I am half way finished with Jon Meacham's recent book, American Lion, which is a biography and analysis of Andrew Jackson's life and legacy. Andrew Jackson is fascinating President and he does not receive attention that is proportional to his importance to our Body Politic. His rise to the presidency alone is fascinating. He grew up in relative poverty yet he managed to get a surprisingly good education through country schools and through the Presbyterian church, where he learned his gift for oratory. Although he read Plutarch, quoted Julius Caesar and knew a good deal of "the Dead Languages" he was not as formally educated as the other 19th Century Presidents. John Q. Adams and other rivals never let him or the public forget that, despite the fact that Jackson outsmarted them all, ultimately.
His time in office is interesting all on its own merits but what makes his story so compelling is the impact that he had, for better or for worse, on this young and still very malleable Republic. This Frontiersman/Lawyer/General/Member of the Provincial Gentry was the American version of a tribune of the Plebs, the office in the old Roman Republic that was created ostensibly to protect the interest of the common man in the face of the Aristocratic Senate. Andrew Jackson was the first strong president, he was the first to believe that he, being the closest thing to a ntionally elected official should make the White House just as important as Capitol Hill.
The proceeding fifty years set the stage for his pivotal and oft embattled eight years as President. The Constitution of the United States was meant to curtail the force of the popular will. In the late 18th Century most states required that one be white, male, protestant and own property in order to vote. While the latter two restrictions actually began to disappear relatively quickly, it did not matter very much because almost everyone in Washington, save for members of the House were indirectly elected. State legislatures elected the independent electoral college members and they elected the Senators and as is the case today, Federal judges were appointed and confirmed all by a President and Senate who were all unelected.
When Jackson comes to Washington he came with a belief that since he was only official elected, albeit indirectly, on national level that he must be the voice of the common man and viewed the relationship between the Congress and the President as adversarial. Those in the Senate considered him a tyrant and usurper, who wanted to make himself King. Jackson asserted that the real tyranny was already established, a Central Government that was essentially unelected. This conflict of ideas illustrated to me what I already knew about politics, with respect to policy, there is no perfect path to take, no silver bullet, there are only trade offs and hopefully government will at least maximize what it can do given the constraints that it faces.
This story of the Battle between President Jackson and the elite Senate, Courts and Financiers and there attempt at establishing a Central Bank, among other things, demonstrates that when it comes to questions of procedure, there is no perfect answer either. Just as there are policy tradeoffs, there are tradeoffs with regard to how power is shared, how it is checked, how it can be exercised and who elected and/or appoints and confirms whom.
Once again the book is well written and the story is compelling but for me president Jackson's time in office and his attempts, successful in many respects, to change the focus of power across the country and within Washington and the fact that his supporters and detractors both claimed that they wanted as robust as possible a check as possible on tyranny shows that even when we agree on our goals, structuring a political system to achieve a particular end faces tradeoffs and the decisions made in the face of those tradeoffs is what makes politics so fascinating, particularly politics as they unfolded during the Age of Jackson.
Wednesday, September 9, 2009
A House of Horrors
Recently, I read a list of the most stressful cities in America and a big part of determining the rankings was how much property values have declined in the last 12 months. This fact, the fact that a decrease in home prices cases widespread stress proved to be the final straw, the final nudge towards an epiphany.
A combination of financial practices and government subsides and other incentives have created a situation where any decline in home prices causes stress and misery on a large scale. This is why, I fear that this current downturn will not be unique and will recur several times until government and private actors move away from the mindset that homes are like commodities in which individuals should speculate in the short run. Rising assets prices are generally a good thing, in the case of real estate, it means that a community is growing and becoming more vibrant and for that reason that home buying was, in previous generations, seen as a very safe and passive long term investment. Home prices would rise and fall year fater year and a decline in prices for few years was not a serious matter unless you absolutely had to sell during those years.
Unfortunately government subsidies, Freedie and Fannie and willing financial firms, loan officers and home owners and perspective home owners allowed much of the economy to be partially if not completely dependent on not only yearly increases in home prices but double digit appreciation and without it, well without it, we have seen the devastation it has caused.
Policy makers need to change the incentives to make the US economy less vulnerable and subject to deep recessions whenever real estate prices fall. Prices need to fall to clear the market and from a social stand point, to make it possible for a new generation of married couples and young families to get homes and to do so with mortgages that do not depend on refinancing every few years.
Homeowners have a large amount of political power and want a restoration of the status quo but for the sake of the economy, the sake of the future and the for the sake of stability we need to change the incentives that caused the distortions that caused the malinvestment, which created all of the jobs and fortunes which simply cannot withstand the inevitable declines in real estate prices. Not having your job, the life of your community the viability of your mortgage bein gat the whim of yearly fluctutions in home prices would make communities across America much less stressed.
A combination of financial practices and government subsides and other incentives have created a situation where any decline in home prices causes stress and misery on a large scale. This is why, I fear that this current downturn will not be unique and will recur several times until government and private actors move away from the mindset that homes are like commodities in which individuals should speculate in the short run. Rising assets prices are generally a good thing, in the case of real estate, it means that a community is growing and becoming more vibrant and for that reason that home buying was, in previous generations, seen as a very safe and passive long term investment. Home prices would rise and fall year fater year and a decline in prices for few years was not a serious matter unless you absolutely had to sell during those years.
Unfortunately government subsidies, Freedie and Fannie and willing financial firms, loan officers and home owners and perspective home owners allowed much of the economy to be partially if not completely dependent on not only yearly increases in home prices but double digit appreciation and without it, well without it, we have seen the devastation it has caused.
Policy makers need to change the incentives to make the US economy less vulnerable and subject to deep recessions whenever real estate prices fall. Prices need to fall to clear the market and from a social stand point, to make it possible for a new generation of married couples and young families to get homes and to do so with mortgages that do not depend on refinancing every few years.
Homeowners have a large amount of political power and want a restoration of the status quo but for the sake of the economy, the sake of the future and the for the sake of stability we need to change the incentives that caused the distortions that caused the malinvestment, which created all of the jobs and fortunes which simply cannot withstand the inevitable declines in real estate prices. Not having your job, the life of your community the viability of your mortgage bein gat the whim of yearly fluctutions in home prices would make communities across America much less stressed.
Wednesday, August 19, 2009
Do Not Use The Force
One of the best books I have ever read and definitely the most important book that I read about political philosophy was James L. Payne's, A History of Force. The book is a comprehensive examination of the use of force in human affairs and the book argues that the broad trends of history show that application of force was and is declining. What makes the go beyond being an interesting historical read is the how his later chapters show us that we are active participants and history and we have an obligation to work to reduce coercion or threats of coercion as legitimate means of conducting our affairs.
The first two thirds of the books cover practices like human sacrifice, slavery, political murder, imperialism (which is widely supported by the conquering society) and genocide. These are practices that have died out; all but have died out; are on the decline and if they still do exist, they exist outside of the developed world.
Near the end of the book he talks about taxation and that unlike something like slavery or human sacrifice, practices, which all of us would condemn, taxation is a force based practice that is widely accepted in our society. Though most of us complain about how taxation is carried out, almost no one condemns taxation itself as immoral. Essentially, we are like those who lived in times when slavery or human sacrifice was still practiced and we, like those in the past, generally excepted this common and legitimate application of force, taxation, how many in past centuries would have considered slavery or human sacrifice an inescapable fact of life, unpleasant but indispensable.
In many cases, we can look back smugly at past generations and their cruelty and/or ignorance. However, we will be seen in the same light by future generations. We live out our daily lives in a world where government uses the threat of imprisonment to make people give them a share of their wealth, regulatory agencies can usurp property rights, our military engages in various "police actions" and we have a national policy that considers the possession of many types of narcotics to be not just criminal but so egregious that in justifies a "war" on those narcotics.
I wonder how future generations will view us, I fear it will be unfavorable.
The first two thirds of the books cover practices like human sacrifice, slavery, political murder, imperialism (which is widely supported by the conquering society) and genocide. These are practices that have died out; all but have died out; are on the decline and if they still do exist, they exist outside of the developed world.
Near the end of the book he talks about taxation and that unlike something like slavery or human sacrifice, practices, which all of us would condemn, taxation is a force based practice that is widely accepted in our society. Though most of us complain about how taxation is carried out, almost no one condemns taxation itself as immoral. Essentially, we are like those who lived in times when slavery or human sacrifice was still practiced and we, like those in the past, generally excepted this common and legitimate application of force, taxation, how many in past centuries would have considered slavery or human sacrifice an inescapable fact of life, unpleasant but indispensable.
In many cases, we can look back smugly at past generations and their cruelty and/or ignorance. However, we will be seen in the same light by future generations. We live out our daily lives in a world where government uses the threat of imprisonment to make people give them a share of their wealth, regulatory agencies can usurp property rights, our military engages in various "police actions" and we have a national policy that considers the possession of many types of narcotics to be not just criminal but so egregious that in justifies a "war" on those narcotics.
I wonder how future generations will view us, I fear it will be unfavorable.
Monday, July 6, 2009
Crap and Trade
While most of America had and has its gaze fixed on the late King of Pop, a bill has been passed in Congress that will make Americans into paupers. The Cap and Trade Bill is the evil twin of the terrible enough Stimulus Bill. The speed and severity with which President Obama is imposing his brand of big city, spoils style politics is astonishing. It is understood my many that politics is going to contain elements of quid pro quo, so it is not stunning that President Obama is giving a degree of government largess to those who gave him votes, campaign funds and those with whom he agrees in an ideological sense. What is so appalling is the degree to which he is doing so and the cost entailed therein.
