Awkward Utopia

on February 4, 2010

. 0 Comments

University Economics Society
February 2, 2010

Awkward Intros

Discussion: Political Free Speech

Jeff: I want to start with a story that is semi-unrelated. Not everyone is a basketball fan, but everyone knows who LeBron James is. He is a free agent after this season. He’s been on the Cleveland Cavaliers, a small team, and hasn’t won any championships. A lot of teams will try to get him. Nike, who sponsors LeBron James, said they would give him an additional 10 million dollars for signing with the NY Knicks. This has never happened before, a company trying to influence sports. It will be very interesting to see what happens. It’s kind-of like how corporations will now be able to influence politicians.

Derek: I am actually going to come on the other side of this. One thing I constantly heard is that candidates have to spend their careers raising money-$75,000 a week for a Senate member. They don’t get to legislate, they have to raise money. It’s going to take a lot of pressure off of the candidates. I think it’ll free up a lot of their time.

Rafael: Do we as consumers get to control companies who control these politicians? If we don’t like what candidate or legislation McDonalds is supporting, for instance, we can buy Burger King.

Jeff: I don’t think there’s enough transparency for consumers to do that.

James: As Jon Stewart said: Newsflash: companies can now use money to influence elections. I think he’s wrong for once. I think this is a big deal. This will be really good for politicians, not as good for corporations. The decision was made on the 24th. I took the change between the end of Friday and the opening price on Monday and NewsCorp went up about 3%, NBC 2%, Dow Jones, 2.78%. You can see how much of a difference this is already making.

Derek: The Supreme Court is singlehandedly lifting us out of the recession. Congratulations.

James: Companies used to say to politicians, “we are on your side, but we can’t give you more money.” But now I fear for the companies. We know how it is with construction companies. The legislators get the lower people and hit them up for money. It would be on a much larger scale.

Jeff: This decision I saw coming when they added it to their docket. It brings up two major issues: 1. Corporations running the political scene, thus corporations taking over. 2. The other is the freedom of speech issue. Is donating money a type of freedom of speech? I think it’s hard to argue otherwise. There’s really 2 issues at play there.

Rafael: The court was talking about corporations having freedom of speech like individuals do. We have to decide if that’s right.

James: They use the 14th amendment to justify that the corporation is a person. They use the equal protection clause. It isn’t spelt out. It’s a scam basically. Nowhere in the Constitution says that a corporation is a person. The founders’ intent was to protect individuals from the corporations’ power.

Jeff: I think that what I was trying to get at was that John Roberts, I don’t know if anyone reads the New Yorker, but they wrote a long article about him and how quietly he is steering the court to the right. More importantly than the 5-4 decision, it’s the fact that they chose the case.

Rafael: I work on a lot of congressional campaigns and I am blown away that the case did not deal with a corporate donation to a campaign. The court used the free speech and equal protection of cases involved to overturn a case of Feingold saying you can’t write checks to this campaign. From a legal semantics stand point I thought the court was over-reaching. Is it legal? Absolutely, because they did it.

Derek: It’s disconcerting that they broadened the scope. There were two boisterous voices dissenting, and those two voices were Scalia and Roberts. Anytime they change law, they do it with the “case law is important” except for everything we care about.

Rafael: Just wait until they bring up abortion and other things people will get riled up about. Personally I think they are testing the waters. Someone was just talking about them moving the court to the right; I think that whether you agree or disagree with that, it’s important for us to be aware that this is happening.

Jeff: The two justices that will retire first are conservative, but they are still relatively young, so it could be awhile.

David Goldenfarb: As long as there is disclosure, I don’t think it’ll be that big of a deal. If McDonald’s was pushing for a certain candidate’s election, as long as I know they are doing it, that’s ok.

Derek: I think you are missing the issue. I think the scary thing is that McDonald’s could threaten you.

David Goldenfarb: We go on the assumption that everyone is stupid. We can see who they are donating to, these are public records. It might take a while, but people will put the dots together.

Derek: You wanted to talk about the effects of this: 97% retention rate in Congress.

