'foreigners' because arbitrary events in history caused Alaska to become part of the U.S. rather than Canada.
The favoritism for locally produced items is perhaps the most absurd when taken to their logical extreme. Why settle for products from your state or country as being 'sufficiently local' when you could insist on products from your town or street. How many cars or bananas are produced on your street? Personally, I would be sceptical of buying coffee or bananas produced locally here in Glasgow, Scotland.
In short, it is as arbitrary as being racist to choose products based on the proximity of their origin to your place of residence or the nationality of their producer rather than their quality or price. When such preferences for local goods become enforced by government in some form of legal protectionism, it results in inefficiency, encouraging locals to produce inefficiently what could be far mroe efficiently produced elsewhere and exchanged for products in which your region has a competitive advantage. Can you imagine what would happen to the population of Hong Kong, if the government mandated that all food consumed in Hong Kong could not be imported from outside the city?
Globalization translates to better, cheaper products, made easily available to more people. When I walk into IKEA, I can purchase products designed by a skilled foreigner and produced in economies of scale from every corner of the earth (we purchased two bowls today, identical in every way but color; one came from Portugal while the other is from Turkey). Thanks to IKEA having sufficient size, efficiency, and global production facilities, I can buy a host of things to make my life far easier or more comfortable that would simply not be available or would be prohibitively expensive if everything had to be produced in Scotland. I gleefully traded with producers in a dozen different countries during my single visit to IKEA. If those producers could only sell to their local market, we would all be the worse off for it. When two traders of any origin voluntarily come together -- even indirectly through merchants like IKEA or Starbucks -- to trade, both sides benefit, otherwise the trade would not occur.
The next time you hear demonstrations against globalization, ask yourself what those demonstrators would be wearing, driving and drinking for breakfast if they had to produce everything they consume themselves, for that is the ultimate outcome of non-trade. Does it make sense not to trade with somebody simply because he lives somewhere else?
I can hardly wait until more of my favourite shops like Trader Joes and Togos spread to other regions of the country and world.
It is bewildering to me that there is so much animosity towards successful large coprorations. Organizations like Walmart -- that started as a well-run local Arkensas store -- now bring economies of scale, excellent customer service, low prices and jobs to literally millions of people around the world. We don't have to hope that our local merchant is as efficient as Sam Walton, we can have one of Sam's own stores on our street. Whether local workers labour for Joe's local food store or the local Walmart, they still have a good job. In fact, they can likely get better benefits by working for Walmart because it can negociate better deals with health insurance providers due to its size.
We sometimes forget that these big corporations are really just groups of normal people like ourselves who want to buy a little house, have a family, send their kids to good schools and maybe even go to church on Sundays. The nature of the workers doesn't change with the size of the company for which they work. Each Starbucks, for example, has an ambiance heavily influenced by the workers therein. Further, anybody can be an part-owner of such businesses and share in profits by simply buying shares of their stock. In fact, many of us own shares of Walmart indirectly through the investment holdings of our retirement savings plans.
There is often particular antipathy toward foreign companies and products made abroad. That foreigner, however, is a normal human being like the rest of us. If you met him on a train, you might even become close friends, but somehow when a product he made is anonymously labelled as being from a foreign country, it is somehow less desireable than a locally made product. Political borders are arbitrary and often ephemeral. To take a simple example, it might be far more "local" geographically for somebody in Alaska to trade with British Columbia or Yukon Territory, but those are 'foreigners' because arbitrary events in history caused Alaska to become part of the U.S. rather than Canada.
The favoritism for locally produced items is perhaps the most absurd when taken to their logical extreme. Why settle for products from your state or country as being 'sufficiently local' when you could insist on products from your town or street. How many cars or bananas are produced on your street? Personally, I would be sceptical of buying coffee or bananas produced locally here in Glasgow, Scotland.
In short, it is as arbitrary as being racist to choose products based on the proximity of their origin to your place of residence or the nationality of their producer rather than their quality or price. When such preferences for local goods become enforced by government in some form of legal protectionism, it results in inefficiency, encouraging locals to produce inefficiently what could be far mroe efficiently produced elsewhere and exchanged for products in which your region has a competitive advantage. Can you imagine what would happen to the population of Hong Kong, if the government mandated that all food consumed in Hong Kong could not be imported from outside the city?
Globalization translates to better, cheaper products, made easily available to more people. When I walk into IKEA, I can purchase products designed by a skilled foreigner and produced in economies of scale from every corner of the earth (we purchased two bowls today, identical in every way but color; one came from Portugal while the other is from Turkey). Thanks to IKEA having sufficient size, efficiency, and global production facilities, I can buy a host of things to make my life far easier or more comfortable that would simply not be available or would be prohibitively expensive if everything had to be produced in Scotland. I gleefully traded with producers in a dozen different countries during my single visit to IKEA. If those producers could only sell to their local market, we would all be the worse off for it. When two traders of any origin voluntarily come together -- even indirectly through merchants like IKEA or Starbucks -- to trade, both sides benefit, otherwise the trade would not occur.
The next time you hear demonstrations against globalization, ask yourself what those demonstrators would be wearing, driving and drinking for breakfast if they had to produce everything they consume themselves, for that is the ultimate outcome of non-trade. Does it make sense not to trade with somebody simply because he lives somewhere else?
I can hardly wait until more of my favourite shops like Trader Joes and Togos spread to other regions of the country and world.
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