On the campaign trail then candidate Obama said that "we cannot afford four more years of the same." In many ways he was right but in a fiscal sense it is his style of governing that is undeniably unaffordable. The problem is that he runs things like the mayor of big city would but when this is done on a Federal level it is devastating. Mayors and other local officials can impose a tax of penny or so on every dollar of sales in their city and impose minimum wages and other things that do hurt growth and slow the level of wealth creation but when it comes to cities, their jurisdiction is relatively easy to escape. With national boundaries it is not the case. When Los Angeles fleeced and harassed hotels, the hotel moved to Burbank, when San Francisco imposes a huge sales tax you can shop in Oakland or Marin County, when a city or county does something ill advised it is easy to dodge its bad effects. With President Obama being the Mayor of the US, we have no where else to go and as he gets his way, policy wise, the entire county will start to have the problems usually confined to big cities.
Every single domestic policy initiated by the President is something that makes the cost of living higher or makes something scarcer, in short, he is pulling down standards of living. This is not confined to taxes either,which will clearly not be confined to the "rich" as it is turning out, he is making the cost of consumer credit, housing, cars, electricity, gasoline and all products, whose production costs are based on them, increase. His saving grace is that he has not yet moved on his anti-trade rhetoric but if he does that will make the cost of everything become even greater because imported imported raw materials and other resources will all be taxed or restricted with quotas. To complete the trifecta, he is not making the US a place that is good for investment and the future growth that it facilitates. His illegal and arbitrary wiping out of the Chrysler bond holders shows his disregard for the rule of law and property rights and their direct connections to enticing others to lend money, borrow money, innovate, take risk and grow an economy.
Directly and and indirectly, this administration is firmly on pace to be the most costly administration in history. Some say that he inherited a bad economy and the bailouts from President Bush. That is true and that is why Obama's not turning around the economy and restoring full employment within six months is not something for which I have criticized the president. He inherited a lot of malinvestment and a business cycle in a trough. What matters how he responds and he is compounding the errors of the past administration, imposing policies to prolong and intensify the recession and worst of all, he is placing burdens on our economy that will lower our standards of living that future economic boom times will be as miserable as this current economic morass.
On the campaign trail then candidate Obama said that "we cannot afford four more years of the same." In many ways he was right but in a fiscal sense it is his style of governing that is undeniably unaffordable. The problem is that he runs things like the mayor of big city would but when this is done on a Federal level it is devastating. Mayors and other local officials can impose a tax of penny or so on every dollar of sales in their city and impose minimum wages and other things that do hurt growth and slow the level of wealth creation but when it comes to cities, their jurisdiction is relatively easy to escape. With national boundaries it is not the case. When Los Angeles fleeced and harassed hotels, the hotel moved to Burbank, when San Francisco imposes a huge sales tax you can shop in Oakland or Marin County, when a city or county does something ill advised it is easy to dodge its bad effects. With President Obama being the Mayor of the US, we have no where else to go and as he gets his way, policy wise, the entire county will start to have the problems usually confined to big cities.
Every single domestic policy initiated by the President is something that makes the cost of living higher or makes something scarcer, in short, he is pulling down standards of living. This is not confined to taxes either,which will clearly not be confined to the "rich" as it is turning out, he is making the cost of consumer credit, housing, cars, electricity, gasoline and all products, whose production costs are based on them, increase. His saving grace is that he has not yet moved on his anti-trade rhetoric but if he does that will make the cost of everything become even greater because imported imported raw materials and other resources will all be taxed or restricted with quotas. To complete the trifecta, he is not making the US a place that is good for investment and the future growth that it facilitates. His illegal and arbitrary wiping out of the Chrysler bond holders shows his disregard for the rule of law and property rights and their direct connections to enticing others to lend money, borrow money, innovate, take risk and grow an economy.
Directly and and indirectly, this administration is firmly on pace to be the most costly administration in history. Some say that he inherited a bad economy and the bailouts from President Bush. That is true and that is why Obama's not turning around the economy and restoring full employment within six months is not something for which I have criticized the president. He inherited a lot of malinvestment and a business cycle in a trough. What matters how he responds and he is compounding the errors of the past administration, imposing policies to prolong and intensify the recession and worst of all, he is placing burdens on our economy that will lower our standards of living that future economic boom times will be as miserable as this current economic morass.
Sunday, June 7, 2009
A Four Pack of Fallacies
In a previous post I mentioned how the media fixate on the stock market when they talk about the economy. This is especially true about non financial news, especially the local day time news, where the dumb girl, who does the weather, will squeal with glee if the DOW is up or make a sad sound as if a kitten just got killed if it drops a bit. It does not get much better on most financial news shows, who spend far too much time talking a about stock picks and give very little time the other markets, especially the bonds markets which make up a substantial majority of the flow of capital in the world.
The fallacies that the stock market is the economy or that the stock market is represents merely just the financial sector of capital markets is incorrect but it fails to make the top four Economic fallacies, which have largely become "common knowledge" among many people, who vote and who also try to make some insightful and profound comment about the economy when they would have been better off saying nothing since they have as good of a chance as the typical American father saying something really profound about Anime. In no particular order here are the four most common misconception about economics, which are largely accepted and repeated.
The first is the zero-sum fallacy. Far too many people assume that there is constantly fixed amount of wealth and any time someone becomes rich they did so by making others poor. It is possible for someone to become rich and cause some else poverty as a result but that is most common in societies where force is common. In the Middle Ages, a feudal lord was rich because he took from his serfs. In the Roman era, the tax collectors, who are mentioned frequently in the New Testament, got rich by forcibly taking people's income on behalf of Rome and keeping some for himself. In the present day, many Third World heads of state are significantly richer than are First World heads of state and those rulers make their billions by extorting money and/or siphoning it from the treasury and nationalized industries. In other cases fraud is used to get rich directly at someone else's expense, as is, most notably, the case with Bernie Madoff.
These are the exception in today's society, most people who are rich found a way to serve their fellow man, to paraphrase Walt E. William. The rich in First World Countries tend to do a very good job of producing what others want and as result most rich people earned it or inherited wealth that was earned through voluntary transactions and inadvertently making life a little less painful and uncomfortable for far more people than the succesful entrepreneur will ever.
Despite the fact that the world population has been growing exponentially and standards of living have improved nearly every were in that same period, most people believe that poverty in the West and the dire and wide spread poverty is the direct result of poverty among wealthier individuals and the generally, relative affluence of the West as a whole. While it is true that now wealthy nations colonized many currently poor nations, the causality is misplaced. European nations colonized and exploited an already materially poor African continent (something that Europe has been a few centuries earlier) but the colonization was the result of prosperity and not the other way around and the poverty in Sub Saharan Africa was already there and much of the trouble in Africa that is or was caused by Europeans is the legacy of arbitrarily drawn borders, which have made it more difficult for already poor societies to emerge from poverty. In addition, countries that did not engage in colonization on any large scale, such as Switzerland, the United States and Sweden and Norway have very high standards of living and aggressive colonizers like Portugal and Russia has fairly low standards of living in comparison.
The most popular claim that "supports the zero sum fallacy is that "the rich get richer and the poor get poorer." A more accurate description should be that the rich get richer at a faster pace than do the poor in many cases." The gap may grow but the standards of living for both groups increase. This still is not necessarily a situation that is perfectly justifiable, this does not mean that some redistribution of income can be appropriate but it is dishonest to say that the poor get rich in an absolute sense and it is certainly misleading to say or imply that those gains come directly at the expense of the supposed losses for the poor.
The next fallacy is the consumption fallacy. This is not a technical term,it is moreso a personal observation of how Americans talk about our nation's consumption patterns. There is never more fertile grounds for someone to take fact he or she heard on the news and attempt to make it into a deep and philosophical observation about economics, morality and "consumerism." The most frequently touted facts that America's economy, "is consumer driven" or that "two thirds" or "70% of the US Economy is based on consumer spending." This sound terrible, the facts seem to bare out that Americans, unlike Europeans and Japanese spend "too much" especially when the net national savings rate was negative. This technically true but the Devil or I suppose in this case, the angels are in the details.
In virtually every economy, consumption is the biggest part of Y, or national income. Then there is usually investment (this is not investment as most people think of it, it does not mean buying financial products like stocks and bonds, it means any forgone consumption that is meant to mean more production in the future, an example would be using wood to build the frames of a house instead making that same wood into disposable chop sticks), government spending (which can be consumption or investment but is mostly consumption in most cases) and then net exports (the amount that we export minus the amount of goods that we import). This commonly written by the equation Y= C+I+G+Nx and is standard in ant intro to mach economics course.
While the 70% statistic is true, it is almost always stated and then repeated without any context. What are the numbers for other countries, it turns out that while Western European and Japanese do spend less and save more the differences are not huge. Other First World Countries may have C somewhere at 60% to 70% and usually it is closer to 70% and if it is lower than 60% then usually G, Goverment spending is high, which basically means consumption is being done on the people's behalf through the state. The great thing about an economy is that a society can consume a large majority of the fruits of its labor and only have to set aside a portion of its resources year after year to be able to have more to consume and to save in the future. Many Asian economies have been lauded for their high savings rates but rarely does it exceed 20% of national income which means that most of the nation's income is consumed, consumed by government or used to buy imports and when 10% to 20% of the resources in a time period are set aside, it is plenty to create steady growth over time.
