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So What Should Be Done?

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James Hanley

James Hanley is a two-bit college professor who'd rather be canoeing.

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41 Responses

  1. Avatar Jon Rowe says:

    “But we should at the very least get rid of the Medicare prescription drug benefit program. This is a program that may end up costing more than Social Security, but without a dedicated funding mechanism as Social Security has.”

    And in turn I think we also may want to think seriously about patent law reform, which may in turn drive down the cost of meds.Report

    • Avatar Jaybird says:

      I’m sure it would.

      We could totally make every drug that currently exists something that must be sold at the cost of production.

      This would make most drugs available for the 4/bucks for a month price, 10 bucks for 3 months pricing that generics currently see.

      And we won’t have to worry about new drugs either.Report

      • Avatar DensityDuck says:

        Great. Are you going to also require that the FDA automatically approve any drug submitted to it? The price of drugs mostly goes into repaying the costs of the clinical trials.Report

        • Avatar Pat Cahalan says:

          > The price of drugs mostly goes into repaying the costs of the
          > clinical trials.

          Nitpick: the price of drugs mostly goes into paying the costs of aggregated new drug development (which is not a universally successful affair).

          We’re also the ones indirectly subsidizing most new drug development for the rest of the world, since drug manufacturers don’t set their prices in one market, and most drugs are cheaper other places than they are here, so most of the cost recovery comes out of our pockets. This is made much more difficult as some countries with very large markets also don’t give a crap about our IP laws, and thus they can make whatever they like there and undercut the open market price.Report

          • Avatar Brett says:

            We’re also the ones indirectly subsidizing most new drug development for the rest of the world, since drug manufacturers don’t set their prices in one market, and most drugs are cheaper other places than they are here, so most of the cost recovery comes out of our pockets.

            I’ve never seen any proof of this argument, or that drugs are somehow much cheaper everywhere outside of America (they enforce patent laws in most of the OECD, for example).Report

            • Avatar Pat Cahalan says:

              Google Scholar will give you what you’re looking for.

              http://www.who.int/intellectualproperty/news/en/Submission5.pdf
              http://jiel.oxfordjournals.org/content/5/4/883.short

              Look up the cost of anti-viral drugs or anti-malaria drugs in third world countries, or just read, for example, Glaxo-Smith-Klein’s financial statements (http://www.gsk.com/investors/reps09/GSK-Report-2009-full.pdf). Actually any large pharmaceutical consolidate financial reports is going to tell you the same thing.

              The risk section includes, among other things:

              Weakness of intellectual property protection in
              certain countries

              In some of the countries in which the Group operates, patent
              protection may be significantly weaker than in the USA or the
              European Union. Some developing countries have reduced,
              or threatened to reduce, effective patent protection for
              pharmaceutical products generally, or in particular therapeutic
              areas, to facilitate early competition within their markets from
              generic manufacturers. Any loss of patent protection, including
              reducing the scope of patent rights or compulsory licensing, could
              materially and adversely affect the Group’s financial results in those
              national markets but is not expected to be material to the Group
              overall. Absence of adequate patent protection could limit the
              opportunity to look to such markets for future sales growth.

              Governmental and payer controls

              Pharmaceutical products are subject to price controls or pressures
              and other restrictions in many markets, including Japan, Germany,
              Spain, France and Italy. Some governments intervene directly in
              setting prices.

              In addition, in some markets major purchasers of pharmaceutical
              products (whether governmental agencies or private health care
              providers) have the economic power to exert substantial pressure
              on prices or the terms of access to formularies.
              The Group cannot accurately predict whether existing controls,
              pressures or restrictions will increase or whether new controls,
              pressures or restrictions will be introduced. Such measures may
              materially and adversely affect the Group’s ability to introduce
              new products profitably and its financial results.
              For example, in the USA, where the Group has its highest margins
              and the most sales for any country, pricing pressures could
              significantly increase as experience continues to develop under
              the outpatient pharmaceutical programme covering Medicare
              beneficiaries that began in 2006. Also, changes to the related
              enabling legislation could afford the US government a direct role
              in negotiating prices under the Medicare programme.Report

  2. Avatar MFarmer says:

    “Yes, there’ll be a lot of screaming, but the rich would still be paying a lower effective rate than they did a couple generations ago, and I think that rate has proven compatible with solid economic growth.”

