Saturday, April 24, 2010

Matt Taibbi vs. Freedom

Matt Taibbi has written an article attacking Goldman Sachs (no surprise), greed and Ayn Rand.

His first contention is that Goldman Sachs is some kind of representative of self-interest. This would be true of sacrifice defined morality, if everything that benefits your neighbors is altruistic and everything that benefits yourself (at your neighbors expense) is 'greed'. The real conceptual division however is between self-interest and sacrifice (either sacrificing yourself to others or others to yourself). The real distinction is between relationships where both parties trade to mutual benefit, to mutual self-interest, and relationships where one party loses.

What does Goldman Sachs represent? Goldman Sachs is a monstrosity of the modern fascist system, wherein 'businessmen' engage in a mixture of legitimate productive activity and politicking for laws that benefit them at the expense of their competitors. Goldman has asked for and received numerous, probably hundreds, of just such special favors. The massive bailouts for one, special exceptions to laws (detailed in Taibbi's own articles), and favorable punitive treatment. Its already gearing up for a special, government protected role in the cap and trade legislation.

Goldman Sachs does NOT represent self-interest, or capitalism or Ayn Rand. Atlas Shrugged specifically attacks businessmen who attempt to get ahead by government favors. It also attacks fiat money, which makes Goldman Sachs' business possible.

Goldman Sachs is a majority government partner in the american fascist state. To use it as some kind of example to discredit capitalism is ridiculous. Its basically an arm of the state. Its insanities don't indict capitalism, they indict statism, fascism, government supports, fiat money and government regulation.

I hope Taibbi is right that the debate over greed-is-good comes to a head. For one, most people recognize that Goldman Sachs is a product of fascism, not of capitalism. If you've been to a tea party rally or seen the videos, bank bailouts are high on the hate list. So is fiat money. Second, perhaps it will be clearly seen that sacrifice of others to yourself is as much the opposite of self-interest as is sacrifice of yourself to others. All sacrifice requires a victim and a recipient. Both Taibbi and Goldman want this heinous cycle to continue and are simply quibbling over who gets to play the role of the recipient. It is only self-interest and trade to mutual benefit, that requires no victims.

Wednesday, April 21, 2010

Review - This Time is Different: Eight Centuries of Financial Folly

by Reinhart and Rogoff

This is an aweful book. Don't waste your time or money on it.

  • Takes Greenspan's line that the 2008 crisis was caused by foreign capital
  • Also blames deregulation and calls for an international banking regulatory body
  • Not a single reference to the excellent analysis of banking, credit, business cycle of the Austrian economists
  • Repeatedly references "Helicopter" Ben Bernanke as an expert, Greenspan's co-pilot in blowing up the U.S. financial system
  • 8 centuries of data and can't find a clue. Repeatedly claims that more data is needed.
  • Makes no attempt to understand the motives or goals of the governments that devalue currencies, confiscate wealth, etc. Thinks he can just create a new metric to predict it.
  • Quite a bit of discussion of the housing and financial crisis in the U.S. Not a single mention of Fannie Mae! Nor is the Fed taken to task. Can they be serious?

If you read this book, you'll be dumber for it. I guess I shouldn't be shocked that an academic, essentially and employee of the state, should let the government off without any serious criticism.

If you want to understand the financial crisis go read an Austrian economist. Crash Proof by Peter Schiff would be a good start. I'm sure there are better ones too.

Monday, April 19, 2010

Don't regulate excesses, repeal supports

Whenever a group of people do something that's to the great detriment of many and benefit to a few, you can bet there's coercion involved. A normal interaction in a free society benefits all parties to the transaction. I want that car more than I want the $10,000 I have, so I trade, with a person who wants the cash more than the car. We both benefit. I work for my paycheck and that payment is more valuable to me than what I would receive by putting my time to other uses. My employer values my labor more than the money they pay for it. So we trade. The transactions can become quite complicated, but the principle remains the same. Free people trade to mutual advantage. Trade to disadvantage must be forced.

