Monday, March 29, 2010
Not Really About Health Care
I got the above from Wintery Knight's blog. There's much more good stuff to read there. I re-posted the video for the stupidity of Max Baucus actually stating what the right already knew, but what the left was trying to hide. The redistribution of wealth, that not-socialist intention of Barry & Co. and their blatant not-hatred of those who create wealth is again on display, admitted in public for the edification of the people. The guy sounds hammered. He had to have been to spill the beans. I wonder how Barry feels when his people speak out of turn like this.
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During the Bush years, the average income of the richest Americans more than doubled. There was no net job growth. The middle class fell further behind. The stock market went no where so people investing for retirement fell behind.
Just because a person is rich doesn't mean he has created anything.
That might be true for those who inherit or win lottos. But the creation of wealth, as opposed to the creation of anything else, is also a matter of doing something once for which continued income flows. If done properly, the system put in place can actually generate compounding profits. The creation had been done, which is why the rich can have their incomes double while all around them struggle. There's a lesson there that way too many fail to ackowledge even exists, much less try to learn, adapt and put into practice.
What would be worse, Vinny, would be to realize that your last comment was put forth as justification for taking from those wealthy people in order to make Democratic plans work. I've got news for ya. Taking away from the haves to support the yet-to-haves and have nots is NOT a plan. Any jackass can come up with that, as evidenced by the fact that Democrats always default to that tactic. Fewer people would be "deprived" of health insurance if not for leftist policies that chased away jobs and those who provided them, as well as those policies that resulted in the rising health care costs in the first place.
Jobs increased under Clinton who raised taxes. Bush cut taxes on the rich and the rich got richer.
Productivity was better under Bush. Bush entered his presidency at the start of a recession. Unemployment numbers were equal to, if not better than during Clinton. The Clinton years saw a the tech bubble which brought job growth. Also, how many gov't jobs account for the growth during the Clinton years? I'd also like to see how you tie the raising of taxes to job creation. That should be good. One other thing you fail to realize is the when Bush cut taxes, the rich ended up paying a greater share of the overall tax burden. That is, whereas the top, say, 10% of the population in terms of income were responsible for X% of total revenues to the federal coffers, lowering taxes resulted in that 10% being responsible for more than that X%. This happens because they are more productive when less of their profits are taken in taxes, which in turn generates even more tax revenues.
Bush's tax cuts weren't responsible for the lack of job growth or for the middle class falling behind. They were only half of what should have been going on, which would have been cuts in spending as well. But also, further cuts to corporate taxes would have attracted business to our shores as the cost of doing business would have fell. That would have generated more jobs, more productivity and then more income for all.
Now we'll have just the opposite, as Barry thinks he's going to punish those businesses who have taken their jobs overseas, when it was Dem tax policies that helped to chase them away (along with Dem support for unions).
Productivity is irrelevant. Even economists aren't sure what it means or how to measure it. What matters are jobs and incomes. Both went up under Clinton and down under Bush.
The rich paid a bigger share of taxes because they received a bigger share of income. I suppose it is some comfort to know that you are paying a smaller share of taxes when your income goes down, but I would much prefer to have the other problem.
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not," warned Thomas Jefferson."
"The trouble with socialism is that sooner or later you run out of other people's money."
Margret Thatcher
Vinny,
Productivity is only irrelevant if it hurts your argument. You seem to insist that raising taxes is more beneficial than lowering them. Somehow, jobs growth during the Clinton years are tied to his raising of taxes, but you don't say how (and I'd still like to know what percentage of those were gov't jobs). I'm saying that Bush's tax cuts had an effect on productivity and it is measured in terms of the rate of economic growth which was higher during his term than Clinton's.
But better than all of that, I found this apples to apples comparison that gives a better picture of events. (Note at the end where it speaks of Clinton cutting capital gains taxes)
It's also important to remember that Bush cut taxes for everyone, rich and poor alike. If I'm not mistaken, Bush's tax cut plan raised the numbers of low income people who don't pay income tax. And yes, the rich were then able to earn more money from Bush's plan so that they indeed provided more tax revenues.
So, when one considers all the facts, including an attack on a major financial center, various major hurricanes and a war on two fronts, (& don't forget that recession he "inherited"), Bush didn't do all that badly in the economic realm. Had he cut spending, things would have been even better.
Wow! An "apples to apples" comparison from a right wing think tank.
Sure. Shrub did a great job. He inherited a mild recession and left Obama with a depression.
In the wake of the financial meltdown, Thomas Sowell asked rhetorically, do facts matter?