    I’m not sure you can count the tech-bubble and the housing bubble as solid economic growth — some people made out well, but the gains of many were not solid and now we’re going through a major adjustment. I have a feeling that until we can get to real, sustainable production and the creation of new wealth, not pretend money, or not money gained by refinancing a home, we’re going to see steady decline. A policy of very low taxes and absence of heavy regulation, especially removing the barriers to energy production, will attract investment from around the world, because we still have a favorable business environment in comparison to other countries, and a human rights/worker advantage to China. If we concentrate on economic means and severely limit political means, we can create new wealth, and even those now in poverty will be much better off. A prosperous America has always been a generous, compassionate America.Report

    • Avatar Simon K says:

      I’m sitting looking out my window at ground zero of the tech bubble. I see plenty of solid, real, accumulated capital out there.Report

    • Avatar Mike Schilling says:

      I’m not sure you can count the tech-bubble and the housing bubble as solid economic growth

      Housing bubble certainly not, since all that happened was a temporary inflation in the valuation of houses. The 90’s created a lot of real wealth, unless you think that there’s no value in all the things you can do on the Intertubes.Report

      • Avatar Brett says:

        Moreover, real wages did -finally- start rising in the second half of the 1990s, if I remember right, including at the bottom (where they’d been declining since the 1970s).Report

  3. Avatar Jon Rowe says:

    Can’t tell how serious you are being; it’s the new drugs where this would be problematic. We want to give cancer and AIDS patients, among others, cutting edge therapy which may be based on old stuff, but with some new tweaks. The new tweaks make the entire drug patentable for 20 years. That means new cutting edge drugs will NEVER go generic.

    I know a lot of libertarians don’t believe in IP rights in principle. I haven’t thought thru this completely. But most defenders of capitalism most certainly DO defend IP rights in principle as necessary to bring this stuff to market.Report

  4. Avatar DensityDuck says:

    “I can’t defend having a defense budget that is larger than the next, I think, ten countries combined?”

    If we didn’t have a defense budget of that size, then someone would seriously think they could beat us in a stand-up fight, and the result of *that* would be *much* more expensive than the defense budget we’ve got now.Report

    • Avatar Pat Cahalan says:

      “Where is this Count Rugen, that I might kill him?”

      Who is this mysterious someone who thinks they can transport an effective military force across one of two oceans unopposed to attack us with military equipment that is effectively a collection of our castoffs (without the spare parts)?

      Or are you saying that other countries may become embroiled in military action against each other, since we won’t be standing behind them with a big stick telling them that’s a no-no?

      If the second, two immediate questions arise: should we care… and, even if we do care, how effective a deterrent is the U.S., really? It certainly didn’t stop Iraq from invading Kuwait. It didn’t stop civil war in numerous other locations. It didn’t stop the attack on 9/11. If the opposing state isn’t going to engage in conventional warfare, they don’t really have that much to fear from a conventional force, do they?Report

      • Avatar DensityDuck says:

        “If the second, two immediate questions arise: should we care… and, even if we do care, how effective a deterrent is the U.S., really? It certainly didn’t stop Iraq from invading Kuwait. ”

        Ho, ho, ho. April Glaspie *told* Saddam Hussein that the US wouldn’t respond if Iraq invaded Kuwait.Report

    • Avatar Simon K says:

      Do you mean a foreign war or an invasion? If you mean, an invasion, the logistics involved in invading the United States are would be staggering if the army were a 10th of its size and why would you even do it? You’d be left with a lot of very pissed off people, and a devastated wasteland, which would be useful for …. ?

      If you mean a foreign war, my question is why do we care? Its not like our recent victories have been terribly effective – democracies estalished – 0, terrorist organizations eliminated – 0, people now very angry with us who quite liked us before – 59.6 million. Way to go with that.Report

      • Avatar Koz says:

        Everybody likes to be liked, but that’s not the nature of our foreign policy challenges and it’s dangerous to think it is.

