The Economic Debate: Did We Need Government Intervention? 23 comments
an article to
-
Font Size:
-
Print
- TweetThis
There was an amusing debate on CNBC between my friends Rick Santelli and Steve Leisman about which of them is wrong concerning the markets and bailouts. Here is the gist, and the video follows.
Leisman accuses Santelli of economic Mellonism -- liquidate! liquidate! -- and of being in favor of (and these are my words here) some sort of economic Wall-E, with all of us somehow going off-planet until the credit market carnage subsides. I don't disagree with this take, and I think that too many people get off easy -- Jim Rogers included -- in pushing the simplistic idea that you could have let banking systems collapse, drive employment to double-digits, and just live with the subsequent societal carnage.
On the other hand, Santelli argues that Leisman is pushing a benign view of government interventions out of A Wonderful Life. He says Leisman is ignoring government's prior failures during other massive economic/market interventions, of which there are many. And Rick is dead right, and he could marshal far more evidence than he does, but his point stands.
My take: We were stuck with doing something, as we had created a system that was over-leveraged, tightly coupled, and prone to systemic collapse. The fabric of this society is weak enough that no-one could predict the impact of that rupture, and so we had to reluctantly take steps to bail the system out. We now have a monstrous obligation to make sure it doesn't happen again, which is part regulation, part behavior, and part turning banks into something more like public utilities, but one thing at a time.
Does it mean I'm happy with what is happening? No. I want the government back policing the streets, pushing snow, and putting Illinois governors in jail, so the sooner that happens the better.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
For example, if we spent $1Trillion and acheived energy independence, that would be money well spent. That $1T investment would pay economic dividends for years. Similarly, if we restored federal college financial aid and graduated more doctors, nurses, engineers, and scientists as a result, that would pay dividends for 2-3 generations. Investing more in primary education would be a big boost. Improving ports, railroads, and roads would allow people, goods and services to flow faster and cheaper. Again - taxpayers receive the dividends for years.
What we are actually investing in is quite different: failed SUV companies, subprime mortgages, losses of private investors, postponing the Iraq civil war, etc. These things are unlikely to ever improve our standard of living. It's money down the drain, borrowed from China. The debt remains for the next generation to pay off and we receive very little benefit for it.
That's what the real debate should be about.
Without the Government Intervention I am almost sure the whole banking system would be dead and the companies still alive would make row on Fed door to take credit as well the population putting money on Treasury.
The whole economy is based on trust, and in this scenario no company would trust noone, not even own clients. Would be a total mess.
This is not the question. Is how the Government can do it without affecting too much the free market.
Sure they could have come with better solutions, but when you need to act fast there's no time to lose.
The next stage of this business will be citizens submitting actionable plans and the technology allowing citizens to vote on those plans, and streamline them. The collective intellect of America must be harvested in such fashion to bear constituent pressure on Washington. Raging Debate is a side project for me, to serve my country doing what I know how to do best with social networking technology. My profession is in Consumer Health. Email me sometime Mr. Kedrosky at founders @ raging debate .com .
On Dec 09 05:17 PM Chris B wrote:
> Fiscal stimulus can be good if taxpayers get something for their
> money.
>
> For example, if we spent $1Trillion and acheived energy independence,
> that would be money well spent. That $1T investment would pay economic
> dividends for years. Similarly, if we restored federal college financial
> aid and graduated more doctors, nurses, engineers, and scientists
> as a result, that would pay dividends for 2-3 generations. Investing
> more in primary education would be a big boost. Improving ports,
> railroads, and roads would allow people, goods and services to flow
> faster and cheaper. Again - taxpayers receive the dividends for years.
>
>
> What we are actually investing in is quite different: failed SUV
> companies, subprime mortgages, losses of private investors, postponing
> the Iraq civil war, etc. These things are unlikely to ever improve
> our standard of living. It's money down the drain, borrowed from
> China. The debt remains for the next generation to pay off and we
> receive very little benefit for it.
>
> That's what the real debate should be about.
Broken Window
Consider the shopkeeper whose son has broken a window. While the shopkeeper bemoans his loss, passersby console themselves that at least some good will come of it: the glazier has to earn a living and will be called to repair the window.
Bastiat points out the fallacy of this thinking. The shopkeeper will part with 6 francs to repair the window - and has to forego the purchase of a pair of shoes or a book that he would otherwise have made. What is hidden is the cost to the cobbler who does not sell a pair of shoes - or the cost to the bookseller who does not sell a book. Also the tanner does not sell leather nor do the printer and author receive any income from sale of the book.
Government spending inevitably has a visible benefit and a hidden cost. We always need to examine the hidden consequences. Is there a cobbler who loses his livelihood while we create work for glaziers? And what will happen when the intervention ceases: are we going to have a large number of unemployed glaziers - who took up the trade because work was available?
Dig a bit further and we find more hidden consequences. The price of glass rises because of increased demand for window repairs, making construction of new shops more expensive. If we extend this analogy to other input costs, demand for new shops would fall, causing a loss of livelihood to shop-builders, shopkeepers and shop assistants. On the other hand, if the shopkeeper had intended to invest in a new soda machine, rather than shoes or a book, he may now have to forego the purchase. And will no longer need to employ an additional shop assistant to operate the soda machine. So there would be less employment for both the makers of soda machines and for shop assistants.
On Dec 09 05:06 PM User 233462 wrote:
> Whenever someone backs government intervention, it tells me that
> they are either 1) one of those who believes it's fine to consume
> more than they produce, including welfare recipients right through
> to crappy businesses with poor practices (which incidentally is most
> businesses these days), or
> 2) those that stand to benefit from a class of people who are too
> dependent on other people/companies/gover... etc for there own well
> being, rather than being 100% responsible for their own results in
> life.