"Fact Number One: It was liberal Democrats, led by Sen. Christopher Dodd and Congressman Barney Frank, who for years — including the present year — denied that Fannie Mae and Freddie Mac were taking big risks that could lead to a financial crisis.
"It was Sen. Dodd, Congressman Frank, and other liberal Democrats who for years refused requests from the Bush administration to set up an agency to regulate Fannie Mae and Freddie Mac.
"It was liberal Democrats, again led by Dodd and Frank, who for years pushed for Fannie Mae and Freddie Mac to go even further in promoting subprime mortgage loans, which are at the heart of today’s financial crisis.
"Alan Greenspan warned them four years ago. So did the chairman of the Council of Economic Advisers to the president. So did Bush’s secretary of the Treasury, five years ago.
"Yet, today, what are we hearing? That it was the Bush administration 'right-wing ideology' of 'de-regulation' that set the stage for the financial crisis. Do facts matter?
"We also hear that it is the free market that is to blame. But the facts show that it was the government that pressured financial institutions in general to lend to subprime borrowers, with such things as the Community Reinvestment Act and, later, threats of legal action by then Attorney General Janet Reno if the feds did not like the statistics on who was getting loans and who wasn’t.
"Is that the free market? Or do facts not matter?"
The financial sector collapsed because of (at best) the hubris of meddling Democrats, and despite the best efforts of the Bush Administration to prevent the collapse.
Vinny,
If "apples-to-apples" comparisons were available from the left-wing sources, you couldn't make ANY arguments to trash the right. It's the very same lack of integrity that has cost the left-wing MSM in recent years. It seems you would remove EVERY detail that hurts your argument, such as the fact that Dems controlled Congress for Bush's last two years and a member of that Congress was one Barack Hussein Obama. Was his 142 days of non-campaign time used to support Bush's policies, support policies counter to Bush, or did he just vote "present" all day long? He didn't inherit anything from Bush. He set his own table.
I never realized that Thomas Sowell was so dishonest. Fannie and Freddie were very late to the subprime game. The bubble was well under way before they got playing and most of the subprime lending was done by entities that were not subject to the CRA.
The decision isn't difficult, to choose between Sowell and Vinny on matters of character and intelligence.
Whoa there, Bubba. Vinny hasn't yet given cause for Dan-level smackdowns. He merely omits the info of the last paragraph which reaches back to the Community Reinvestment Act and gov't pressures that followed.
I didn't omit the last paragraph. The vast majority of the subprime lending was done by institutions that were not subject to the CRA. Moreover, the housing bubble was a worldwide phenomenon and no institution outside the United States made any loans to comply with the CRA. The CRA myth is nothing but a right wing talking point.
If you actually want to learn something about the causes of the crisis, try this post from The Big Picture.
I wouldn't argue with the guy's points, necessarily, but I am sure you like him more for the fact that his points align with what you'd like to believe. Keep in mind, they're just this dude's opinion. I find it curious that he chooses to start up in '98, right after Newt and the gang took over. I tried, without success, to find a hint of his political leanings. All in all, his "but for's" start suspiciously late.
A truly objective perspective, it seems to me, should also include "but for's" going in the other direction. That is, "but for" Fannie and Freddie being reigned in as Bush and others suggested, would it have mitigated the outcome?
Also, a commenter pointed to human greed, both by lenders and borrowers alike, as likely the true cause. No rule or reg can be enough if human greed isn't held in check, nor can the reduction or elimination of rules and regs be held responsible simply because the greedy take advantage. The greedy will do what they do.
But still, this is all a diversion from your original point, which was the suggestion that higher taxes created the job growth during the Clinton years. I'm still waiting to see how you explain this cause and effect connection.
Marshall, I don't think Vinny's comments are at all comparable to Dan's, and so my annoyance at Vinny isn't comparable, either.
Thomas Sowell wrote a book about the housing crisis (from which an adapted essay can be found here) and I do find his arguments credible. If Vinny disagrees, he can do so without calling into question Sowell's integrity, as he did above.
It's certainly true that the government has a role in ensuring a free and functioning market For instance, it should criminalize and credibly punish assault, murder, theft, and fraud -- the last one being particularly pernicious in all its many forms, from false advertising to dishonest scales to breaches of contract.
It's also true that a free market cannot guarantee against economic crises, caused either by natural disasters or (in the case of "bubbles") an overeager reaction to particularly profitable opportunities.
But government intervention BEYOND the "referee" role described above generally WORSEN crises that would have otherwise occurred in a freer market.