David Goldenfarb: Money doesn’t make the difference, incumbency does.

Rafael: It all goes back to media. Television is the easiest way to reach the most people. There are real costs in campaigning that need to be paid for.

David Goldenfarb: No one is disputing that there are high costs, but realistically, according to academic papers that I have read, more money is not going to be very important.

James: You said that I thought companies are being conspiratorial. I think we need to protect companies from politicians. At the end of the day money might not influence them, but you still have to pay for these campaigns.

Derek: Is the voter going to say, the place that employs everyone in my town is going to vote for them, so I’m not going to vote for them?

Rebecca: Basically, I think that this is all bad.

Derek: I would very much like UES to come on the liberal side of this issue.

James: I’d get pissed at any company stock I hold that would spend money on a commercial because that money could be used for dividends.

Derek: It seems that when it’s unlimited, it can get ridiculous.

Jeff: It’s not truly unlimited. The only thing you really have to worry about is a crazy billionaire, buying ridiculous advertisements; with companies or corporations giving money, it’s always a tradeoff. They could spend money for a campaign, or capital expenditures.

Rebecca: Doesn’t that put small companies at a disadvantage?

James: The thing is: a corporation is not a person. There is nothing stopping stockholders from using their dividends to give out money to Planned Parenthood or wherever they choose. Why does it have to be a corporation giving out money?

Rebecca: I almost feel like the law will protect free speech, like small states have just as many votes as large states. It gives the corporations more power than other interest groups. I think it’s bad.

James: What if you look at it like the prisoner’s dilemma? This gives power to corporations and unions.

James: GM was making $10 million in profits and the workers were making their money, but now there is an opportunity to sway politicians one way or another. They could come out and say “I love John McCain because he believes in a higher minimum wage, etc.” This is helping the news more than anything else, it’s not adding value.

Nathan: There’s no reason for a major corporation to make a donation that won’t be recouped. At a certain point, some parties will say it’s not worth this much.

Jeff: So it’s going to be a more efficient marketplace?

Nathan: No.

Matthew Lytton Hughes, the Great: Should we put the bills on eBay and whoever has the most money can vote for the legislation they want?

James: Marijuana would be legalized so fast.

Jeff: So I think I will be more interested in seeing where LeBron James ends up.

Derek: There are three legislators trying to draft a Constitutional amendment stating that corporations aren’t people.

UES Minutes January 19, 2010

Published

on January 29, 2010

. 1 Comment

University Economics Society
January 19, 2010

Announcements: We need t-shirt ideas. Something funny is good. Let Matt know if you have any clever ideas. In the past we’ve had : “Economists do it with models” and “profits before people”.

Awkward Intros

Topic: Globalization

David F.: I believe globalization is good because of the global advantage we get from trading with other partners. But the U.S. needs to be very careful to retain critical industries like ship, tank, bomb building, and other war industries. I don’t want us to get screwed in the long run.

Jeff: The recent economic meltdown has shown us how interdependent all of the countries are. There was this domino effect, following the U.S. housing bubble, other countries’ bubbles, and China sending money to us, we’ve really already become so globalized.

Ali: I agree with you. I feel that globalization is mostly westernization or Americanization. When the world becomes globalized, it means that you are eating a Big Mac and wearing jeans.

David F.: You don’t like Big Macs and jeans?

Ali: People can wear whatever they want. But I don’t like that globalization seems to take away from other cultures. Also, globalization only benefits the rich and prosperous. Empirical evidence says that only rich countries gain from it. All the restrictions in the poor countries prevent them from benefiting. For example, we can’t buy agriculture products from Africa.

Eric: China itself has chosen to adopt Western values. In the 1940s they thought they should adopt capitalism, and income/person increased. Globalization doesn’t mean that certain people are worse off, in the long run they benefit.

David F.: Starbucks coffee, Coke, and McDonalds would not be around if not for globalization. Why would you want to take that away from people?

Derek: It seems like globalization is good in a lot of respects. The only limit we should put on it are regarding environmental market failures.