In a coercive interaction, one party benefits, and the other loses. That is why coercion is used, because the victim cannot otherwise be convinced to part with his values. People do engage in self-destructive and self-sacrificial actions, but these tend to be in areas where they cannot see the loss or they pretend it doesn't exist. In the economic realm, in the realm of material goods, people don't normally sacrifice. Even religiously motivated tithing is usually limited to a small percentage of a persons earnings.

The point is that if a large group of people over a significant period engages in economic activities that are destructive, there's probably coercion involved somewhere. The solution is not to regulate their destructive activity, as is often proposed, but to to eliminate the coercive element.

Lets take as a first example the housing bubble that burst in 2006. The parties involved were the buyers, the sellers, the agents, the banks, and the investors in housing securities. Among other excesses, the supposedly predatory banks lent billions to mendacious home buyers who had no chance of ever repaying. The mortgages eventually reset, the owners defaulted and their families were soon on the street. The main stream media and most academic experts claim that the destruction was the result of deregulation, i.e. the free market. The proffered solution is to further regulate lending and securities.

On the face of it sane people would not voluntarily participate in such a destructive transactions. In what form was coercion involved then? One important form of coercion was the implicit and explicit guarantees the government made on the mortgage backed securities. The secondary market for mortgages was essentially created by Fannie Mae, Freddie Mac and Ginnie Mae. Investors gobbled up these securities because of that government guarantee. Lenders became clearing houses, merely processing mortgages and handing them off. It was the coercive taxing power of the government used to support the resulting securities that drove the appetite for the securities and drove home prices way beyond home values. The american citizen was the unwitting party to the transaction, guaranteeing the toxic securities. In a way, the sellers, banks, and the rest were pillaging the taxpayer. In the short term it benefited them all and didn't cost the taxpayer, but now the bubble has burst the only beneficiary appears to be the bailed out banks.

What really would have prevented the housing bubble is NOT regulation. The real solution is to withdraw the supports the banks and buyers receive through government incentives, guarantees and government sanctioned ratings agencies. Abolish Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Reserve, the Federal Housing Authority and all the remaining government supported institutions who's goal it is to encourage housing. Then we would have a normal situation in which buyers wouldn't purchase more than they could afford, banks would require large downpayments and proven ability to pay, securities (if they existed) would make sure the mortgages they packaged were high quality, etc. Each person and institution guarding his own interest would naturally guarantee that losses are rare and born by those taking the risks. Excesses would be rare and localized.

Don't treat the symptom (predatory lending and excessive risk taking), treat the disease (government housing supports).

Here's a non-exhaustive list of 'excesses' that are caused by government intervention, i.e. coercion, and need only have supports removed to return to something more sane and rational.

  • Housing bubble. Cause: Fannie Mae, Freddie Mac, the Federal Reserve, Homebuyers Tax Credit. The cure: abolish housing supports and stimulus of all forms
  • Rising costs of university education. Cause: student loan guarantees. Cure: abolish student loans, government student aid
  • Rising costs of medical care. Cause: medicare, medicaid, prescription drug program, tax incentives for HMOs. Cure: repeal the New Deal, Johnson and Bush welfare programs
  • Bureaucratically managed health care. Cause: tax incentives for company provided healthcare over individual spending and insurance plans. Cure: abolish tax laws that benefit specific businesses or sectors
  • Rising costs of insurance. Cause: regulations forcing insurers to cover the sick at a loss. Cure: repeal all insurance regulation
  • Rising costs of labor. Cause: laws that make it impossible to fire workers at will. Cure: repeal labor laws and equal opportunity laws
  • Plummeting quality of lower education. Cause: government controlled education, compulsory certification. Cure: privatize education, abolish certification requirements
  • Pandemic of outsourcing. Cause: rising costs of labor in general. Cure: repeal labor laws, abolish health and safety regulations, repeal minimum wage laws. Individuals can manage risk much better than the government can
  • Irresponsible money management on wall street. Cause: tax incentives that give preference to 401ks over pension plans and flood the market with amateur investors. Cure: simplify the tax code and abolish taxes that are intended to support particular economic activities.
I'll add a couple more than I haven't researched as much, but ring true.
  • Urban sprawl. Cause: zoning laws that support developers. Cure: abolish zoning and let people live close to work if they wish to. No zone and mixed zone cities are much more vibrant than zoned. Think San Francisco.
  • Explosion of fees for tickets, credit cards, etc. Cause: fees aren't subject to sales tax. Cure: simplify the tax code and repeal all tax measures that attempt to manipulate economic activity