Even supposing that the mortgage and credit crisis had free-market causes, it's still true A) that the government limited the supply of housing in certain areas and B) that the government encouraged the banks to make loans they would not have otherwise made.
Those activities clearly (and predictably) exacerbated the situation.
No amount of boosterism for an ever expanding state changes that fact.
About greed...
"Also, a commenter pointed to human greed, both by lenders and borrowers alike, as likely the true cause. No rule or reg can be enough if human greed isn't held in check, nor can the reduction or elimination of rules and regs be held responsible simply because the greedy take advantage. The greedy will do what they do."
...Sowell also has made the point that greed is like gravity, in that it's a constant force that, itself, cannot possibly explain the rare catastrophe.
There's something like 28,000 commercial flights in the U.S. each day, or 10 million a year. If -- God forbid -- three of the same type of airliner from the same company crashed in the course of a week, gravity is what pulled them down, but surely gravity is not the culprit, because some 200,000 other flights landed safely that same week.
If a particular sector in an economy crashes spectacularly, "greed" (or individual self-interest) isn't the real culprit, because it's present everywhere and at all times.
No, the determinative cause is something else, and it seems to me that, even when the problem isn't directly caused by the unintended consequences of government intervention that seeks to game the system, what government intervention that DOES exist, generally exacerbates the problem.
After all, information is so diffuse across the market, that no top-down commands from a bureaucratic state could possibly react to changing circumstances as quickly and as efficiently as the price system.
Bubba,
You might also say that government interference cannot be the culprit because that is also present everywhere and at all times. The need to satisfy a government requirement should be added to the cost of doing business by the price system with very little disturbance.
Alan Greenspan also believed that no top down commands could be as good as decisions based on market forces. That was why he opposed regulation of the kind of credit default swaps that AIG was selling. We all know how well that worked out.
Marshall,
I don’t think that higher taxes cause higher employment. I simply point out the fact that they need not be job killers.
I am not surprised that you had trouble figuring out Ritholtz’s political leanings because I think he is very careful not to let political opinions influence his analysis. He is interested in objective reality, not supporting any political position. That is why I like him so much.
"I don’t think that higher taxes cause higher employment. I simply point out the fact that they need not be job killers."
It's more accurate to say that good ideas and tenacious entrepreneurial spirit can eventually overcome damned near any form of government inteference. How quickly that spirit and good idea can generate profits and jobs will still be adversely affected by rising taxes because money needed for optimum growth is lessened by those taxes.
As to objective reality, that remains to be seen, since I'll need time to study this dude and his opinions. One thing is certain, objective reality is not always so objective by the left. It is normally what they'd prefer to see rather than what they are actually looking at. But as to the link you offered, I'm not sure he made the case that the time frames he chose were really the best places to look for initial causes. It was you who said that the CRA was not such a major factor. I didn't see that in the link (unless I missed it, but I don't think I did). He simply starts in '98 as far as I can tell, with no real explanation for why.
Thanks for the link, Mr. Art.
Here is a post about the CRA http://www.ritholtz.com/blog/2009/06/100000-cra-challenge/
Vinny, I have literally no idea what you mean -- and so, truly with all due respect, I wonder if we're not on the same page in terms of a basic understanding of economics -- when you write, "You might also say that government interference cannot be the culprit because that is also present everywhere and at all times."
That simply isn't true, with the privacy of one's home and the isolation of uninhabited wilderness being obvious exceptions.
When I say that self-interest is present everywhere, I mean that it is at the heart of literally every decision that human beings make. Every individual human being acts out of what he perceives to be his self-interest. Even altruistic acts often involve the hope of eternal reward or at least the avoidance of feelings of guilt, but disregarding that, a person sacrifices his wants or possessions only for the people, things, and principles that HE values: it is inconceivable that a man would choose to sacrifice for something about which he is indifferent.
Even in the most intrusive and oppressive totalitarian regimes through history, self-interest is STILL more at the root of the individual's behavior than is government diktat. If that were not so, these regimes could have succeeded at their utopian schemes.
You say that government interference is "present everywhere and at all times." That's certainly not true for governments that are constitutionally limited, and it's not even true for the most controlling governments because they are STILL limited by technology and simple reality. Governments aren't omniscient.
Self-interest is everywhere -- at least in the sense of human economics -- because self-interest is an inescapable aspect of human nature. Government interference isn't a part of human nature in the same way, so I don't see how the comparison makes sense.