        For example, we all know that Iran is dangerous as potentially holding nuclear weapons. There’s been a lot of back and forth of whether Iran will bomb Israel or vice versa. But there’s going to be a lot of Muslim states, where the US is not necessarily very popular, who nonetheless hope that Israel or the US can either stop the Iranian nuclear threat or provide meaningful guarantees against it. If we refuse (and maybe we should) we have to be able to deal with the consequences of nuclear weapons proliferating everywhere, or the entire Middle East being sucked into Iran’s hegemony, or both.Report

      • Avatar DensityDuck says:

        You say that as though there weren’t a massive US military presence in Western Europe from 1950 to 1990.Report

  5. Avatar Koz says:

    “No, the most pressing problem is not dealing with the consequences of our last mistake, but changing our behavior so we don’t simply make the same mistakes over and over again. “

    Right. This is why, IMO, we have to be able to look at our chances of real recovery in terms of being able to punish liberals for the frame of mind that led us into the problem in the first place. This makes things more difficult that they appear at first glance.

    Reagan once said you can do almost anything in politics if you don’t care who gets the credit. Unfortunately I don’t think we’re in a position to operate that way.Report

  6. Avatar Simon K says:

    James,

    On taxes and spending I basically agree with you, although I’d probably be a bit more radical. I think the Simpson-Bowles report was essentially a long the right lines – the keys are broaden the tax base and eliminate tax expenditures, cut back on medicare and medicaid for the elderly, tweak social security and force defense to make real cuts. In my fantasy tax and spending system, congress would delegate control over tax bands and rates to an independent fiscal agency that set them to pay for congress’s proposed spending over the economic cycle. Not, of course, ever really going to happen in reality.

    I do disagree with you about the bailouts though. Or rather, I agree that we should not bail out banks, but you underestimate the difficulty of not doing so. During a boom, its easy to say that investment banks will be allowed to fail, but no-one has any incentive to stop them taking on risk and above all counterparty risk that will cause a disaster if one of them were to go down. After all, financial profit comes from risk, and during the boom, everyone shares in the banks’ profits. But when a crisis comes, regulators are faced with what is basically a protection racket “nice financial system you have here, shame if anything were to happen to it, of course for a small consideration …”.

    So its all very well to say we won’t bail out banks, but we’re faced with a commitment problem – the banks basically won’t believe us and will carry on doing what they’re doing, because this is what has always happened, everywhere, and they know it. As Simon Johnson pointed out during the crisis, if the US were a developing country the IMF would try to force regulators to behave better, but the US controls the reserve currency and that makes all the difference – the IMF has no influence. Short of putting it in the constitution and forcing the supreme court to surrender all their financial assets I don’t see what you can do about this. Even then it would be touch and go – no-one wants to be responsible for letting the evil villain blow up the world, even if paying them off will only encourage future evil villains to try it …

    The only solution to this I can see is regulatory – you can force the banks to be smaller, you can force them to control their capital ratios and risk exposure, you can force them to arrange for their own orderly resolution, you can force them to pay into a fund like the FDIC that has the power to use that money to wind them up, you can force them to issue convertible debt. But all of these measures meet huge resistance because anything that reduces risk exposure reduces bank profits and the banks have enormous leverage over congress – I consider myself quite cynical, but I was actually shocked to hear Republican congress-critters arguing against forcing the banks to pay for their own orderly resolution on the grounds that it was a “bailout”.Report

    • Avatar Koz says:

      “I consider myself quite cynical, but I was actually shocked to hear Republican congress-critters arguing against forcing the banks to pay for their own orderly resolution on the grounds that it was a “bailout”.”

      IIRC, the GOP opposed the financial regulation bill on just the ground you mentioned earlier, ie, that the there was no credibility that the wind down authority would actually be used.Report

    • Avatar James Hanley says:

      Simon–I haven’t had a chance to actually read the Simpson report, so I didn’t feel comfortable going into its details. But, yes, I agree with them in principle as well. Even if I object to some details of it when I get a chance to really peruse it, I think it would be foolish to do as Pelosi (and others, on both sides of the aisle) have done and begin drawing lines in the sand this quickly.

      I don’t think I do underestimate the difficulty of not bailing out banks, although I probably didn’t express it as forcefully as I could have. Harder than snow-shoeing in the Bahamas, and as risky as skydiving into an active volcano.

      I’ve previously pondered your point about how the IMF would react if we were a developing country. I almost used the phrase “austerity measures.” I’m sure President Obama would prefer to speak to a Tea Party gathering before he’d want to hear that phrase used. But it is more or less what we’re suggesting, no?Report

      • Avatar Simon K says:

        James – On the Simpson-Bowles report, I suspect the chairmen know what they’re doing, and knew what the response from both sides would be. It was hugely predictable after all and the general reception, even from the mainstream media, has been quite positive. They weren’t under any obligation to release their preliminary report, so they must be trying to bounce their own committee into action.

