Putting the cart before the horse (manure)

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Dave

Dave is a part-time blogger that writes about whatever suits him at the time.

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31 Responses

  1. Avatar Rj
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    says:

    This is just like the annoying habit of conservatives to focus on how often Obama uses the words “terror” and “terrorist.” Like the cultural gaps preventing bipartisan compromise discussed in the context of welfare state policy, the conservative focus seems to be mainly on cultural signifiers, dog whistles and other forms of going through the motions to prove your toughness or business-friendliness. It’s the opposite of policy.

    I’m certainly not one to denigrate the power of words, but this strikes me as either utterly moronic or just a convenient way to avoid cooperating on issues of mutual concern without appearing to be rooting for Obama’s failure (I think it’s the latter). Do you really think Republicans will start playing ball if Obama begins his speeches with a dozen Hail Reagans, a series of reasons why terrorists are bad and a poem extolling the virtues of Milton Friedman?Report

  2. Avatar Dave
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    says:

    I think it’s utterly moronic because the evidence is nonexistent. It’s the stuff of ideologues and while I have some (albeit waning) sympathies towards the Chicago School (although I’ve added a little Keynes to the plate recently), it’s nothing more than a crystal ball prediction.

    Part of me wants to ask what alternatives adherents to the Chicago School would suggest but very key components of the Chicago School’s economic theories (rational investors, efficient markets) got sideswiped so badly that I think many of them are still suffering from shell shock. I at least give Richard Posner credit for his change in positions.

    Also, I think you forgot to mention that Obama will also have to listen to Rush’s radio show for 30 minutes a day 😉Report

    • Avatar Koz in reply to Dave
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      says:

      For me at least, the first piece of evidence is right there in the excerpt you quoted. Ie, “Faced with a highly uncertain policy environment, the prudent course is to set aside or delay costly commitments that are hard to reverse.” The immediate context of that quote was about monetary policy and bailouts, but it applies to health care just as easily.

      The second piece of evidence was the embarrassing “debate” over the stimulus package. It’s one thing to believe, in general, that government spending can be used stimulate aggregate demand. It’s quite another to believe that the particular programs the stimulus bill funded would, in the face of substantial reasons to believe they wouldn’t.

      Finally, at least to some extent I think you’re wrong about “economic environment” being the cause of the continued recession. Things are different now than they were a year or eighteen months ago. We are being hurt by an income effect. We already took the wealth effect hit. And the primary cause of the income effect is perception that the government is going to take too big a piece out of the economy. It’s very hard for me to see how that is anything other than an accurate characterization of the intentions of President Obama and his Administration.Report

  3. Avatar Rj
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    says:

    Forget for a second whether or not the Chicago Schoolers are right on the merits. Do they really think that even discussing a policy will make investors quake in their boots? You are right to point out that the survey says no, but that’s still speculation from a different source.

    We’ve been through this before. Surely, you recall the period between the election and a few months after the inauguration when the right (check out the archives on NRO and Instapundit) was braying about how the stock market was tanking because of what Obama might do. Obama passed the stimulus, the market rebounded and now it’s on to fighting the next proposal because it might worry investors. Whether or not the stimulus caused the rebound in the stock market – and while sympathetic to it, I don’t think it did – it’s hard to argue that investors will drop, or have ever dropped, all of their sophisticated analytical tools in favor of listening to talk radio and Fox News’ predictions of imminent doom.

    All this panic is the exclusive province of people who aren’t actually responsible for moving other people’s money around.Report

    • Avatar Koz in reply to Rj
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      says:

      “Do they really think that even discussing a policy will make investors quake in their boots?”

      Absolutely it does, depending on who is discussing what. If you don’t believe me, you can have Bernanke or Geithner or anybody in a position of authority in economic policy start talking about defaulting on US Treasuries and watch what happens.Report

      • Avatar Dave in reply to Koz
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        says:

        Rj,

        Koz is right. When mortgage cramdowns were being debated in Congress, it did have an impact on the mortgage backed securities in that bond spreads did widen out. I don’t remember the order of magnitude but there was movement in spreads on that basis alone.