Vinny, you may have a good grasp on some facts of the matter (perhaps not all), you can point to blog sites that support your statism, and you can reproduce claims that seem to undermine libertarian economics...
(Those credit-default swaps appear to have been the result of prior regulation: an unintended consequence of companies and individuals acting in their own self-interest -- see above -- to get around burdensome regulations of capital requirements. It's not clear to me that the best solution for the unintended consequences of regulation is more regulation.)
...but I'm not sure you grasp the basic fundamentals of economics.
You write, "The need to satisfy a government requirement should be added to the cost of doing business by the price system with very little disturbance."
But that's a unsupportable claim that must be taken as near-religious dogma.
Take price controls, which are very easy to codify in law, which are very easy for businesses to understand and follow, and very easy for officials to enforce.
A price control that limits the upper bound (or ceiling) for a particular product is easy for a retailer to integrate into his own pricing system, but that doesn't change a thing if the supply of that product drops significantly or the demand spikes significantly: a run on the product -- a shortage -- is completely predictable and yet completely unavoidable.
The market is thus GROSSLY distorted by a single, simple price control.
The idea that government regulation does not lead to massive distortions of the price system is not the result of a careful thinking about economics.
Bubba,
There has never been any such thing as a truly free market. There has always been regulation. There has always been government interference. There may not be government interference on the surface of the moon, but there are no markets there either. So if the fact that something is always present proves that it cannot be the culprit, then we would have to conclude that government interference couldn't be the problem.
If the government requires a bank to make a certain number of unprofitable loans, then greed will induce the bank to price its other loans to offset the cost of the unprofitable loans. If it cannot do so, it might be forced out of business. However, greed would never induce the bank to make huge quantities of such unprofitable loans. That is why I think the CRA argument is a crock. It depends on the absurd notion that the banks went wild making the type of loans which it is claimed they only made because they were forced to do so.
Vinny:
"There may not be government interference on the surface of the moon, but there are no markets there either."
A group of men shipwrecked on an island or whose plane crashed on a remote mountain have been freed from the constraints of government regulation, but not from their own human nature, including their own self-interest. And, so long as there are two people willing to trade goods or services, a market exists even without the benefit of a government.
Take the example of the shipwreck: a good tree-climber decides to bring down more coconuts than he needs, and a man who is adept with a makeshift harpoon decides to catch more fish than he needs; one trades his excess coconuts for the other's excess fish, and -- voila -- you have a market in the absence of a government.
I'm willing to concede that, on the large scale, we've never seen a market that is truly free from government regulation -- that no government has ever limited itself to just enforcing laws against theft, fruad, etc. -- but it's still true that these regulations grossly distort the semi-regulated market as it exists, away from what would have occurred under truly free conditions.
And it's still not the case that, in terms of human affairs, government regulation is as ubiquitous as self interest. You're talking out of your ass on this subject, and while you may make points that would otherwise deserve a response, I hardly see the point if you really do fail to have such a basic grasp of economics.
On the subject of the CRA, the argument isn't that this one bit of government interference alone is what caused the financial crisis, but is one of several regulatory causes: by itself, it may have been insufficient to encourage banks to make a huge number of risky loans, but it wasn't the only government interference in-play. There's also the government's implicit guarantee of those loans through government-sponsored enterprises like Freddie and Fannie: those groups' were willing to buy those risky mortgages because they assumed the federal government protected them from risk, and banks made those risky mortgages knowing that Freddie and Fannie were more than willing to take them of their hands at a good price.
The CRA was a stick to make a certain number of bad loans; Freddie and Fannie provided numerous carrots to induce the bank to "go wild."
Bankers' greed is a constant feature of the economy, as is the greed of every other actor in the market. That greed is kept in check by the market's system of risks and rewards, and things generally go spectacularly haywire **ONLY** when the government short-circuits that system -- e.g., by socializing risk, as it did through Fannie and Freddie.
Bubba,
Would you have us get rid of corporations? Those are the product of government regulations.
Bubba,
To elaborate on my last question. A huge amount of risk socialization occurs in the corporate form of doing business which limits the risks of ownership to the amount invested. Back when all the Wall Street investment banks were organized as partnerships, they never would have engaged in the kind of shenanigans they did because the partners would have been liable for losses in excess of invested capital. With a corporation, liability is limited to the value of the shares owned and any losses exceeding that fall upon creditors first and then society in general. It was the skewed incentives caused by the corporate business form that allowed AIG to go crazy.