David Goldenfarb: Something to consider is that you won’t have any one country dominating every industry, it’s not possible or feasible. The U.S. can’t be the best at producing a million different things and wipe everyone else out. As far as the richer countries go, they trade amongst each other a lot. There is a huge amount of trade that goes on in Europe. That distorts some of the numbers and is something to look at.

Esteban: There are two sections of globalization: trade and information. Trade is kind of hard to globalize because of certain interests. In terms of information, I don’t think it’s feasible because first world countries are first because of their access to information.

Derek: I know there are a lot of global environmental issues. China feels as though they have the right to harm the environment because they are in their industrial revolution, and we did it during our industrial revolution. We should just not buy their products instead of trying to make regulations for another country.

David F.: Why would you make me pay more?

Derek: You should pay more.

Jeff: Ali brought up an interesting point about the issue of affecting culture. It’s true that when countries become industrialized they adopt many American cultural identities. I wonder if that will change in the future, if we will see industrialized nations that don’t look like America. I wonder if that’s possible, to keep a local identity.

James: That is definitely possible. Who is responsible for the proliferation of American culture? The local culture that is being overtaken. They have a responsibility to preserve their culture.

Rebecca: The culture is because of the media, American movies and such. They try to outlaw it, but that just makes it more attractive. People are better off, not all of them, but their quality of life is better when they change, rather than staying how they are.

Ali: There are a lot of good things about America and western cultures, the value of hard work, and that everything is possible, but the problem is culture wise, wearing jeans and eating a Big Mac is in itself not a big deal. It’s a big deal when you find 13 year olds who are affected by the media that are losing their local culture and home language. It’s good for people to have the choice, but without filter it is dangerous.

Rebecca: The dangerous thing is the filtering.

Ali: This influx of the media coming from a different culture is a different thing.

Jeff: It breeds extremism. Some people react to this in a very bad way when it is this drastic.

David Goldenfarb: Is it the cultural changes that promote extremism or is it local reasons like poverty that promote it? While people around the world are exposed to American culture, the people in the west are very aware of other cultures. People in the U.S. study Arabic, Mandarin, etc.. I know in Canada a certain percentage of the music must be played by Canadian artists. I know this is in effect but I don’t know how well it works.

Nathan: I don’t know if this is too exogenous but I think it’s difficult to argue against globalization. It defeats the point to have Americans decide what should be Americanized and what not. I don’t think you can have a fair and natural filter. It can’t be a natural synthesis if the government of a country decides only this and this can happen. A lot of the governments don’t represent the country’s majority. If people willingly accept it, there’s nothing you can do. If a school should have mandatory custom learning classes, that could be an option.

Esteban: They are evolving the system. McDonalds sometimes has different products in different countries.

Ali: I want to respond to Derek (whose comment was not written by request ). You said many things that I will disagree with. The problem is, yes, there is a lot to learn from this culture, but the stuff the rest of the world gets from the U.S. is bad media. When I go back home to Jordan, people ask me about U.S., they watch American Pie and ask me if I get laid. That’s what they think of Americans. That is what people get from this country. It’s basically the junk that is getting to the rest of the world. The image of this country is the one that Hollywood exports, and it’s not correct.

Derek: The solution to bad speech isn’t less speech, but more speech. We are a dumb culture. Other cultures are dumb too. If they can’t differentiate, it shows how much they need our culture.

Ali: It’s nothing of high quality. They don’t have documentaries or anything. People here are not doing the right thing to expose to the rest of the world how America really is.

James: We are talking about other cultures as if they can be summed up. The nuances and subtle traits that you don’t experience in our culture is what distinguish one culture from another. We are just stereotyping. You can’t account for 100% of a culture even if you go live there. People are different in ways that can’t be influenced by the media.