The idea that Americans are short sighted and piggish by hold a tincture of truth but not as much as many would like to believe. This blogger has heard far too many people act like our level of consumption is obscene or even evil when it reality it is unsustainable high and needs to be reduced, the magnitude by which it must be reduced is not very much. It usually means buying large consumer electronic and cars a little less frequently, driving a little less, buying a few less convenience food item or something that would bring the number down to about 67% or 68%. The American way of life does not need to go, it needs to slim down a tad and see a slight rise in the national savings rate to the point that it is slightly above zero. These numbers are ideal for the next generation or so, as productivity and national income rise, it is likely that eventually 70% or greater levels of consumption will be sustainable. There is no morality attached to the how big or small the nations C is in the national income equation.
The third fallacy is on trade, international trade specifically. International trade is viewed by many Americans with deep suspicion in many cases. Perhaps international trade is so misunderstood because the misunderstanding over it is driven by zero-sum thinking and by a misplaced martial attitude. Trade is far too often seen as a "war" with "winners" and "losers" and that large economies are "economic super powers." It is true that certain firms to lose and other win but that competition means that consumers in both countries win by paying lower prices and getting better quality.
More competition, which is largely based on the degree of consumer choice or alternatives available to consumers, means that innovations that allow producers to produce a good at a lower cost have to pass on the bulk lower cost to consumers in the form of lower prices and very little of the reduced cost becomes extra profits. In addition to competition international trade allows for higher and higher degrees of specialization, producers in various countries can focus more resources on doing what they do best, selling the surplus and buying from someone, some where else, who produces what he produces best.
International trade increases competition as well as specialization. While international trade is controversial and is often times subject to restrictions, in the form of tariffs and quotas. Luckily, there are little or no restrictions on trade between producers and consumers in other polities. I am not restricted to buying from producers from Moorpark or Ventura County or California or the Western United States.
Almost everyone can understand that their quality of life would be very low if they could only make what they and their family unit produced, which would mean subsistence farming with stone tools at best and hunting and gathering would be more likely. Life would indeed be nasty, brutish and short for that family unit of band of people from a single household. Life would get better if the economic unit was a band of a few hundred and even better if it were a few thousand and better yet if it were a million. Everyone can agree that being economically solitary would be miserable so every agrees that trade is good so the argument is really over the ideal extent of the trading area. It is hard to believe that quality of life will increase as the population of the trade area expands up to a point and than goes negative as opponents of international trade would claim.
The biggest complaints are that American firms cannot "compete" with low wage nations who can produce the same thing at a lower cost. That is exactly why would should being trading, if a country makes something for a lower cost, be it lower cost of labor, less onerous regulations, being closer to important but costly to transport raw materials or because weather and soil or water conditions making farming or fishing for a particular good less costly is exactly why we should trade. When nations use trade restrictions or subsidies to support these otherwise uncompetitive firms they cost their people by encouraging inefficiency and that inefficiency can add up and if it is pervasive enough in the economy, means that people will be poor or at least less rich than they otherwise would be.
Another complaint is that trade must be done with "equal rules" or wit ha level playing field. Therefore, if a firm of sector of one nation's economy is subsidized or protected by import tariff, the US must respond in kind with equal tariffs or subsidizes or impose bans or quotas or very high subsidies on countries that subsidize. While Government subsidies and tariff are unwise policies for any government, the error is only compounded when another country responds with equal stupidity.
It would be best if American producers do not have to face import tariffs on their goods but we do help ourselves by imposing tariffs on other countries' exports because tariffs are simply a tax on consumers, a tax in the pecuniary sense, the consumer has to fork over extra money and it is an even greater tax in terms of productive inefficiency. Trade sanctions are used to punish countries that sufficiently upset the governments of other countries. It is strange that so many want us to use import tariffs and essentially impose sanctions on ourselves.
The only criticism that do carry validity are that certain countries have lower environmental standards than do ours and that out national security is imperiled by moving certain types of heavy manufacturing over seas or buying foreign made steel and other manufactured goods. The national security argument has strong theoretical weight, nations have to have a productive industrial base to fight and win a total war like the Second and First World Wars. Luckily, for America safety and security, the US manufactures a great deal. IN 2006, the US manufactured more goods, in terms of their inflation adjusted market value, than in any other year in History. It was simply done with less people, because of better technology, the same is true for our security and our food supply, we produce lots of food and do so with far less workers than in years past.
The environmental angle of free trade is one that would most justify tariffs, not to insulate US companies but to make foreign producers aware of the total costs that their pollution represents. In the US, producers have to adhere to tougher environmental standards than producers in other countries and the economic case for a pollution tariff would be justifiable. I would still be doubtful about how well such a tariffs, although resting on rock solid economic ground, would be implemented without being severely tainted by politics, with unprofitable and inefficient American producers claiming that every competitor is gross polluter and demanding tariffs be placed on them. Second, it is hard, even with no distortion from politics, to institute a perfect or even very good Pigouvian tax because of difficultly in precisely quantifying the damage and attaching a dollar amount to it.
Trade fundamentally works, every day we trade, the fact that we can have electricity, computers, running water, medicine and everything beyond what we could scrounge up for ourselves in the wilderness. The relationship between the general welafre and the size of the trading area/community has been clearly positive, the bigger the better. Incidentally, the same objections do arise from inter county or interstate trading, most of the complaints are from producers who do not the comparative advantage but the population as whole becomes wealthier with more trade. There is nothing in economic theory or historical reality to show that the relationship between well being ad trade becomes negative as soon as buyers and sellers transact across international boundaries.
The fourth and final error in economic reasoning is what Claude Frédéric Bastiat called :the see and the unseen." When making any law, one creates a variety of effects, long term and short term, concentrated and dispersed and in many cases benefits that are visible and harm that is so widely dispersed, its effects are hard to see. It is a difficult question whether the zero-sum fallacy or the seen and unseen fallacy has caused the most damage through bad economic policies as well many violent or at least acrimonious exchanges between different people within a society. It is fair to say both have been very destructive in several ways.
The problems with the seen and unseen are myriad but there are a few that are most noteworthy. The dispersion of cost and the concentration of benefits, the way it gains support for price controls and trade restrictions and subsidizes, the way that it can cause people perceive, even after the fact, a bad and destructive policy as a success and finally the way it can cause resentment and destabilize a society and state.
The first major problem, the dispersion of the costs and the concentration of the benefits makes for a huge drain on the public treasury which currently appears to be the case for the Federal Government and already is for California's government. When gains or losses of a policy are concentrated on a small group and the gains and losses are dispersed amongst a large group, in many cases the entire population, the small group with much to loss or gain will work hard and be focused and will lobby and cajole or strong arm or blackmail policy makers to make a rule that gives them very concentrated and visible benefits and the policy will disperse the cost across the whole population.
An example is when tax dollars are used to build expand a road that has very little traffic and the cost is 10 cents in taxes for every citizen of the state, the unions and companies that build the road will fight for it so they can make a living from this project and the average tax payer will not know about, let alone protest against the building of a road to no where that will cost them a measly 10 cents. Say the social value to every citizen for this road expansion is 5 cents per person, the cost are twice the benefits but the numbers are very small for the public. Unfortunately, California has done these things thousand upon thousand of time every years and the dimes all add up and the Federal Government is now trying to match California in its alacrity in shoveling money down a giant hole and despite all of its problems is supported by many because almost everyone is, in some capacity, part a group that can enjoy concentrated benefits and disperse the costs widely.
These seen and unseen problem is a reason for price controls such as price caps on things like gasoline or price floors on farm products or minimum wage legislation. The farmer who who stays in business is easy to see and the extra pennies paid on every product in the store is harder to see. Minimum wage will improve the lot of some workers but will cost other workers their jobs and cause less hiring for low skilled workers.
Saving GM and Chrysler at the tax payers' expense and changing bankruptcy law, ex post, to hose the bondholders is showing and will show that the there are costs to the tax payer and to all firms, especially those with large union partners making up that firm's staff, that are finding it harder to get low interest secured debt and those costs will be further dispersed in the jobs never created.
An import tariff will also keep an inefficient firm alive and preserve some jobs but because of less competition and higher costs of production, the price the items produced by that protected industry increases and the damage can be even greater if that good, that is created by a protected industry. The Best example of tariffs having very large but dispersed costs was when President Bush (the so called free trade, pro market, pro capitalism, laissez-faire president) imposed large import tariffs on foreign Steal. Naturally, the price of steal increased in the US. With steal being an input in a myriad goods, production costs of those goods rose and it cost the consumer more, destroyed more jobs than it perserved and would have prevented more jobs from being created because makin ganythin gwit hsteal in it would be less profitable so firms tend to cale back production because the profit maximizing profit point is almost always lower when the cost of an input goes up (the tariff was repealed in 2004 due to tremendous political pressure from the EU, which threatended relatitory tariffs on goods largely made in Florida, Pennsylvania and Ohio, which were all crucial swing states in that year's Presidential election).
To make matters worse, when a given policy is able to deffer and disperse cost and make the benefits visible and focused on a small group, its failure verall, can be interpreted as success. The collective effect of these things is again, very real and damaging but that is the sum of many bad policies. This blogger had over heard many conversations where someone will simultaneously say how "you can't get much value from your dollars nowadays" but than wants government to protect "our" businesses from foreigners who are "winning the trade war." Not only does the see and unseen disperse and efere costs and cover up for polciies with benefits tha tar aefraction of their costs, people often times beg for more.