>
> I'm sorry, but there is no other reason to support idiots (sorry
> not idiots but clever people who appear to be idiots), who continually
> lie (sorry prove to be wrong) to us all the time.
On Dec 09 05:17 PM Chris B wrote:
> Fiscal stimulus can be good if taxpayers get something for their
> money.
>
> For example, if we spent $1Trillion and acheived energy independence,
> that would be money well spent. That $1T investment would pay economic
> dividends for years. Similarly, if we restored federal college financial
> aid and graduated more doctors, nurses, engineers, and scientists
> as a result, that would pay dividends for 2-3 generations. Investing
> more in primary education would be a big boost. Improving ports,
> railroads, and roads would allow people, goods and services to flow
> faster and cheaper. Again - taxpayers receive the dividends for
> years.
>
> What we are actually investing in is quite different: failed SUV
> companies, subprime mortgages, losses of private investors, postponing
> the Iraq civil war, etc. These things are unlikely to ever improve
> our standard of living. It's money down the drain, borrowed from
> China. The debt remains for the next generation to pay off and we
> receive very little benefit for it.
>
> That's what the real debate should be about.
On Dec 09 07:11 PM neilc38@msn.com wrote:
> Colin Twiggs, from Incredible Charts, published a passage today from
> Frederic Bastiat's famous Ce qu'on voit et ce qu'on ne voit pas where
> he addresses the hidden consequences of government actions. As a
> 'classic liberal', he distrusted government.
>
> Broken Window
>
> Consider the shopkeeper whose son has broken a window. While the
> shopkeeper bemoans his loss, passersby console themselves that at
> least some good will come of it: the glazier has to earn a living
> and will be called to repair the window.
>
> Bastiat points out the fallacy of this thinking. The shopkeeper will
> part with 6 francs to repair the window - and has to forego the purchase
> of a pair of shoes or a book that he would otherwise have made. What
> is hidden is the cost to the cobbler who does not sell a pair of
> shoes - or the cost to the bookseller who does not sell a book. Also
> the tanner does not sell leather nor do the printer and author receive
> any income from sale of the book.
>
> Government spending inevitably has a visible benefit and a hidden
> cost. We always need to examine the hidden consequences. Is there
> a cobbler who loses his livelihood while we create work for glaziers?
> And what will happen when the intervention ceases: are we going to
> have a large number of unemployed glaziers - who took up the trade
> because work was available?
>
> Dig a bit further and we find more hidden consequences. The price
> of glass rises because of increased demand for window repairs, making
> construction of new shops more expensive. If we extend this analogy
> to other input costs, demand for new shops would fall, causing a
> loss of livelihood to shop-builders, shopkeepers and shop assistants.
> On the other hand, if the shopkeeper had intended to invest in a
> new soda machine, rather than shoes or a book, he may now have to
> forego the purchase. And will no longer need to employ an additional
> shop assistant to operate the soda machine. So there would be less
> employment for both the makers of soda machines and for shop assistants.
Contend with that basic fact first and foremost and go on from there.
Unfortunately, the bailout preserves the holdings of parties who would otherwise be deleted. Those parties - institutional shareholders, foreign governments, etc. - are quite powerful.
With all of the assistance in the key economic areas ,investors are still wondering when the U.S economy will attain stability.
Without the TARP and other synchronized actions that were taken by the FED ,Administration ,and the Congress ,we would be heading for unprecedente economic turmoil-Depression 2.
Is this the author's death wish?
I have always found it a bit curious that the folks screaming fire in the theatre were the ones who caused the problem in the first place. It's happening again with the Auto bailout.
Prior to this financial crisis GM and Ford were heading towards Chapter 11 with nary a peep from the political class. Now the world is ending and they are too big to fail. Oh really.
I think Rahm Emmanuel said it best when he quipped, we can't let this financial crisis go by without taking advantage of it.
Hello Big Government--worse still, the people are demanding it. Ah, the well worn road to serfdom.
And to those who say, well it is bad anyway and we don't know what Paulson is doing - you are correct, unfortunately we have to trust him and the other technocrats (or should that be econocrats).
And sure American government is now socialist and so on, but it is not that suddenly we have all adopted the European model. It is just that there seems little alternative (though personally I'd let the auto makers go into bankruptcy).
For your info, most banks are leveraged about 10 tmes. The leverage is much lower than in the past when banks were only required to have about 5% in capital.
It is the investment bankers, brokers/dealers that have created all the derivatives that are leveraged to juice up returns.
the financial system crashed because of cheap money, excess credit and excess leverage, the natural consequence of which is a contraction of credit and leverage, and an end to cheap money. these factors are the root causes for the years of economic malaise that lie ahead. there is little the federal reserve can do about that, as they are now beginning to understand. you can lead a horse to water.....
the federal reserve and the congress have been the junkies peddling this poison of cheap, plentiful credit and overleverage, and we're paying the price for their shortsighted, dysfunctional policies that encouraged, even rewarded, it. what's remarkable is that they still urge overleveraged consumers to borrow and insolvent financial institutions to lend...in the name of economic growth, of course.
pay me now or pay me later. our government has bought depression on the installment plan. the likely end game is inflating their way out of the hole they've dug.
Excellent article! Watching Rick & Steve go at it is always entertaining & interesting. I especially enjoy Santelli! He is very bright, quick, never seems to be rattled on any issue - and, has the demeanor of a very successful Carnival barker. Lovely stuff! Thankyou!!