Jeff: I have a cousin from New Zealand, an English speaking country, and they have a very warped sense of what America is like. They thought it wasn’t safe to walk around at night because they watched the show Cops. Globalization as in trading with other countries and more interdependence economically is on the whole a good thing. It has the potential to be warped good or bad. It can help us and help third world countries climb the ladder. China is the best example. But it can be harmful if it’s used just as a way to get around the rules. There has to be some level of pollution, but China is getting ridiculous with pollution, and sweat shops where the employees are basically slaves. It’s a double edged sword that we need to play with.

Julia: It can be a double edged sword, but it’s mostly really good for industrial nations, but other countries don’t have the resources to produce on the mass level. Take Haiti for instance, they can’t compete in the global world.

Rebecca: I think it helps the developing nations, because they are cheaper labor.

Jeff: (Random Outburst) Pat Robertson said that Haiti made a pact with the devil.

David Goldenfarb: I agree that globalization helps poor countries, but Haiti has few resources and has continued to lag behind because of poor governance which effects the security situation. Haiti has 9 million people, mostly unemployed. Are you really going to commit millions of dollars to a country that might have different leadership tomorrow, natural disasters aside?

Nathan: I’m a really big fan of globalization for a lot of reasons. It’s advantageous for not poorly managed developing nations. I also want to say that if globalization is done wrong it can have a lot of downsides. If property rights are not protected, or if a simple thing is done wrong, there can be a lot of bad things to come from that. Globalization has been developing for over 60 years and it is still in its infancy. A lot of nations still aren’t up to speed. Right now is a bad time, but it’ll only get better from here, less biased and poorly done than now.

David F.: In GEA1000, Geography of a Changing World, which I really recommend if you need an international credit, we learned about globalization. Globalization 1.0 began ages ago with kings and queens. What is more global than the Roman empire? It’s not new and modern, it has been going on forever. I can fly 5000 miles away and still go to a McDonalds and Wal Mart, and feel at home, which is great.

Ali: Surprisingly enough I agree with David that globalization didn’t start recently, but just recently with the ease in transfer of information and people, made it maybe too fast for the rest of the world to understand. I would encourage all of you to think about what globalization would look like if there were more than one super power around the world. Would it really be Americanization? Jeff already asked a similar question.

Book Review: Superfreakonomics

Published

on January 24, 2010

Continue reading ‘Book Review: Superfreakonomics’

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In short, if you liked Freakonomics, you will find a lot to enjoy in Superfreakonomics. Everything that is wonderful about the first book- the attention to quirky details of human behavior, the engagement with politically contentious issues from an unorthodox perspective, the edgy writing style- is present in spades in its successor. And while em>Freakonomics had some chapters with less than enthralling subject matter (like trends in naming babies), every chapter in the sequel is interesting. Based upon the customer review on its Amazon page, I wouldn’t be surprised if you read this book and disagreed with me. But in all likelihood, if you’re a fan of economics or social sciences, I think (hope) you’ll love this book as much as I do. Details after the fold.

UES Minutes January 12th

Published

on January 13, 2010

in Politics and UES

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UES meeting 01-12-2010

Announcements:
Business Bash is this Thursday, January 14th from 5-7PM in the Reitz Union Grand Ballroom. Come visit us! We will have cookies and brownies :)

Awkward Intros

Discussion: General Motors

Travis: I love Government Motors. The Chevy Camaro is awesome; I’d like to ride one. The Volt will appeal to Hollywood.

Liz: We don’t need to persuade you to buy GM do we?

Travis: Well, I don’t know about that. They had no competition initially, and when faced with (foreign) competition, they didn’t do well. I think they are in a better spot then Ford, because GM has tons of government money. All of this money will show up in their product lines a couple years down the road. GM has labor concessions because of the bankruptcy. There are several reasons why GM will be a good company. Ford not necessarily ran their company better, but they got lucky. Their new chief from Boeing had a 24 billion dollar loan, so they were able to burn through that during the financial crisis. If Ford didn’t have that accidental loan, they would be bankrupt also. Ford has a very good current strategy but they need years to implement it.