Another very bad and in his case tragic result of the see nand unseen fallacy is the fact that certain groups who make valuable contributions are maligned or scapegoated by peopel who do not understand the economic role of these productive citizens. The most frequent targets of the misunderstanding, rage and in many cases violence, is the middle man. In almost every culture and time in history, the middle man has been maligned. Until only the last few decades or centuries, when peoep lin the Wrst began to obain more educatio nand knowledge of economic and trade did the mecrhant be seen as little more than a parasite, who needlessly made life difficult by charging unacceptably high prices. Furthermore, in most pre industrial societies, the overwhelming portion of the population were farmers and they equated work with physical toil. The sight of some in a clean shirt, doing no work in the fields was seen some one who did not create any wealt hand simply lived by sharp practice against the honest farmer or petty tradesman.
The economic role of middle men is obvious, durther more, middle men almost never surperfluos, retailing is very competitive, even a giant like Wal Mart has very thin profit margins and the low cost of starting up a store makes entry much easier than starting a large farm, plantation, factory or the of toil road, railroad or canal. It usually takes thirft, sobriety, honestly, reliability and hard work to even make an sort of decent income. As a result, there is almost always just enough layers of middlemen and no more than is needed to efficiently get the goods from producers to the final consumers, the middle man, from the standpoint of someone who is educated in economics, in history or is generally educated can undesrtand this. Unfortunately many farmers in centuries past or in desperately poor regions cannot and do not understand this. In the lon grun and eve in the not so long run, there are no unnecesarry middle men at a given times and his profits are very meagre relative to the vulomn of business that he conducts.
This is seems very easy to understand to a modern day reader (although there are still, at times misundertsandin gand criticisms of middle men but rarely is it close to the antagonistic and at times violent inetractions between the middleman or merchant his agrarian customer, the peasant). The peasant simply saw the merchant as rearranging goods and making his living from being lazy and clever at best and practicing some form of black magic at worse. The level of suspicion is heightened because very often, the middle man, the merchant, is of a different religious or ethnic group.
To those of us from a European background, the archetype of this middle man minority is a Jew. They were barred from other occupations, most notably farming, so they naturally lived in cities or towns and worked in the few trades in citied and town from which they were not barred. Typically that involved being a merchant, money changer or lender or some combination thereof. Being a religious and ethnic outsider and and making a living by charging the population money for a good, you yourself did not make and lending money and making money by having debt repaid is very risky.
People, to this day, tend to believe what is a correct price of an item (ask people about gas prices last summer) and people in centuries' past especially did not undesrtand that risk, transportation costs, covering for theft and the fact that market prices charged by wholesalers can up and is beyond the merchant's control. Medieval buyers believed that if the good was in the merchant's shop it should cost exactly as mcuh as it cost to produce it. While that engendered some ill will, trafficing in issuing debt was what could casue serious harm to the lender. Because it was difficult for a Jew to collect manay loans, he had to charge very high inetrest rates, which cause more defaults and higher rates and in som cases that default, especially if the debtor was the local ruler, would banish the Jew or kill him and ths wipe out the debt. Even if the debts did get repaid, it was seen as sharo practice and there was no though given to the fact that the borrower was even able to get the loan because of the Jewish lender's thrift and willingness to incur a major risk.
This pattern is not just confined to Jews nor the Middle Ages. The Chinese who live out side of China often times take up similar commercial occupations as Jews did (and many were known for bein gwell represented at universities and especially among the tougher disciplines) and have been decribed as the "Jews of the Orient" but considering how numerous and how geographically dispersed the overseas Chinese are, perhaps the jews could be described historically as the Chinese of Europe. Chinese merchants extended ccredit, sold goodst hat peoep lwantedm often times arrived in a new country penniless and eventually become welathier than the native majority.
Their rags to riches success and charging of inetrest and prices that are creater tha cost engdnered the exact same hostility that Jews faced. Unlike Jews, the Chinese, in South East Asia had the same religion as the natives and elsewhere, where the majority was Muslim or Christian (South East Asia has many Muslims and Chinese cae to California, Australia and Jamaica and Mexcio among other destination), the Chinese play no siniser role in the history either religion unlike the Jews. Yet the Chinese tended to garner hostility from the native majority.
Similar attitude are extended to minority middlemen where ever they have lived and do business Armenians and Greeks in the old Ottoman empire, Igbos in Nigeria, Lebanaese in West Africa, the Carribean and Brazil and various Indian ethnic groups like the Gujarati, Asamese the Siehks, and the Chetiers in other regions of India have been harrased, verbally abused and mocked by the leaders and masses as parasites and that is in the best of times. The inability to appreciate all of the qualities needed to be a merchants, the economic need for middle menand the value added by hard working middlemen is something that is consitently adandoned in favor of passions and expeniendcy.
Passion and expediency is a common thread through all of the seen and unseen fallacies and other errors in economic reasoning. Although society has become mroe sophisticated in economic understaing, relative to someone in centuries' past, that is not saying very much. The media, people's willingness to uncritially amplify the errors of the media, provincialism, a willingness to want to find drama and confrontation where it does not exist and an over reliance on self described "common sense" (aka. what someone wanted to believe a priori) and finally an unwillingness by many to admit a lack of understanding cause and have caused countless mistakes bi gand small bu talways costly when it comes to economic decsions makin gand the shapin gof economic policy.
The fallacies that the stock market is the economy or that the stock market is represents merely just the financial sector of capital markets is incorrect but it fails to make the top four Economic fallacies, which have largely become "common knowledge" among many people, who vote and who also try to make some insightful and profound comment about the economy when they would have been better off saying nothing since they have as good of a chance as the typical American father saying something really profound about Anime. In no particular order here are the four most common misconception about economics, which are largely accepted and repeated.
The first is the zero-sum fallacy. Far too many people assume that there is constantly fixed amount of wealth and any time someone becomes rich they did so by making others poor. It is possible for someone to become rich and cause some else poverty as a result but that is most common in societies where force is common. In the Middle Ages, a feudal lord was rich because he took from his serfs. In the Roman era, the tax collectors, who are mentioned frequently in the New Testament, got rich by forcibly taking people's income on behalf of Rome and keeping some for himself. In the present day, many Third World heads of state are significantly richer than are First World heads of state and those rulers make their billions by extorting money and/or siphoning it from the treasury and nationalized industries. In other cases fraud is used to get rich directly at someone else's expense, as is, most notably, the case with Bernie Madoff.
These are the exception in today's society, most people who are rich found a way to serve their fellow man, to paraphrase Walt E. William. The rich in First World Countries tend to do a very good job of producing what others want and as result most rich people earned it or inherited wealth that was earned through voluntary transactions and inadvertently making life a little less painful and uncomfortable for far more people than the succesful entrepreneur will ever.
Despite the fact that the world population has been growing exponentially and standards of living have improved nearly every were in that same period, most people believe that poverty in the West and the dire and wide spread poverty is the direct result of poverty among wealthier individuals and the generally, relative affluence of the West as a whole. While it is true that now wealthy nations colonized many currently poor nations, the causality is misplaced. European nations colonized and exploited an already materially poor African continent (something that Europe has been a few centuries earlier) but the colonization was the result of prosperity and not the other way around and the poverty in Sub Saharan Africa was already there and much of the trouble in Africa that is or was caused by Europeans is the legacy of arbitrarily drawn borders, which have made it more difficult for already poor societies to emerge from poverty. In addition, countries that did not engage in colonization on any large scale, such as Switzerland, the United States and Sweden and Norway have very high standards of living and aggressive colonizers like Portugal and Russia has fairly low standards of living in comparison.
The most popular claim that "supports the zero sum fallacy is that "the rich get richer and the poor get poorer." A more accurate description should be that the rich get richer at a faster pace than do the poor in many cases." The gap may grow but the standards of living for both groups increase. This still is not necessarily a situation that is perfectly justifiable, this does not mean that some redistribution of income can be appropriate but it is dishonest to say that the poor get rich in an absolute sense and it is certainly misleading to say or imply that those gains come directly at the expense of the supposed losses for the poor.
The next fallacy is the consumption fallacy. This is not a technical term,it is moreso a personal observation of how Americans talk about our nation's consumption patterns. There is never more fertile grounds for someone to take fact he or she heard on the news and attempt to make it into a deep and philosophical observation about economics, morality and "consumerism." The most frequently touted facts that America's economy, "is consumer driven" or that "two thirds" or "70% of the US Economy is based on consumer spending." This sound terrible, the facts seem to bare out that Americans, unlike Europeans and Japanese spend "too much" especially when the net national savings rate was negative. This technically true but the Devil or I suppose in this case, the angels are in the details.
In virtually every economy, consumption is the biggest part of Y, or national income. Then there is usually investment (this is not investment as most people think of it, it does not mean buying financial products like stocks and bonds, it means any forgone consumption that is meant to mean more production in the future, an example would be using wood to build the frames of a house instead making that same wood into disposable chop sticks), government spending (which can be consumption or investment but is mostly consumption in most cases) and then net exports (the amount that we export minus the amount of goods that we import). This commonly written by the equation Y= C+I+G+Nx and is standard in ant intro to mach economics course.
While the 70% statistic is true, it is almost always stated and then repeated without any context. What are the numbers for other countries, it turns out that while Western European and Japanese do spend less and save more the differences are not huge. Other First World Countries may have C somewhere at 60% to 70% and usually it is closer to 70% and if it is lower than 60% then usually G, Goverment spending is high, which basically means consumption is being done on the people's behalf through the state. The great thing about an economy is that a society can consume a large majority of the fruits of its labor and only have to set aside a portion of its resources year after year to be able to have more to consume and to save in the future. Many Asian economies have been lauded for their high savings rates but rarely does it exceed 20% of national income which means that most of the nation's income is consumed, consumed by government or used to buy imports and when 10% to 20% of the resources in a time period are set aside, it is plenty to create steady growth over time.