Vinny, that's actually a very good question, and I oppose the notion of a limited liability corporation (at least in its current widespread usage) because it **IS** an instance of government regulation that grossly skews the natural (i.e., free-market) order of risks and rewards. It gives certain companies -- and only certain companies -- the opportunity to make an unlimited amount of profit ONLY at the risk of the total amount of investment made by its stockholders.
I believe the original idea was for the state to support the rare venture with an LLC charter where A) the risk was so great that no one attempted it and B) the attempt was in the material best interests of the state -- as I believe was the case with the British East India Company, whose work was invaluable to the British Empire. Because of corporatism AND imperialism, there are good arguments against LLC's even in that rare case, but I believe the LLC should be, AT THE ABSOLUTE MOST, used only for these rare exceptions. It's far too common an entity now, and it encourages too much reckless behavior.
There are a few things I would add to qualify this answer, though:
1) I'm not a philosophical absolutist when it comes to government actions that affect risk-versus-reward. I believe that aid to the needy should be provided through private institutions as much as possible, but when it's not possible, the government can (and sometimes should) help those in need: it should do so as an act of CHARITY not so-called justice, and primarily through local governments. Limited aid for the unemployed, for instance, reduces the risk of not having work -- and the opportunities abound for corruption, abuse, and the needless expansion of the welfare state -- but this is more readily justified than a preponderance of LLC's.
2) I'm opposed to LLC's because they grossly diminish the risks of doing business, but I'm also opposed to the flip-side, to legal mechanisms that grossly MULTIPLY the risks of doing business. The most obvious mechanism is the ludicrous and unjust notion of punitive damages, of imposing fines on individuals or groups far beyond the harm of their malicious or negligent actions, simply because they can afford it. This is a gross violation of the fundamental legal principle of lex talionis, the law of having a punishment that is identical to the offense, the principle of proportional punishment summed up in the Jewish doctrine of "eye for an eye."
(It is my belief that Christ didn't oppose this principle but simply forbade its personal application through vendettas: He came to fulfill the law.)
It could be said that punitive damages and LLC's balance each other out, but the former isn't limited to being applied to the latter. Even if it were, two wrongs don't make a right, and I think society would be better off if both were eliminated.
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3) Just because I oppose both LLC's and punitive damages, it doesn't mean that I have any clue how they ought to be dismantled. I imagine getting rid of both would be painful (though worthwhile), I'm not sure of what would be the least painful path, and I doubt that any path is close to being politically viable at the moment.
4) Even if dismantling LLC's were currently possible politically, it's not my highest priority given the reality of so many radical collectivists at the levers of political power.
In 1964, William F. Buckley rightly noted, "If our society seriously wondered whether or not to denationalize the lighthouses, it would not wonder at all whether to nationalize the medical profession."
That's true, but since the majority party in the federal government is moving to nationalize medicine, now is hardly the time to argue about denationalizing lighthouses -- or addressing the moral hazard presented by LLC's. The forces of statism must be repelled from their current efforts to advance before one can think about pushing them back, and "rollback" of statism is such a gargantuan project that dismantling LLC's isn't going to be on the top of the to-do list for some time.
We clearly disagree on an awful lot, Vinny, but never let it be said that I haven't thought about the issues.
Bubba,
I certainly give you credit for wrestling with the fact that limited liability companies are a product of government interference with the markets. You are the first person that I have raised that issue with who had even thought about it.
Let me know when you come up with a plan for dismantling, because I think the last few years have shown that pulling apart regulation can have just as many unintended consequences as imposing it. Alan Greenspan didn’t believe in regulating credit default swaps or sub-prime mortgages because he thought that banks and their counter-parties were best positioned to evaluate credit risks. Glass-Steagal was repealed in order to free the banks from burdensome regulation. In 2004, the SEC eased net capital requirements on investment banks because their executives were thought to be in the best position to determine how much leverage was appropriate. Unfortunately the executives at the banks and their counter-parties were all compensated based on short term profits while their companies assumed long term liabilities which eventually brought down the entire system. Every one of those regulatory decisions was driven by a free market ideology and every one had disastrous consequences because of the skewed incentives inherent in limited liability companies.
So I don’t think that there is any evidence that making incremental changes based on free market ideology is a good idea. Moreover, since there has never been a market that was truly free of government interference except perhaps in the most primitive societies, I don’t see any basis for concluding that wholesale changes in that direction would produce desirable results. Even in primitive societies, I am not sure how well market principles worked. For example, Native American tribes often traded goods with one another. On the other hand, they often pursued their self interests by making war upon one another or stealing from one another.
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