Jeff: GM really sucks. They are really fucking awful. Government Motors is not a whole lot better. Their cars are horrible. They are bloated by the money they have to pay to the UAW and money to pay to the past employees. They have too many product lines. They probably will fail, even after we prop them up. We can’t keep supporting them forever. Ford is doing a little bit better but foreign manufacturers are clearly far ahead of them. They make better, more popular cars. We shouldn’t help GM so much, but it’s typical. All you hear about is how we are losing jobs, so they want to maintain these jobs in the auto industry. But we should just create jobs in other industries. I would never buy a GM car ever. The Chevy Volt, I’m sorry, is garbage. It’s a hybrid, and they should just call it that.

Matthew Lytton Hughes, the Great: It’s expensive, like $30,000-40,000.

Jeff: Buick survived? Who the fuck wants to drive a Buick?

David: Over the last few years I have had experience with Ford products, and I think they are getting a lot better, even in international markets. They have done well lately against German and Japanese cars.

Rebecca: I subscribe to Consumer Reports, and they just came out with top cars, and Ford is consistently ranked in the top.

Jeff: Ford is doing better, but the main problem with American cars is that they are not good at designing the space. If you see it from the outside, it looks roomy, but it’s cramped on the inside, that’s the experience I’ve had. It has extra plastic all on the inside. I have an old 1996 Toyota Avalon and it runs like a charm and nothing has ever gone wrong with it. I can pack 6-7 people in there. I’ll probably stick to Toyota in the future.

Matthew Lytton Hughes, the Great: Hyundai is the new Toyota. That’s the future.

Liz: I drive a Ford Focus, a two door hatchback and it’s huge on the inside, but I have had so many problems with that car. My mom swore 15 years ago she would never buy another Ford, but we did, and there has been nothing but problems with that too. My dad’s BMW doesn’t have problems.

Matthew Lytton Hughes, the Great: I think the question we need to be asking is, “is this a good precedent to set?“

Jeff: This is what I was trying to get at before. I don’t know how much this will help GM 10 years from now. I have seen more changes from Ford and they didn’t get help. GM just slashed a whole bunch of their brands.

Eric: It’s not just about money and making a better car, their name is damaged. Everyone buys a Toyota now.

Jeff: Reputation definitely has something to do with it.

Travis: But at the same time, imagine a drive by shooting in a Cadillac Escalade, the point is, take the same drive by shooting in a Toyota Avalon, based on functionality on gang violence, GM is clearly the best one.

Tia: My family owns a Saturn, and my mom loves it. She was so sad that GM cancelled it. They did have something good, they just didn’t focus on it.

Jeff: It’s really interesting if you follow the financial shenanigans that GM has been doing. They split the company into two, and the government owns one part. The new part will have stock offerings hopefully by the end of the year (we’ll see), and they are trying to get their cash flow where it needs to be. It just seems like they are moving things around a lot.

Rebecca: I think there is something to be said about buying American.

Jeff: Part for part the most American car is the Toyota Camry.

Travis: BREAKING NEWS from the New York Times: Chief Executive Officer of GM says they are on the road to profits. So it must be true.

David: Amtrak hasn’t expanded service much in the past 15 years. The train does go 80 miles per hour though. I worry that any company that is taking too much support from the government will fall into that trap, and they have been for the past 40 years. I don’t think Uncle Sam propping them up will help much.

Julia: I think GM failed because they couldn’t respond to consumer needs. While foreign companies looked to the future and made smaller, faster, fuel-efficient cars, GM didn’t. They ruined their reputation. It’s really kind-of their fault. The government should probably not subsidize them, they should subsidize environmental standards instead. But then again, if GM went totally under, many people would be unemployed and upset the largest union.

Matthew Lytton Hughes, the Great: Is the UAW the largest union?

Jeff: I’m fairly certain.

Travis: If Amtrak fails and goes bankrupt, all this machinery will just be laying there. I always think that if you can find a buyer, that’s the better option, always.