The idea that Americans are short sighted and piggish by hold a tincture of truth but not as much as many would like to believe. This blogger has heard far too many people act like our level of consumption is obscene or even evil when it reality it is unsustainable high and needs to be reduced, the magnitude by which it must be reduced is not very much. It usually means buying large consumer electronic and cars a little less frequently, driving a little less, buying a few less convenience food item or something that would bring the number down to about 67% or 68%. The American way of life does not need to go, it needs to slim down a tad and see a slight rise in the national savings rate to the point that it is slightly above zero. These numbers are ideal for the next generation or so, as productivity and national income rise, it is likely that eventually 70% or greater levels of consumption will be sustainable. There is no morality attached to the how big or small the nations C is in the national income equation.
The third fallacy is on trade, international trade specifically. International trade is viewed by many Americans with deep suspicion in many cases. Perhaps international trade is so misunderstood because the misunderstanding over it is driven by zero-sum thinking and by a misplaced martial attitude. Trade is far too often seen as a "war" with "winners" and "losers" and that large economies are "economic super powers." It is true that certain firms to lose and other win but that competition means that consumers in both countries win by paying lower prices and getting better quality.
More competition, which is largely based on the degree of consumer choice or alternatives available to consumers, means that innovations that allow producers to produce a good at a lower cost have to pass on the bulk lower cost to consumers in the form of lower prices and very little of the reduced cost becomes extra profits. In addition to competition international trade allows for higher and higher degrees of specialization, producers in various countries can focus more resources on doing what they do best, selling the surplus and buying from someone, some where else, who produces what he produces best.
International trade increases competition as well as specialization. While international trade is controversial and is often times subject to restrictions, in the form of tariffs and quotas. Luckily, there are little or no restrictions on trade between producers and consumers in other polities. I am not restricted to buying from producers from Moorpark or Ventura County or California or the Western United States.
Almost everyone can understand that their quality of life would be very low if they could only make what they and their family unit produced, which would mean subsistence farming with stone tools at best and hunting and gathering would be more likely. Life would indeed be nasty, brutish and short for that family unit of band of people from a single household. Life would get better if the economic unit was a band of a few hundred and even better if it were a few thousand and better yet if it were a million. Everyone can agree that being economically solitary would be miserable so every agrees that trade is good so the argument is really over the ideal extent of the trading area. It is hard to believe that quality of life will increase as the population of the trade area expands up to a point and than goes negative as opponents of international trade would claim.
The biggest complaints are that American firms cannot "compete" with low wage nations who can produce the same thing at a lower cost. That is exactly why would should being trading, if a country makes something for a lower cost, be it lower cost of labor, less onerous regulations, being closer to important but costly to transport raw materials or because weather and soil or water conditions making farming or fishing for a particular good less costly is exactly why we should trade. When nations use trade restrictions or subsidies to support these otherwise uncompetitive firms they cost their people by encouraging inefficiency and that inefficiency can add up and if it is pervasive enough in the economy, means that people will be poor or at least less rich than they otherwise would be.
Another complaint is that trade must be done with "equal rules" or wit ha level playing field. Therefore, if a firm of sector of one nation's economy is subsidized or protected by import tariff, the US must respond in kind with equal tariffs or subsidizes or impose bans or quotas or very high subsidies on countries that subsidize. While Government subsidies and tariff are unwise policies for any government, the error is only compounded when another country responds with equal stupidity.
It would be best if American producers do not have to face import tariffs on their goods but we do help ourselves by imposing tariffs on other countries' exports because tariffs are simply a tax on consumers, a tax in the pecuniary sense, the consumer has to fork over extra money and it is an even greater tax in terms of productive inefficiency. Trade sanctions are used to punish countries that sufficiently upset the governments of other countries. It is strange that so many want us to use import tariffs and essentially impose sanctions on ourselves.
The only criticism that do carry validity are that certain countries have lower environmental standards than do ours and that out national security is imperiled by moving certain types of heavy manufacturing over seas or buying foreign made steel and other manufactured goods. The national security argument has strong theoretical weight, nations have to have a productive industrial base to fight and win a total war like the Second and First World Wars. Luckily, for America safety and security, the US manufactures a great deal. IN 2006, the US manufactured more goods, in terms of their inflation adjusted market value, than in any other year in History. It was simply done with less people, because of better technology, the same is true for our security and our food supply, we produce lots of food and do so with far less workers than in years past.
The environmental angle of free trade is one that would most justify tariffs, not to insulate US companies but to make foreign producers aware of the total costs that their pollution represents. In the US, producers have to adhere to tougher environmental standards than producers in other countries and the economic case for a pollution tariff would be justifiable. I would still be doubtful about how well such a tariffs, although resting on rock solid economic ground, would be implemented without being severely tainted by politics, with unprofitable and inefficient American producers claiming that every competitor is gross polluter and demanding tariffs be placed on them. Second, it is hard, even with no distortion from politics, to institute a perfect or even very good Pigouvian tax because of difficultly in precisely quantifying the damage and attaching a dollar amount to it.
Trade fundamentally works, every day we trade, the fact that we can have electricity, computers, running water, medicine and everything beyond what we could scrounge up for ourselves in the wilderness. The relationship between the general welafre and the size of the trading area/community has been clearly positive, the bigger the better. Incidentally, the same objections do arise from inter county or interstate trading, most of the complaints are from producers who do not the comparative advantage but the population as whole becomes wealthier with more trade. There is nothing in economic theory or historical reality to show that the relationship between well being ad trade becomes negative as soon as buyers and sellers transact across international boundaries.
The fourth and final error in economic reasoning is what Claude Frédéric Bastiat called :the see and the unseen." When making any law, one creates a variety of effects, long term and short term, concentrated and dispersed and in many cases benefits that are visible and harm that is so widely dispersed, its effects are hard to see. It is a difficult question whether the zero-sum fallacy or the seen and unseen fallacy has caused the most damage through bad economic policies as well many violent or at least acrimonious exchanges between different people within a society. It is fair to say both have been very destructive in several ways.
The problems with the seen and unseen are myriad but there are a few that are most noteworthy. The dispersion of cost and the concentration of benefits, the way it gains support for price controls and trade restrictions and subsidizes, the way that it can cause people perceive, even after the fact, a bad and destructive policy as a success and finally the way it can cause resentment and destabilize a society and state.
The first major problem, the dispersion of the costs and the concentration of the benefits makes for a huge drain on the public treasury which currently appears to be the case for the Federal Government and already is for California's government. When gains or losses of a policy are concentrated on a small group and the gains and losses are dispersed amongst a large group, in many cases the entire population, the small group with much to loss or gain will work hard and be focused and will lobby and cajole or strong arm or blackmail policy makers to make a rule that gives them very concentrated and visible benefits and the policy will disperse the cost across the whole population.
An example is when tax dollars are used to build expand a road that has very little traffic and the cost is 10 cents in taxes for every citizen of the state, the unions and companies that build the road will fight for it so they can make a living from this project and the average tax payer will not know about, let alone protest against the building of a road to no where that will cost them a measly 10 cents. Say the social value to every citizen for this road expansion is 5 cents per person, the cost are twice the benefits but the numbers are very small for the public. Unfortunately, California has done these things thousand upon thousand of time every years and the dimes all add up and the Federal Government is now trying to match California in its alacrity in shoveling money down a giant hole and despite all of its problems is supported by many because almost everyone is, in some capacity, part a group that can enjoy concentrated benefits and disperse the costs widely.
These seen and unseen problem is a reason for price controls such as price caps on things like gasoline or price floors on farm products or minimum wage legislation. The farmer who who stays in business is easy to see and the extra pennies paid on every product in the store is harder to see. Minimum wage will improve the lot of some workers but will cost other workers their jobs and cause less hiring for low skilled workers.
Saving GM and Chrysler at the tax payers' expense and changing bankruptcy law, ex post, to hose the bondholders is showing and will show that the there are costs to the tax payer and to all firms, especially those with large union partners making up that firm's staff, that are finding it harder to get low interest secured debt and those costs will be further dispersed in the jobs never created.
An import tariff will also keep an inefficient firm alive and preserve some jobs but because of less competition and higher costs of production, the price the items produced by that protected industry increases and the damage can be even greater if that good, that is created by a protected industry. The Best example of tariffs having very large but dispersed costs was when President Bush (the so called free trade, pro market, pro capitalism, laissez-faire president) imposed large import tariffs on foreign Steal. Naturally, the price of steal increased in the US. With steal being an input in a myriad goods, production costs of those goods rose and it cost the consumer more, destroyed more jobs than it perserved and would have prevented more jobs from being created because makin ganythin gwit hsteal in it would be less profitable so firms tend to cale back production because the profit maximizing profit point is almost always lower when the cost of an input goes up (the tariff was repealed in 2004 due to tremendous political pressure from the EU, which threatended relatitory tariffs on goods largely made in Florida, Pennsylvania and Ohio, which were all crucial swing states in that year's Presidential election).
To make matters worse, when a given policy is able to deffer and disperse cost and make the benefits visible and focused on a small group, its failure verall, can be interpreted as success. The collective effect of these things is again, very real and damaging but that is the sum of many bad policies. This blogger had over heard many conversations where someone will simultaneously say how "you can't get much value from your dollars nowadays" but than wants government to protect "our" businesses from foreigners who are "winning the trade war." Not only does the see and unseen disperse and efere costs and cover up for polciies with benefits tha tar aefraction of their costs, people often times beg for more.