        Also, the markets did negatively respond to Greenspan’s famous “irrational exuberance” speech.Report

  4. Avatar Jaybird
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    says:

    Obligatory shout-out to Ludwig von Mises.Report

  5. Avatar mike farmer
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    says:

    And you are separating the effects of the economic environment and the political climate for what reason? We’ve had the problem of politics leading and interfering with economics for years — looking at the stock market is misleading. Companies have become efficient, but they aren’t hiring and expanding. A real unemployment rate of 17% tells us more about the effects of government intervention than the stock market — plus, the financial crisis was also caused by government intervention, so it’s just a continuation of cause and effect. Any businessperson or investor with any sense at all will lay low until they know what changes are coming down the pike. The uncertainty right now is paralyzing expansion and growth, and thus the high unemployment and increasing debt.Report

    • Avatar Michael Drew in reply to mike farmer
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      says:

      Well then they’ll be laying low for a long time. Or is there a point coming up here where the future suddenly becomes known?

      ***

      “plus, the financial crisis was also caused by government intervention…” Without further qualification. At least I can’t accuse you of mincing words.Report

      • Avatar mike farmer in reply to Michael Drew
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        says:

        I think you know its not about knowing the future, but having stable rules which investors can trust. The big changes now come from the active minds of statists, not the normal ups and downs of markets, and these changes can add tremendously to the cost of doing business, so companies don’t hire because they don’t know what expensive change will come next. In a normal market where there is very little government intervention, investors and businesspeople can make plans and take calculated risks, betting on a good return — with the changes and intervention being great right now, the risks of investment are too high, because the rules are unstable.Report

        • Avatar Michael Drew in reply to mike farmer
          Ignored
          says:

          So the government should issue the statement, “Effective immediately, until the market self-stabilizes under current regulations we forswear any changes in the regulatory environment.”?

          I take you point that constant rejiggering doesn’t allow for an equilibrium to be established, but this is quite clearly a period of great flux — in ‘natural’ market behavior as well as (therefore) in the reg. env. Government is going to respond to events like these. The point is to get that as right as possible and then I’m with you on stepping back. There’d be major instability if it Ron Paul had been elected and it was thought a government retreat was maybe in the offing as well. Your argument for stasis is neither realistic nor does it cut toward less intervention.

          But is this about markets or hiring? I mean, companies don’t hire if they think their volume isn’t going to dictate it. If they think they’re gonna need the hands, they get the hands, even if they think there’ll be some weird new procedures to deal with. If they don’t, they won’t.Report

          • Avatar mike farmer in reply to Michael Drew
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            says:

            Stasis is the last thing Im advocating — I’m arguing for dynamism and spontaneous order, in a market where smart people can calculate and predict and use their expertise to meet demand. Government intervention makes economic calculation impossible. This is what happened in the Soviet Union and evey other central planning government.Report

            • Avatar Dave in reply to mike farmer
              Ignored
              says:

              I’m arguing for dynamism and spontaneous order, in a market where smart people can calculate and predict and use their expertise to meet demand.

              I would argue that you’ve just described the subprime mortgage business during the housing boom. It was not a government construct, especially since nondepository institutions operated outside the regulatory environment and lobbyists for those groups were able to successfully kill off attempts to impose more stringent standards on their businesses.Report

              • Avatar mike farmer in reply to Dave
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                says:

                Government misdirected capital with pressure to expand home-ownership — this set up the crisis — plus CRA competition was blocked by government. Without the implicit backing of the government and without skewed regulation, lenders would never have taken the wild risks.Report

              • Avatar Dave in reply to mike farmer
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                says:

                CRA banks did not hold a government-created monopoly on lower-income borrowers. They had plenty of competition from nondepository finance companies who were getting their lines of credit for loan origination from Wall Street, especially Bear, Lehman and Merrill.

                Unregulated or lightly regulated mortgage lenders were far more aggressive in attracting subprime and lower-income borrowers than CRA banks because their underwriting standards were far less stringent. Liar loans were a free market construct. The CRA had nothing to do with it.