Wednesday, April 14, 2010

Obama's Fascist Takeover of Education

A little commented on aspect of the recent nationalization of college loans is that it is a de facto federal takeover of college education. Whenever the government takes it upon itself to support you, you can bet that in a few years they will be telling you what to do. The gift is never free. It will be paid for. AIG discovered this when, having accepted a bailout, they discovered some months later their bonuses confiscated by the government. Decades ago states discovered this when having accepted federal funds to build highways, they found Washington telling them what speed limits they had to enforce on their highways.

The Pharmaceutical industry has found that they have no freedom to object to anything the federal government does, because it is the major consumer of drugs through medicare, medicaid and the prescription drug program. In fact the federal government has found its stranglehold on the pharmaceutical industry so complete that it has decided repeatedly not to enforce its own laws regarding inelligibility for federal contracts out of the knowledge that if that was enforced, the entire pharma industry would be destroyed.

In almost every case, the gift is treated as a wonderful thing, a benefit free and clear. And so the recipient accepts the gift, eventually becomes dependent on it. Then the donor starts asserting his will, his demands, his laws. The recipient cannot object, he has no moral foundation and is unwilling to suffer the financial consequences. And so the donor becomes the master. Ayn Rand, describing this relationship from a different angle in The Fountainhead said that every leash is a rope with a noose at both ends.

If the recipient doesn't have the pride, the principles or the long-range thinking to reject the gift, he becomes a slave. Even if that was not his intention and he would have recoiled from the suggestion initially.

This path to enslavement is a favorite of fascists. Fascists are statists who want to preserve the appearance of private ownership of property. They want power, control, but are willing to leave businessmen (usually their friends) nominally in charge of businesses. Either they recognize their own incompetence and feel the need to have 'experts' taking care of the details. Or they are simply statists with a different group of friends and want to keep them employed. I don't know. It doesn't matter.

And so Obama has taken the next step in seizing control, if not outright ownership, of higher education. He has nationalized the student loan business and made the government the principle consumer of college education.

Not that the situation before this takeover was very good. The government already had partial control by virtue of extensive state schools, student aid and the entire grand system funding research universities. Hence the fact that all universities support the current political situation and few employ academics that challenge it. You have to look long and hard to find an Austrian economist, an Objectivist philosopher, a revisionist historian. They can't get government grants, so they can't get jobs.

And yet small colleges and online universities could exist and didn't have to follow the federal mandates that were attached to grants. One college, Hillsdale, forbids its students from receiving federal aid so that it can judge its applicants without reference to race (in contradiction of title IX).

That small realm of freedom won't last much longer. In a short time all institutions will discover that if they don't meet federal guidelines regarding student racial/financial composition, 'green' campuses and altruistic indoctrination, their funding will be cut off. Not just some of it, but all of it coming from government aid, grants and student loans. No college could survive this kind of assault.

Then the universities, ALL of them, will become cesspools of social engineering and environmental indoctrination like the lower public education system has become, without any alternative.

P.S. before I could post this a new example arrived. President Obama has just signed an executive order directing all hospitals to allow visits of same-sex partners. That a president would presume to tell private institutions what their day-to-day policies have to be is ridiculous. That he does it by edict, without congressional vote makes it worse. What if a hospital refuses to comply? Their medicare and medicaid payments will be frozen. Voila.