Another very bad and in his case tragic result of the see nand unseen fallacy is the fact that certain groups who make valuable contributions are maligned or scapegoated by peopel who do not understand the economic role of these productive citizens. The most frequent targets of the misunderstanding, rage and in many cases violence, is the middle man. In almost every culture and time in history, the middle man has been maligned. Until only the last few decades or centuries, when peoep lin the Wrst began to obain more educatio nand knowledge of economic and trade did the mecrhant be seen as little more than a parasite, who needlessly made life difficult by charging unacceptably high prices. Furthermore, in most pre industrial societies, the overwhelming portion of the population were farmers and they equated work with physical toil. The sight of some in a clean shirt, doing no work in the fields was seen some one who did not create any wealt hand simply lived by sharp practice against the honest farmer or petty tradesman.
The economic role of middle men is obvious, durther more, middle men almost never surperfluos, retailing is very competitive, even a giant like Wal Mart has very thin profit margins and the low cost of starting up a store makes entry much easier than starting a large farm, plantation, factory or the of toil road, railroad or canal. It usually takes thirft, sobriety, honestly, reliability and hard work to even make an sort of decent income. As a result, there is almost always just enough layers of middlemen and no more than is needed to efficiently get the goods from producers to the final consumers, the middle man, from the standpoint of someone who is educated in economics, in history or is generally educated can undesrtand this. Unfortunately many farmers in centuries past or in desperately poor regions cannot and do not understand this. In the lon grun and eve in the not so long run, there are no unnecesarry middle men at a given times and his profits are very meagre relative to the vulomn of business that he conducts.
This is seems very easy to understand to a modern day reader (although there are still, at times misundertsandin gand criticisms of middle men but rarely is it close to the antagonistic and at times violent inetractions between the middleman or merchant his agrarian customer, the peasant). The peasant simply saw the merchant as rearranging goods and making his living from being lazy and clever at best and practicing some form of black magic at worse. The level of suspicion is heightened because very often, the middle man, the merchant, is of a different religious or ethnic group.
To those of us from a European background, the archetype of this middle man minority is a Jew. They were barred from other occupations, most notably farming, so they naturally lived in cities or towns and worked in the few trades in citied and town from which they were not barred. Typically that involved being a merchant, money changer or lender or some combination thereof. Being a religious and ethnic outsider and and making a living by charging the population money for a good, you yourself did not make and lending money and making money by having debt repaid is very risky.
People, to this day, tend to believe what is a correct price of an item (ask people about gas prices last summer) and people in centuries' past especially did not undesrtand that risk, transportation costs, covering for theft and the fact that market prices charged by wholesalers can up and is beyond the merchant's control. Medieval buyers believed that if the good was in the merchant's shop it should cost exactly as mcuh as it cost to produce it. While that engendered some ill will, trafficing in issuing debt was what could casue serious harm to the lender. Because it was difficult for a Jew to collect manay loans, he had to charge very high inetrest rates, which cause more defaults and higher rates and in som cases that default, especially if the debtor was the local ruler, would banish the Jew or kill him and ths wipe out the debt. Even if the debts did get repaid, it was seen as sharo practice and there was no though given to the fact that the borrower was even able to get the loan because of the Jewish lender's thrift and willingness to incur a major risk.
This pattern is not just confined to Jews nor the Middle Ages. The Chinese who live out side of China often times take up similar commercial occupations as Jews did (and many were known for bein gwell represented at universities and especially among the tougher disciplines) and have been decribed as the "Jews of the Orient" but considering how numerous and how geographically dispersed the overseas Chinese are, perhaps the jews could be described historically as the Chinese of Europe. Chinese merchants extended ccredit, sold goodst hat peoep lwantedm often times arrived in a new country penniless and eventually become welathier than the native majority.
Their rags to riches success and charging of inetrest and prices that are creater tha cost engdnered the exact same hostility that Jews faced. Unlike Jews, the Chinese, in South East Asia had the same religion as the natives and elsewhere, where the majority was Muslim or Christian (South East Asia has many Muslims and Chinese cae to California, Australia and Jamaica and Mexcio among other destination), the Chinese play no siniser role in the history either religion unlike the Jews. Yet the Chinese tended to garner hostility from the native majority.
Similar attitude are extended to minority middlemen where ever they have lived and do business Armenians and Greeks in the old Ottoman empire, Igbos in Nigeria, Lebanaese in West Africa, the Carribean and Brazil and various Indian ethnic groups like the Gujarati, Asamese the Siehks, and the Chetiers in other regions of India have been harrased, verbally abused and mocked by the leaders and masses as parasites and that is in the best of times. The inability to appreciate all of the qualities needed to be a merchants, the economic need for middle menand the value added by hard working middlemen is something that is consitently adandoned in favor of passions and expeniendcy.
Passion and expediency is a common thread through all of the seen and unseen fallacies and other errors in economic reasoning. Although society has become mroe sophisticated in economic understaing, relative to someone in centuries' past, that is not saying very much. The media, people's willingness to uncritially amplify the errors of the media, provincialism, a willingness to want to find drama and confrontation where it does not exist and an over reliance on self described "common sense" (aka. what someone wanted to believe a priori) and finally an unwillingness by many to admit a lack of understanding cause and have caused countless mistakes bi gand small bu talways costly when it comes to economic decsions makin gand the shapin gof economic policy.
Saturday, June 6, 2009
Sehe diese berge an, sehe diese baume, ich liebe Berlin!
The title is rough translation to lyrics from Randy Newman's song, "I love LA." The title is "look at those mountains, look at those trees, I love Berlin." Berlin, Los Angeles' sister city does not have any mountains nearby but it does have trees, in fact that city of Berlin, in the 19th century, joined Paris and Philadelphia as some of the first cities to have many huge trees lined boulevards. During the rebuilding after the War, even more of the Western half of the city was built with large tree lined boulevards.
Berlin is a city, that more than any other European city, tells the story of European history, particularly modern European History. Berlin, is a sister city of Los Angeles and it is definitely the much older sister, Los Angeles was founded in the 18th Century and Berlin was founded in the the 13th Century. Berlin is a relative New Comer in terms of European capitals though with most Western European Capitals having been founded in the Early middle ages or the Roman era. Berlin's location is a result of the large scale eastward migration of Germans, east of the Elbe river. Many founded small German speaking villages and towns as far East as Russia and Bulgaria (the most famous enclave may be Siebenburge in Transylvania, which is in the shadow of the Castle Dracula). Berlin was, for centuries the Capital of the small but growing city State of Prussia.
As Prussia grew in power and influence the city of Berlin, which began as one of thousands of backwater colonies East of the Elbe. It was not a particularly enjoyable city, unlike Paris or Vienna, there was little to be had in the way of sensual pleasures. A combination of the German Protestant work ethic and the spartan militarism of the Prussia elite bad it a city where even coffee was banned fell under the broad umbrella of items banned by the city's sumtuary laws. While the ban on coffee was was not long lived, the focus on making war remained and Prussia into a legitimate power by the 18th century. After the defeat of Napoleon and the rise of nationalism and the desire of German speaking people to be like France and England and have nation State, the cunning Statesman, Otto von Bismarck, pulled together the various German speaking city states dukedoms and principalities and by 1876, he had defeated France and the King of Prussia, Wilhelm, was crowded as Caesar of Germany, the Kaiser.
By the time that Berlin became the Imperial Capital, its extreme austerity and sumptuary laws had given way to a thriving, albeit restrained desire to exuberance the extravagance of other great European capitals. The city made up for lost time by building or refurbishing otherwise plain neoclassical structures such as the palace and it built a Roam style victory arch and it widened its main streets, the Unter Den Linden Strasse (under the Lemon trees) and the Sieges Alle (Victory Boulevard) and planted tress down the center.
Meanwhile, most private buildings emulated the pink, purple, powder blue and beige, five story apartments that were being built in Paris. The building were attractive although as is the case with Berlin architecture, the five story apartments severed the purposes of Real Politik because five stories is the perfect high for shooting rioters, with the rifles of the day and the wide streets also prevented mobs from taking over a city by barricading the narrow streets which were the norm in most of Europe at the time.
As the 19th Century progressed, the Imperial capital matched or surpassed other European cities in terms of art nueveau and its ornate, some say garnish, use of gilding, detailed patterns and fine, tendril like metal works on windows and gates. In the inter war years, when the city was drinking and dancing away its dispare over hyperinflation, war reparations and Fascists and Communists fighting for control the building that did occur was in line with the art deco that characterized the style of other cities. Unfortunately Germany had no roaring 20's and its depression was deeper than the American Depression so very little grand art deco building were built.
The Second World War, leveled Berlin almost as much much as it leveled Western Europe's once legendary bellicosity. Even more than the warm the bombing and the rebuilding, the unique position of Berlin as a divided city defined how Berlin is today. The tendency of European cities is to sprawl out and be moderate in terms of population density. The fact that West Berlin had Communist East Berlin on one side and the Rest of Communist East Germany on all other sides essentially put it on an island. As a result it how Manhattan is compared t all other US cities, it economized on space and was also very self contained. Like Manhattan, it has many very tall residential and Commercial buildings. Were there are not tall buildings and busy streets there is a huge park, the Central Park of Europe, which was very important for residents of West Berlin because they could not simply go out of the city and into the countryside and since Germans tend to like outdoor sports, the Park was vital for the spirit of a defeated and not besieged people.
