even this ship needs steering



Freddie deBoer used to blog at lhote.blogspot.com, and may again someday. Now he blogs here.

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9 Responses

  1. Avatar Jaybird says:

    Mencius Moldbug has a really kick’n essay up at http://unqualified-reservations.blogspot.com/2009/04/america-zombie-nation.html where he explains that we don’t live in a capitalist system but a Brezhnevian one.

    It’s well worth reading. My take has been (and remains) this: There ain’t no such thing as “too big to fail” in Capitalism. If someone is telling you that this or that company is too big to fail, you aren’t in Capitalism anymore… even if people are telling you “dude, we’re totally capitalists! We’re just capitalists who are too big to fail!”

    The essay paints a pretty interesting picture. Check it out.Report

  2. Avatar Dave says:

    Not much I disagree with, if anything. As far as the question of freedom of contract, my answer is “systemic risk”. Actions deemed rationally individually when exercised collectively can greatly undermine our system. We just saw this phenomenon occur so I don’t understand why Salmon posed the question in the first place. The answer is remarkably simple.Report

  3. Avatar paul h. says:

    Quite right.Report

  4. Avatar Jaybird says:

    “As far as the question of freedom of contract, my answer is “systemic risk”.”

    Can I ask the question of who gets to pick the folks in charge of figuring out who gets to make contracts and who doesn’t?Report

  5. Avatar E.D. Kain says:

    It’s tricky isn’t it? The basic precept of capitalism – trade – is as natural as anything. Trade is generally good, and when there’s healthy competition then trade can bring goods at fairly low costs while providing decent labor and a living for people. That’s the basic element of trade from since forever ago.

    But in our system that isn’t exactly how it works, because at the heart of our system is the idea that companies should be allowed to get as large as they want and then, should they become so inefficient and bloated that they can no longer function properly, it is the public duty to rescue them – even if their faults were self-manufactured and based largely in near-criminal behavior.

    This is systemic, though. Monopolization is always a bad thing; but I would say that along with modal monopolization of industries (see the finance industry take such enormous precedence over all others) there is also a corporate monopoly of many industries over small business. In essence, there is some equilibrium that is destroyed when companies become so large that they defeat widespread competition – Wal*Mart may have some competition in Target, but the two giants together have almost entirely wiped out local retailers. This isn’t real competition, it’s a farce. The banks were on track to do this as well, and it is only slightly ironic that the Big Banks were in such worse shape than the local banks, though it is very telling.

    In any case, I agree entirely that the faith in the system is a little overboard. I think capitalism can work, but only if we can figure out how to better distribute capital and thus risk…Report

  6. Avatar Jaybird says:

    My issue is that this very much reminds me of when one hears a discussion about, say, crystal meth and the havoc it wreaks on communities. Do you want *YOUR* kids smoking crystal meth? How about your neighbor’s kids? No one should be smoking crystal meth. We can all agree on that, right?

    And then the next thing you know, there is a television show on one of those networks called “Dallas SWAT”.

    When I attemped to watch Dallas SWAT once, I got furious after about a minute. The narrator was doing his best to make me identify with the poor victims of crime, if not identify with the brave/bold SWAT members.

    But I couldn’t help but think “dude, that could be my door that they’re kicking down.”

    Hearing someone say “As far as the question of freedom of contract, my answer is “systemic risk”.”, my immediate fear is “This will lead to a television show that shows the authorities kicking in doors.”Report

  7. Avatar Dave says:


    It won’t lead to that. The courts stopped defending freedom of contract in the 1930’s, but even so, there is nothing that suggest that one’s right to contract should allow someone to incur massive negative externalities that could destablize a system. I’m not fully comfortable making those arguments, but we have very fresh observations of the sorts of things that can happen (i.e. deleveraging).

    I’m not a fan of putting this in the hands of bureaucrats, but I think there’s enough expertise out there to provide enough guidance to make what will be necessary changes. As it is, a lot of investors are already looking to get changes to the rules made.

    Sidebar here: I spoke to a former colleague yesterday who was on the mortgage origination side at a major CMBS shop and his response about the ratings agencies with respect to how people were able to get away with all this stuff was, “we had them by the balls”. In doing so, sellers have destroyed whatever goodwill and trust has been built throughout the years.


    I don’t how much “modal monopolization” corresponds to my version of how things happened, although the point about “too big to fail” is duly noted.Report

  8. Avatar E.D. Kain says:

    Modal monopolies, I suppose, just in the sense that certain industries themselves have become so centralized and at once so much more vital to our economic stability than others – in other words, we’ve allowed our financial industry to play far too great a role in our economy, at least in its current “too big to fail” manifestation.Report