        I don’t think what we’re talking about is quite austerity measures in the classic sense that, say, Ireland faces – there’s no serious risk of the US being unable to service its debt or even of having to pay higher rates if it issues more (yields down again to today), so nothing is really forcing the US into austerity. The US has considerable freedom to devalue the dollar and/or issue more debt if it needs to because of the dollar’s unique position in the exchange rate system – the US has essentially no foreign currency liabilities and anyone who wants to control their exchange rate has to buy dollar denominated assets. As we’re seeing right now, its quite hard to devalue the dollar even if you try. The trouble with all this is that at some point all that debt and outstanding currency becomes a liability for the US taxpayer and consumer, either as higher taxes or as inflation – not now and probably not any time soon, but some day. This is really the best argument for fixing the budget deficit – to allow the US to move the dollar away from its central role in the exchange rate system and therefore to a position where it can truly float rather than being chased by everyone else.Report

    • Avatar Michael Drew says:

      Simon, you’re exactly right about the dynamics of bailouts.. We simply cannot credibly commit not to save the system from total collapse when the time comes. Beyond that there is the fact that those who take on (what they think to be non-)excessive risk have exhibited a pattern of truly convincing themselves that they are doing so not because their downside is covered by the society, but because they’ve convinced themselves that this time, they’ve truly figured out the way they can get the returns while substantially limiting the real risk of ruin. There’s no reason to expect that over time this pattern will not continue. This is why Simon Johnson is so unequivocal about his view that the financial institutions must be broken up and insulated from each other as much as possible, i.e. ending TBTF. Of course, finance will always be interconnected and vulnerable to systemic collapse under extreme and pervasive enough circumstances, but allowing handful of institutions whose failure will guarantee immediate systemic collapse to remain in existence is simply asking for repeated crisis, and constitutes an implied guarantee of bailout in case of crisis regardless of expressed government policy, or even of legal limitations.Report

    • Avatar Pat Cahalan says:

      > So its all very well to say we won’t bail out banks, but we’re faced with
      > a commitment problem – the banks basically won’t believe us and
      > will carry on doing what they’re doing, because this is what has always
      > happened, everywhere, and they know it.

      This isn’t an insurmountable problem, really.

      Financial institutions engage in risky behavior because it is rewarded extremely well in the short run and in the long run the risk is covered by the U.S. taxpayer. Okay, I’m somewhat willing to let that be the case… to an extent. You eliminate the moral hazard problem by returning the *individual risk* back on the bank’s management, who were the ones calling the shots.

      If your FDIC-insured financial institution is under-capitalized and requires a bailout, by a *legally predefined* limit for capitalization, you lose, the Fed takes over the bank.

      Malfeasance by a lower member of the company? That’s rough, too bad, your audit procedures by definition weren’t good enough. All options and other forms of compensation are revoked, any stock in the corporation owned by the board is returned as treasury stock, any golden parachute is canceled, and you’re fucking fired. No financial institution that is covered by FDIC insurance can hire you again, you’re done.

      Yes, you’ll still see some shenanigans as you’ve raised the penalty stick bar higher, so the aversion to getting caught is going to be much higher. But on the whole, banks would get either much more conservative, or would spin off their FDIC-ensured functions into very conservative entities and let the financial wizards do their thing in non-FDIC backed ways.

      This, admittedly, doesn’t help the TBTF claim of automotive giants or investment portfolios or whatnot, but it’s a step.Report

      • Avatar Simon K says:

        Right. But Goldman, Lehman, Bear etc are/were not insured by the FDIC because they don’t take retail deposits. FDIC insured institutions haven’t really been a big problem because most of their capital is insured deposits and when they fail the FDIC just walks in at 5pm one Friday and says “you’re done” and that’s it. Investment banks are where TBTF is a problem, because there is no wind-up procedure except bankruptcy and in bankruptcy the bank’s liabilties would plummet in value making the wind-up next to impossible.