                I know why the lenders took very wild risks: because lenders weren’t assuming them. Why not? The loans that the originators/brokers originated were being packaged and sold to securities. This originate-to-securitize model was operating in a drastically different fashion than traditional balance sheet lending, and a business created to meet the demand for mortgage-backed securities. The collateral had to come from somewhere.Report

              • Avatar Michael Drew in reply to mike farmer
                Ignored
                says:

                I’d be interested to know whether Mark and other bloggers here view the origins of the crisis in the same way.Report

              • Avatar Barry in reply to mike farmer
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                says:

                Last I heard, the CRA amounted to ~1/2% of loans. Please find another bugaboo.Report

            • Avatar Michael Drew in reply to mike farmer
              Ignored
              says:

              The possibility of changes to the regulatory environment make market calculation more complicated. A stable, rational regulatory regime is a perfectly predictable state in which to predict and operate in markets (and is almost universally acknowledged to be a prerequisite for realizing the profound social benefits of the market — and for sustaining a productive market in which to do business).Report

          • Avatar Koz in reply to Michael Drew
            Ignored
            says:

            “I take you point that constant rejiggering doesn’t allow for an equilibrium to be established, but this is quite clearly a period of great flux — in ‘natural’ market behavior as well as (therefore) in the reg. env.”

            Yes and no, in ways that liberals have a hard time figuring out. At some time between January and April of 2009, the economy stabilized. No big macro indicator improved, but the nature of the problems became clearer, and the time horizon should have adapted. For the mistakes and giveaways associated with TARP, Bush, Pelosi, Geithner or whoever can be forgiven to a large extent because the situation in August and September of 2008 demanded urgent actions of some sort.

            The Obama Administration started from there, with TARP, and added the stimulus bill and the cramdown and mortgage modification assistance and all the rest of it, in a situation where the problems as bad as they are, are much less urgent. This is why the Obama recovery looks the way it does.

            If we want a recovery that most of us would recognize as such, we have to bring the Republicans back in power.Report

          • Avatar Michael Drew in reply to Michael Drew
            Ignored
            says:

            I should definitely acknowledge, though, that health care reform is most definitely scaring potential employers at this moment. The employer health insurance mandate is clearly a deterrent to hiring in this environment. I took Mike to be talking about government internevtion in the form of routine regulation, esp. of the financial sector. I regard something like HCR as a quite extraordinary circumstance, but if it was what Mike was referring to I take his point. I sometimes wonder whether the White House quietly kicks itself every day that they launched this crusade this year that is pretty clearly at cross-purposes to their overarching goal of brining back the job market.Report

            • Avatar Koz in reply to Michael Drew
              Ignored
              says:

              “I sometimes wonder whether the White House quietly kicks itself every day that they launched this crusade this year that is pretty clearly at cross-purposes to their overarching goal of brining back the job market.”

              I think you might be giving them too much credit.Report

        • Avatar Dave in reply to mike farmer
          Ignored
          says:

          Mike Farmer,

          Unfortuneately, while I am very sympathetic to the notions of free markets, dynamism, spontaneous order and allowing people to voluntarily and freely transact with one another so long as those transactions don’t involve force or fraud, applying these ideals in the purest sense to the complexities of financial markets is akin to stuffing a square peg in a round hole.

          Government intervention makes economic calculation impossible. This is what happened in the Soviet Union and evey other central planning government.

          A price system is impossible in a centrally planned economy because allocation of resources is controlled by a central planner ignoring any supply/demand considerations. The Austrians’ arguments against central planning are spot-on correct; however, we are not a centrally planned economy.

          Those arguments do not apply in regulated economies because, as we see in our markets every day, we do have functioning price systems. While intervention may increase the cost of doing business, perhaps to a point where it becomes cost prohibitive, those things are factored into the prices of goods and services through normal supply/demand market mechanisms.

          Government intervention is not the same as central planning nor should it be viewed that way.Report

  6. Avatar Bob Cheeks
    Ignored
    says:

    This phenomenon occurred during FDR’s terms also. It’s just that Americans (businessmen) don’t trust commie-Dems and their proclivity to confiscate wealth and consolidate power. It ain’t good for bidness. His Enlightenedness has already proved a burden and continues thus.Report

  7. Avatar Pete
    Ignored
    says:

    While I agree with you, that not always is the case that the government’s policies are to blame for, but in this case there is definitely a reasonable doubt, that the policy is contributing to the way business owners are making their decisions. We have an economic downfall that hasn’t been this bad for many years. There is a tremendous fear on the part of business owners, and especially small business owners of what the future will bring, and every time the Obama administration discusses policy, it has tremendous ramifications on the part of business owners.Report

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