The city was a microcosm of the difference between the established and industrialized world and the the relatively new communist world. Despite attempts by the puppet communist government of East Germany to blockade and starve out the Western half of the city, the allied air lift saved the city and created a sense of unity and civic pride that is still strong amongst the children and grand children of those who lived through the blockade. The infamous and iconic wall was built some time after the end of the war and partitioning of the city. Frustrated with illegal emigration over everyone who was skilled (I am sure that East Germany was only asking for the "rich" to pay their fair share so that the government could "invest" in "infrastructure" and stimulate the economy), the Easter German Government built the wall in 1961 and served as the site of President Kennedy and President Reagan's wall (it should be notted that "Ich bin ein Berliner" did not mean that he is a Jelly Donut, at least not in the Berlin dialect). Even more important than that, the Wall served as a symbol of the Cold War and the moral depravity of Communism and its fall was indeed cause for celebration.
The post cold war era has ushered in perhaps the best of times in Berlin's history. With reunification of German, Eastward expansion of the European Union and slow but noteworthy growth of Poland and the Czech Republic, the center of Europe has shifted. Its rail lines, now join in a grand new train station that connects Russia with Spain. The city is now a city of glass and steel but mostly glass. Its new commercial and residential buildings are covered in glass and even the Reichstag, the German equivalent of the Capitol building, has a glass and steel dome added atop its neoclassical base.
Wanting to put nearly a century of hyperinflation, depression, Fascism, Communism and division behind itself, Berlin is a much more forward looking city than other Western European cities. It is full of night clubs, busy malls and young and friendly people who love American culture and Hip Hop. A lot of Berlin is like the 'hood but with no crime, there are lots of swap meets, break dancing and free style battles on the street and best of all, it is the world capital of graf murals. Almost every building or piece of infrastructure has some amazing murals on the side of it. Berlin has reflected the trends of European history for years and years and it is not surprising that Berlin is second only to London and first on the Continent at embracing globalization.
The city has many things to do and see. Its very long days in summer are perfect for someone with a busy intinerary. The sun is up from about 4:00 am to 10:pm in summer. Aside from doing the standard things one does in major cities like seeing the historical sites, the zoo (which is open until (9 or 10 pm in summer), the main park and its art museums. Its most unique cites are around where the wall once stood. The Brandenburg gate, where Kennedy and Reagan proclaimed solidarity with Berlin and denounced the evils of the wall and the oppression with it symbolized; the Museum of espionage, which has artifacts that document spying in general and the various attempts by East Berliners to escape to the freedom of the West.
There are also homes of famous writers and philosophers and the old Jewish district which was once the site of Europes' most liberal, well treated and open Jewish community in Europe. If you want some grit, it is best to go to the Turkish neighborhoods on the East side of town. Sim city fans will loves that the Fehrsehturm and Rottesratehaus are within the same eye shot. Finally, visitors to Berlin should take in the vibrant street life by day and enjoy the clubs by night, although it can be a but surreal to leave and be walking back to one's hostel or hotel and the sun is just about up and shining.
I especially enjoyed the city because i twas the culmination of four years of learning German in high school but I am sure anyone will enjoy the city because so many people speak English there. Also, as one of the best German speakers in my group, a group that included a few people which a tincture of that ugly American in them, I ended up interpreting for my friends who often times requested water that was not mineral water. Because Wasser, or water means mineral water in German restaurants, if one does not want mineral water one mus ask for Wasser ohne Kohlensauer, without carbonation, I made my less linguistically gifted friend remember that one. If you want iced cubed, which will be considered strange request, ask for it mit eiswurflen, bitte, with ice cubes please. Either learn German, or write it on an index card because I will not be there to say it for whomever ravels to Berlin on account of this entry.
Berlin is a city, that more than any other European city, tells the story of European history, particularly modern European History. Berlin, is a sister city of Los Angeles and it is definitely the much older sister, Los Angeles was founded in the 18th Century and Berlin was founded in the the 13th Century. Berlin is a relative New Comer in terms of European capitals though with most Western European Capitals having been founded in the Early middle ages or the Roman era. Berlin's location is a result of the large scale eastward migration of Germans, east of the Elbe river. Many founded small German speaking villages and towns as far East as Russia and Bulgaria (the most famous enclave may be Siebenburge in Transylvania, which is in the shadow of the Castle Dracula). Berlin was, for centuries the Capital of the small but growing city State of Prussia.
As Prussia grew in power and influence the city of Berlin, which began as one of thousands of backwater colonies East of the Elbe. It was not a particularly enjoyable city, unlike Paris or Vienna, there was little to be had in the way of sensual pleasures. A combination of the German Protestant work ethic and the spartan militarism of the Prussia elite bad it a city where even coffee was banned fell under the broad umbrella of items banned by the city's sumtuary laws. While the ban on coffee was was not long lived, the focus on making war remained and Prussia into a legitimate power by the 18th century. After the defeat of Napoleon and the rise of nationalism and the desire of German speaking people to be like France and England and have nation State, the cunning Statesman, Otto von Bismarck, pulled together the various German speaking city states dukedoms and principalities and by 1876, he had defeated France and the King of Prussia, Wilhelm, was crowded as Caesar of Germany, the Kaiser.
By the time that Berlin became the Imperial Capital, its extreme austerity and sumptuary laws had given way to a thriving, albeit restrained desire to exuberance the extravagance of other great European capitals. The city made up for lost time by building or refurbishing otherwise plain neoclassical structures such as the palace and it built a Roam style victory arch and it widened its main streets, the Unter Den Linden Strasse (under the Lemon trees) and the Sieges Alle (Victory Boulevard) and planted tress down the center.
Meanwhile, most private buildings emulated the pink, purple, powder blue and beige, five story apartments that were being built in Paris. The building were attractive although as is the case with Berlin architecture, the five story apartments severed the purposes of Real Politik because five stories is the perfect high for shooting rioters, with the rifles of the day and the wide streets also prevented mobs from taking over a city by barricading the narrow streets which were the norm in most of Europe at the time.
As the 19th Century progressed, the Imperial capital matched or surpassed other European cities in terms of art nueveau and its ornate, some say garnish, use of gilding, detailed patterns and fine, tendril like metal works on windows and gates. In the inter war years, when the city was drinking and dancing away its dispare over hyperinflation, war reparations and Fascists and Communists fighting for control the building that did occur was in line with the art deco that characterized the style of other cities. Unfortunately Germany had no roaring 20's and its depression was deeper than the American Depression so very little grand art deco building were built.
The Second World War, leveled Berlin almost as much much as it leveled Western Europe's once legendary bellicosity. Even more than the warm the bombing and the rebuilding, the unique position of Berlin as a divided city defined how Berlin is today. The tendency of European cities is to sprawl out and be moderate in terms of population density. The fact that West Berlin had Communist East Berlin on one side and the Rest of Communist East Germany on all other sides essentially put it on an island. As a result it how Manhattan is compared t all other US cities, it economized on space and was also very self contained. Like Manhattan, it has many very tall residential and Commercial buildings. Were there are not tall buildings and busy streets there is a huge park, the Central Park of Europe, which was very important for residents of West Berlin because they could not simply go out of the city and into the countryside and since Germans tend to like outdoor sports, the Park was vital for the spirit of a defeated and not besieged people.
The city was a microcosm of the difference between the established and industrialized world and the the relatively new communist world. Despite attempts by the puppet communist government of East Germany to blockade and starve out the Western half of the city, the allied air lift saved the city and created a sense of unity and civic pride that is still strong amongst the children and grand children of those who lived through the blockade. The infamous and iconic wall was built some time after the end of the war and partitioning of the city. Frustrated with illegal emigration over everyone who was skilled (I am sure that East Germany was only asking for the "rich" to pay their fair share so that the government could "invest" in "infrastructure" and stimulate the economy), the Easter German Government built the wall in 1961 and served as the site of President Kennedy and President Reagan's wall (it should be notted that "Ich bin ein Berliner" did not mean that he is a Jelly Donut, at least not in the Berlin dialect). Even more important than that, the Wall served as a symbol of the Cold War and the moral depravity of Communism and its fall was indeed cause for celebration.
The post cold war era has ushered in perhaps the best of times in Berlin's history. With reunification of German, Eastward expansion of the European Union and slow but noteworthy growth of Poland and the Czech Republic, the center of Europe has shifted. Its rail lines, now join in a grand new train station that connects Russia with Spain. The city is now a city of glass and steel but mostly glass. Its new commercial and residential buildings are covered in glass and even the Reichstag, the German equivalent of the Capitol building, has a glass and steel dome added atop its neoclassical base.
Wanting to put nearly a century of hyperinflation, depression, Fascism, Communism and division behind itself, Berlin is a much more forward looking city than other Western European cities. It is full of night clubs, busy malls and young and friendly people who love American culture and Hip Hop. A lot of Berlin is like the 'hood but with no crime, there are lots of swap meets, break dancing and free style battles on the street and best of all, it is the world capital of graf murals. Almost every building or piece of infrastructure has some amazing murals on the side of it. Berlin has reflected the trends of European history for years and years and it is not surprising that Berlin is second only to London and first on the Continent at embracing globalization.
The city has many things to do and see. Its very long days in summer are perfect for someone with a busy intinerary. The sun is up from about 4:00 am to 10:pm in summer. Aside from doing the standard things one does in major cities like seeing the historical sites, the zoo (which is open until (9 or 10 pm in summer), the main park and its art museums. Its most unique cites are around where the wall once stood. The Brandenburg gate, where Kennedy and Reagan proclaimed solidarity with Berlin and denounced the evils of the wall and the oppression with it symbolized; the Museum of espionage, which has artifacts that document spying in general and the various attempts by East Berliners to escape to the freedom of the West.