        The problem is indeed not insurmountable from a policy perspective. Ideas abound, actually. The problem is getting those ideas through congress and preventing risk seeping out of the regulated system into the unregulated system. The reasons Lehman etc ended up absorbing all that risk, after all, is that the FDIC-insured banks wanted the return but couldn’t hold the risk on their own books.Report

  7. Avatar Francis says:

    You’ve done a bang-up job of advocating that the purpose of a society is to ensure that the wealthiest members remain untroubled at all costs. Other people take a fundamentally different approach to society. They believe that providing adequate medical care to all citizens is a birthright and that a generational promise to care for the elderly is worth making.

    I admire your honesty if not your goals. My beef with the Republican party these days is that they’re perfectly happy to promise the low tax bit. But when it comes to major cuts in SS, Medicare/aid or defense, somehow not one penny of those programs can be cut. (Oddly enough, Republicans even attack Democrats’ rolling-back of Medicare Advantage, a provably inefficient program, and the new programs in the ACA to fund research into evidence-based medicine.)Report

    • Avatar Koz says:

      “They believe that providing adequate medical care to all citizens is a birthright and that a generational promise to care for the elderly is worth making.”

      Promises that the folk Marxists feel quite comfortable making since for the most part they have no intention of paying for them themselves.

      This last health care battle illustrates this quite concretely. Why do we want to promise free or subsidized health care to all citizens if health care for the elderly is already wrecking us? Clearly there is nothing imminent to suggest that we are going to renege or modify our commitment to senior citizens health care. The only way the Obama plan or anything like it makes sense is if the cost of that commitment is considered somebody else’s problem, leaving the current Demo political establishment free to create new entitlements.Report

      • Avatar Francis says:

        Koz: If you forebear from calling me a folk Marxist, I won’t call you an ignorant fascist sociopathic plutocrat. The fact of the matter is that every single industrialized country manages to deliver comparable care to almost 100% of their people at a fraction of the cost that the US incurs.

        There will always be people at the bottom of the income ladder; the societal question is whether these people get adequate care or not. You are perfectly entitled to hold the position that they should not if they cannot afford it out of pocket. But you don’t get to make the factual claim that providing them care will bankrupt the country — that’s a provably false statement of fact.Report

        • Avatar Koz says:

          “Koz: If you forebear from calling me a folk Marxist, I won’t call you an ignorant fascist sociopathic plutocrat.”

          I sympathize with you a little bit, but unfortunately for your point, I am not an ignorant fascist sociopathic plutocrat, but you are a folk Marxist. Ie, from your comments above it’s pretty clear you are an adherent of folk Marxism, the idea that the private capital base is in general available for open-ended politically or socially favored uses.

          As far as being able to afford medical care for everybody, again that seems very dubious to me considering the havoc that our commitment to medical care for senior citizens is already causing. But then again, you assured us that the contrary was a provably false statement of fact, so by all means go ahead and prove it.Report

          • Avatar Francis says:

            If you google “health care spending percentage gdp” you can get thousands of useful links. According to this site, the Medicare trustees calculated that health spending hit 17.3% of GDP in 2009 in the US. According to the OECD (data here) the next closest country, France, runs its health care system (which covers everyone and therefore does not impose the healthcare job lock that the US does) at 11% of GDP.

            You would rather have low taxes than give everyone decent healthcare. You sound more like a sociopathic plutocrat than I do a Marxist. It’s what you are; wear the label proudly.Report

            • Avatar Koz says:

              “According to this site, the Medicare trustees calculated that health spending hit 17.3% of GDP in 2009 in the US. According to the OECD (data here) the next closest country, France, runs its health care system (which covers everyone and therefore does not impose the healthcare job lock that the US does) at 11% of GDP.”

              No, no, no. This is an argument for something else, ie that the American economy is large enough, on a GDP basis, to fund a program to designed to give free medical services to all Americans. Or (and this is just as important), that such a program if it did exist actually would do that.

              You don’t attempt to argue (for good reason) that we could afford such a program or that we could implement one. I might be able to live without heat perfectly well in San Diego. But it doesn’t follow that I can live without heat in Alaska, or Antarctica.

              Even your narrow GDP argument, and allowing for some quasi-French estimate of cost, still depends on the denominator either increasing or remaining relatively stable. If the last couple of years have taught us anything, we should know that is by no means guaranteed.Report

              • Avatar Francis says:

                Try to keep up. Can we, as a nation, afford healthcare for everyone? Yes. Every single other industrialized country does it, at a sizeable reduction (on a GDP basis) than the US does. Do we have the political will to do it? PPACA was a major step in that direction. But conservatives, oddly enough, seem inclined to keep the basic structure of PPACA yet gut precisely those provisions intended to reduce the growth of long-term costs. We’ll see if they have the votes.

                ps: Marxist does not equal socialist.Report

              • Avatar Koz says:

                “Can we, as a nation, afford healthcare for everyone? Yes.”