There are also homes of famous writers and philosophers and the old Jewish district which was once the site of Europes' most liberal, well treated and open Jewish community in Europe. If you want some grit, it is best to go to the Turkish neighborhoods on the East side of town. Sim city fans will loves that the Fehrsehturm and Rottesratehaus are within the same eye shot. Finally, visitors to Berlin should take in the vibrant street life by day and enjoy the clubs by night, although it can be a but surreal to leave and be walking back to one's hostel or hotel and the sun is just about up and shining.
I especially enjoyed the city because i twas the culmination of four years of learning German in high school but I am sure anyone will enjoy the city because so many people speak English there. Also, as one of the best German speakers in my group, a group that included a few people which a tincture of that ugly American in them, I ended up interpreting for my friends who often times requested water that was not mineral water. Because Wasser, or water means mineral water in German restaurants, if one does not want mineral water one mus ask for Wasser ohne Kohlensauer, without carbonation, I made my less linguistically gifted friend remember that one. If you want iced cubed, which will be considered strange request, ask for it mit eiswurflen, bitte, with ice cubes please. Either learn German, or write it on an index card because I will not be there to say it for whomever ravels to Berlin on account of this entry.
Wednesday, June 3, 2009
Barack Obonda
Democratic strategist, James Carvell was once asked if he could be reincarnated as the most powerful person in the world he responded that he would rather come back as the bond market. The bond market, the sum of all of the issuing and trading of commercial bonds and government bonds, involves many times more money than do equity markets, usually called stock market. The media try make the equity markets, usually the New York Stock Exchange, as the barometer of the US and World Economy and it is simply not the case.
Bond markets are by far the most important source of capital and it is more sober and deliberative and much less prone to despair or euphoria, collectively called "animal spirits." They tell us a great deal about where the economy, a firm and government policy is at the moment, the bond market gives far more insights into the future than the stock markets and it has many stories and commentaries of US economic and political history.
The most notable example of bond markets telling the tales from the past is what its yields from the Great Depression tell us. Interest rates (and by extension bond yields) are largely a result of the availability of capital, idle money, relative to the demand for it. As a result interest rates tend to move in concert over time and risk and expected rewards cause certain rates to always be higher than another type of rate at a given moment in time, corporate bonds almost always have a higher interest rate than government issued debt. Any chart that shows the movement of interest rates over the last hundred years will demonstrate this point, with one extremely large deviation.
In the 1930's, there was genuine fear that Franklin Delano Roosevelt would engage in wholesale nationalization of the economy or many sectors of it. Obviously bond holders in those nationalized firms would not be paid back the money they lent those firms in the form of buying their bonds. As a result, by the mid 1930's, corporate bonds interest rates soared, graphically the line representing corporate bonds deviated from all of the other types of debt's interest rates in that same period. Roosevelt, had a great deal of political power but he could not control the bond market, he could not control the market that has served as an accurate barometer of the realities of the business climate at the moment.
There was a similar instance (which was what probably caused James Carvell to make his observation) of the bond market asserting its power over a president. President Clinton, was forced to change his policy course early in his Presidency when he was briefed on markets, government debt and bond market interest rates. Bill Clinton had gran left wing dreams but had to curtail them because he is a brilliant man and pragmatist (although he did not initially take to the news of the bond market well and is said to have proclaimed "you mean to tell me that what I can and cannot do is up to some @#%# bond traders in New York?").
It looks like unlike FDR or Bill Clinton, President Obama is refusing to bow to reality and the inescapable existence of constraints. He has managed to raise interest rates on government debt, especially long term debt as well as on corporate bonds, that have a large unionized payroll. His reckless spending, which will be, as measured by share of GDP (the most relevant measure of government debt), a multiple of the worse peace time budget deficit (which was in 1983 under Ronald Reagan although that was because he had cut tax rates and increased defense spending and as result eventually had economic growth, job creation and higher tax revenues to show for the former and the Berlin Wall in Rubble as result of the latter). The fact that reckless spending by a government will make buying up its bonds more risky and, all things being equal, cause an increase in the interest rate is pretty straight forward.
What is more complex and perhaps even more telling is how the bankruptcy of Chrysler and the treatment of bond holders has effected the bond market. Because president Obama owed several favors to the UAW as well as virtually all labor unions, he forced the bond holders in Chrysler to accept virtually nothing under his bankruptcy plan. The bond holders lent that car company money at fairly low interest rates only because they knew that if Chrysler goes bankrupt, their bonds will give them legal priority in recovering at least a large portion of what they were owed. The UAW gets almost everything, at the expense of the bond holders.
The result of all of this is that prospective bond holder, in companies with a powerful union presence, want higher interest rates because it is assumed that they will legally be in the back of the line if a firm should go bankrupt. This effect will likely not be very great in extremely solid companies that are at no risk of insolvency in the years to come. What it will do is make capital more expensive for all other firms. If bond holders believe that they will receive nothing if a firm fails and the unions get everything that is left over, interest rates will have to become very high for all but the most rock solid firms. The increased risk plus inflation plus the coming crowding out effect of so much public debt that is going to soon flood the debt market will make borrowing money costly.
Thanks to a reckless budget and a lawless approach to the handling of a firm that fails, the Obama administration is going to make money much more difficult to raise in the future. This is especially ironic because Obama, the senator and the president, were strong supporters of the bailout and whatever else they believed would get the financial system back in to good health. He said the world would end if certain banks were allowed to fail, what he is now doing is much worse, he is removing the very conditions that are necessary to allow capital to flow at all.
No king, emperor or president has been able to defeat certain mundane but salient aspects of economic life and in this case, Larry Summers, Austan Goolsbee and other economic advisor to the president should tell him that when it comes to taking on the bond market, "No You Can't."
Bond markets are by far the most important source of capital and it is more sober and deliberative and much less prone to despair or euphoria, collectively called "animal spirits." They tell us a great deal about where the economy, a firm and government policy is at the moment, the bond market gives far more insights into the future than the stock markets and it has many stories and commentaries of US economic and political history.
The most notable example of bond markets telling the tales from the past is what its yields from the Great Depression tell us. Interest rates (and by extension bond yields) are largely a result of the availability of capital, idle money, relative to the demand for it. As a result interest rates tend to move in concert over time and risk and expected rewards cause certain rates to always be higher than another type of rate at a given moment in time, corporate bonds almost always have a higher interest rate than government issued debt. Any chart that shows the movement of interest rates over the last hundred years will demonstrate this point, with one extremely large deviation.
In the 1930's, there was genuine fear that Franklin Delano Roosevelt would engage in wholesale nationalization of the economy or many sectors of it. Obviously bond holders in those nationalized firms would not be paid back the money they lent those firms in the form of buying their bonds. As a result, by the mid 1930's, corporate bonds interest rates soared, graphically the line representing corporate bonds deviated from all of the other types of debt's interest rates in that same period. Roosevelt, had a great deal of political power but he could not control the bond market, he could not control the market that has served as an accurate barometer of the realities of the business climate at the moment.
There was a similar instance (which was what probably caused James Carvell to make his observation) of the bond market asserting its power over a president. President Clinton, was forced to change his policy course early in his Presidency when he was briefed on markets, government debt and bond market interest rates. Bill Clinton had gran left wing dreams but had to curtail them because he is a brilliant man and pragmatist (although he did not initially take to the news of the bond market well and is said to have proclaimed "you mean to tell me that what I can and cannot do is up to some @#%# bond traders in New York?").
It looks like unlike FDR or Bill Clinton, President Obama is refusing to bow to reality and the inescapable existence of constraints. He has managed to raise interest rates on government debt, especially long term debt as well as on corporate bonds, that have a large unionized payroll. His reckless spending, which will be, as measured by share of GDP (the most relevant measure of government debt), a multiple of the worse peace time budget deficit (which was in 1983 under Ronald Reagan although that was because he had cut tax rates and increased defense spending and as result eventually had economic growth, job creation and higher tax revenues to show for the former and the Berlin Wall in Rubble as result of the latter). The fact that reckless spending by a government will make buying up its bonds more risky and, all things being equal, cause an increase in the interest rate is pretty straight forward.
What is more complex and perhaps even more telling is how the bankruptcy of Chrysler and the treatment of bond holders has effected the bond market. Because president Obama owed several favors to the UAW as well as virtually all labor unions, he forced the bond holders in Chrysler to accept virtually nothing under his bankruptcy plan. The bond holders lent that car company money at fairly low interest rates only because they knew that if Chrysler goes bankrupt, their bonds will give them legal priority in recovering at least a large portion of what they were owed. The UAW gets almost everything, at the expense of the bond holders.
The result of all of this is that prospective bond holder, in companies with a powerful union presence, want higher interest rates because it is assumed that they will legally be in the back of the line if a firm should go bankrupt. This effect will likely not be very great in extremely solid companies that are at no risk of insolvency in the years to come. What it will do is make capital more expensive for all other firms. If bond holders believe that they will receive nothing if a firm fails and the unions get everything that is left over, interest rates will have to become very high for all but the most rock solid firms. The increased risk plus inflation plus the coming crowding out effect of so much public debt that is going to soon flood the debt market will make borrowing money costly.
Thanks to a reckless budget and a lawless approach to the handling of a firm that fails, the Obama administration is going to make money much more difficult to raise in the future. This is especially ironic because Obama, the senator and the president, were strong supporters of the bailout and whatever else they believed would get the financial system back in to good health. He said the world would end if certain banks were allowed to fail, what he is now doing is much worse, he is removing the very conditions that are necessary to allow capital to flow at all.
No king, emperor or president has been able to defeat certain mundane but salient aspects of economic life and in this case, Larry Summers, Austan Goolsbee and other economic advisor to the president should tell him that when it comes to taking on the bond market, "No You Can't."
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