                Who’s we, kemosabe? We, as a nation, can fund a program that intended to provide medical services for everybody, only if the political class can extract enough out of the private capital base to do it, as if it were discretionary money in its own pocket.

                We can actually implement such a program if we have that and a hundred other things.

                The health care bill costs a lot more than money. (Or a less elegantly, it costs money in many other ways that the federal government expenditures which fund the program).Report

              • Avatar Rufus F. says:

                Francis, I live in a Communist country (Canada) and what I’ve found is this: My wife’s business brings in a decent amount of money, which is heavily taxed. Her chronic illness requires a decent amount of drugs, which are paid for by the state, through those taxes. Compared to the same situation in the US, we have less money after taxes than we would there, but more money after taxes and getting her drugs than if we’d paid for health insurance. In the end, we come out with more money. So I see the benefits.

                However, the real issue here is that drugs- and every other health service- cost considerably less in Canada. The state is paying and so the state is setting the prices. The Obama health care plan does nothing about this- which is the real problem in the US- instead, you have the state helping to pay costs that are higher than anywhere else. If I break my leg in the US, it costs my insurance company (or me) over twice as much to get it fixed as it costs the state in Canada. Everything is like this. So, in order for the US to afford to pay for health care through the state, reform has to start with the idea of the state setting prices, which I’m guessing would be a hard sell in the states.

                Finally, socialist does not equal Marxist, but Marxism was a theory about the historical inevitability of socialism and the inevitable doom of capitalism. So, in that sense, Marxism is socialist.Report

              • Avatar Francis says:

                words have meaning. Canada is in no way, shape or form Communist. It is, like the US, Western Europe and a chunk of the rest of the world, a mixed economy, with capitalist, regulated capitalist and socialist aspects.

                The reason that the political class has a claim on your pocketbook, Koz, is your status as a tax-paying citizen. If you don’t like it, you have three choice: complain, get the law changed or leave. (no, not Somalia. Someplace a lot more agreeable. But as soon as you find a country that imposes lower taxes, greater regulatory freedom and an equivalent quality of life, let me know. Last I checked, the US has the lowest tax and regulatory burden of any industrial state.)

                The Brits managed to elect a government that is actually proposing to roll back some of the most egregious aspects of the security state. It should be interesting to see if any Tea Partiers are actually libertarians. (I have my doubts; there’s an astonishing tolerance for authoritarianism in this country.)Report

              • Avatar Rufus F. says:

                Yes words have meaning. Sometimes I use those words ironically, or even just to get a cheap laugh.Report

              • Avatar Koz says:

                You should be more clear who you’re responding to. Your post is in reply to Rufus but not topical to anything he wrote.

                “If you don’t like it, you have three choice: complain, get the law changed or leave.”

                People with discretionary capital have quite a few more choices than that. In particular, they can slow down or stop their economic activity, they can pursue economic activity in the black market outside of the government’s ability to tax it, and they can also hold ownership interest in economic activity in another jurisdiction, again outside the government’s reach of taxation.

                In any case, it is a very dubious assumption that the government can collect the anticipated amount of revenue just because they pass a tax.

                “The Brits managed to elect a government that is actually proposing to roll back some of the most egregious aspects of the security state. It should be interesting to see if any Tea Partiers are actually libertarians. (I have my doubts; there’s an astonishing tolerance for authoritarianism in this country.)”

                And for this one, you’re replying to nobody.Report

  8. Avatar Brett says:

    This may be simply a political statement as much or more than a financially justified response, but it’s not a political statement they would dare to make if doubts about the U.S. debt load didn’t exist, so it should be taken as a serious warning.

    It’s a largely meaningless statement from an organization that had its request to rate credit in the US denied.

    I’m a fairly unabashed foreign policy hawk (although not at all a neo-con), but I can’t defend having a defense budget that is larger than the next, I think, ten countries combined? We need to cut that back radically, eliminate some of our overseas bases, and quit trying to play a military role in every single regional conflict.

    Your positions are contradictory. You call yourself an “unabashed foreign policy hawk”, but then call for cuts that would undermine that.

    What we need is a strategic re-assessment of what roles we want our military to play, and then a cutting/re-drawing of the military to fit that. The goals determine the funding, and changing the funding without the goals is a good way to screw up a military and foreign policy tied to it.

    If the reason it was necessary to bail out the banks was because the collapse of any one of them might have sent irreversible shock waves through the financial sector, causing a wholesale financial collapse (which I think was a reasonable possibility, and so the fear of it was well placed), then further increasing that fundamental fragility was a move of astonishing short-sightedness.

    There’s a spectrum of options between “letting banks fail and destroy the economy” and “wholly protecting them for moral hazard”. That’s one of the points of financial reform – to create a way to wind down the banks so that they disappear without destroying the economy in the process (sort of like what the FDIC does with smaller institutions).

    Those details can certainly be quibbled with.

    The last one (and the first couple on budget and debt caps) are nightmares waiting to happen. Government revenue collapses every time we go into a recession due to the fall-off in tax revenues, which means that the above is a good way to make that worse (by forcing the budget-slashing state to dump a bunch of employees into the labor market at a time when it’s already flooded with unemployed workers).Report

  9. Avatar James K says:

    Credible commitment is a huge problem, credibility is very hard to regain once lost.

    The best thing I an think of is some kind of poison pill, whereby policy makers suffer some personal loss for bailing out firms. You’d have to write it into the Constitution, and I can’t imagine a scenario whereby it could garner the support of the politicians it seeks to constrain.Report

  10. “We need to develop the cojones to let businesses fail, even big ones. We need people to suffer for their mistakes, so that they are more cautious in their future decisions. Instead of seeking the next economic boom, we need to condition ourselves to looking for steady, not spectacular, economic growth.”

    Not only should these businesses be allowed to fail so that people are more cautious in their future decisions, but this is the natural cycle of things. The current reigning generation (which I imagine is the first generation in history that has successfully stolen from both the previous AND the next generation), needs to pass the torch to youth and its youthful ideas if we’re to make real progress.

    “Instead of seeking the next economic boom, we need to condition ourselves to looking for steady, not spectacular, economic growth.”

    There is a certain natural continuity of essential momentum of the economy that Keynesian policies essentially deny the existence of. If 40% of our time is spent in policy-derived booms, the busts are going to be just that much more spectuacular as the economy tries to move back into a natural equilibrium.Report

  11. Avatar E.C. Gach says:

    I can’t argue with much of what you lay out. In each case I tend to agree with what you propose from taxes to criminal justice, etc. It certainly wouldn’t be any worse than the status quo I don’t think, so at the very least it would provide an interesting experiment.

    The only think I’m still confused about, a carry over from your last post in fact, is:

    “We have to balance the budget because we can’t borrow ever increasing amounts forever. ”

    We certainly can’t borrow increasing amounts forever. But that seems like a case for reforming the budged of a certain time period. Is that time period 5 years, 10, 30?

    I might have missed it if you already addressed this point, in which case I apologize for my lack of attention. But what has made deficits the seeming disaster of our time?

    4 years ago deficits were not on most people’s minds. Then the economy tanked, for reasons, as far as I can tell, only indirectly related if at all to deficits. Now unemployment seems to be the major problem, but all of the talk is about deficits.

    So my questions would be, how was the economy’s pitfall directly related to government deficits, are deficits a much more serious problem in the short term (and how would you define this short term) than unemployment, do they bear a relationship such that negative deficits would greatly increase the demand for labor?

    On the issue of uncertainty, your admitted appeal to authority while a convenient stand in for a more full fledged argument, is not quiet the “homework” that demonstrates rigor or is convincing. While I’m sure the homework is done on your part, and I mean no offense, I think the issue of “uncertainty” is the most crucial point going forward, and a one that is so metaphysical in nature and so quasi-psychological that it is easily debated without reference to numbers.

    Of all the unprovable theories, why chose the one that dictates “uncertainty” as the culprit, over other equally fleshed out ones.

    What is the best argument you can offer for why any given time X is more uncertain than any given time Y. Or is it not nominal certainty, but only whether people “believe” there is relative certainty that is important. The lead up to the financial disaster seems like pretty good evidence for why egging people on to believe things are more stable/certain then they are is not always a great strategy in the long run, despite it’s profitability in the short term.Report