Jeff: The Pontiac Silverdome sold for $500,000. I could have bought that, with loans of course. The size of our cars is invariably linked with gasoline. We started making bigger cars when gas prices were low in the nineties, but now we are trying to shift to more fuel efficient cars. If we would have taxed people earlier on, then we would have gone to fuel efficient cars sooner, so maybe that would have been better for GM.

Tia: You can kind of see that in their stock, the biggest increase was in 1999.

Travis: The new Chevy Equinox is 32-33 miles per gallon on the highway, and that’s an SUV that we are talking about. This GM car gets this much and it’s not a hybrid. A lot of these cars are more fuel efficient than foreign cars. Sure GM screwed up, but in the long term I think it’ll be a really great company. Even this Volt that only makes 40 miles to the gallon, a step in this direction is very positive. The government supporting GM is better than it collapsing, the other option. They were burning through cash, not getting credit, and no one was buying cars because of the recession. The cars weren’t built yet for the gas prices; it was the perfect storm of conditions. It was the result of very bad luck.

Jeff: I think you can look at it like that or see that it was a long time coming.

Julie: A company needs to be an innovator to be successful, and look 3 steps ahead. Now we have many foreign competitors and we need GM to do better than them to compete effectively in this market.

Jeff: They need to essentially act like a smaller company, which I don’t know is possible.

Travis: From WWII, If we didn’t have GM, we could have lost the war. They made everything from planes to tanks. Hitler pushed so hard because he saw America’s strong industrial base. In a time of war, you don’t want foreign people having open books to what you are doing; you want experts in manufacturing. Hypothetically if we got into a war with China, which we’d be dead anyway, we’d want our manufacturing sector. That’s important.

David: Maybe not all 250,000 or so people laid off would find jobs right away, but a large number of them eventually would. A lot of foreign manufacturers make their cars in the U.S.; they could have done that same thing with these workers to GM plants.

Travis: People were worried about having the Great Depression. It takes something extraordinary to get us out of something like that, like WWII. I was reading about what Ben Bernanke did, and if we would have let GM fail, there were a couple of weeks there that people were in absolute panic. Bailing them out may have been a bad decision in hindsight but it was a good decision for the time. It could have caused the economy to plummet a lot further.

Jeff: I’m still not buying GM.

IRS Cracks Down on Tax Preparers

Published

on January 5, 2010

in Current Events and Economics (General)

. 0 Comments

NPR’s Wendy Kaufman reports that the IRS is set to Regulate Tax Preparers:

…the tax preparation industry is huge and it’s growing. And it turns out that about 60 percent of us use paid preparers, and in many cases, those preparers aren’t regulated at all. So you’ve got everything from tax lawyers and CPAs to the guy who hangs out a shingle in March and disappears a few weeks later. The IRS wants to crack down on the shoddy operators or those who are simply incompetent.

So the IRS expects a tax preparer to stay in business from May to February, when business is virtually nil? And to guarantee competency within the industry (a breathtaking endeavor from an agency considered the consummate bureaucracy), the IRS wants to go further and regulate all providers to a certain standard.

Tax preparers are going to have to register with the federal government and get an ID number. In general, everyone except lawyers and CPAs will have to pass competency tests, and they’re going to have to take continuing education courses. And they’re going to have to comply with ethics rules that currently don’t apply to them.

Can anyone guess what will happen to the price of tax preparation in the aftermath of these rules? Does the IRS assume that it is helping taxpayers when the cost of seeking advice increases due to the restriction in the supply of preparers resulting from the hassle of these new rules and the price of these licenses (in terms of direct cost and time).

Here’s where NPR’s own stilted coverage comes into play. Without ever quoting a source opposed to the introduction of these regulations, Kaufman goes on to quote two very partial sources:

By the way, Consumers Union sees these rules as a big first step in getting rid of bad actors. H&R Block, the largest tax preparation company in the country, said it too viewed the rules as a positive step. So we’re coming a long way, it looks like, at least from the IRS’ perspective.

The Consumers Union is one of those organizations that misunderstands its own role in society, to protect consumers from low quality service and shoddy products. Instead, it advocates the federal government to assume its own responsibility trough more regulations, and in this sense, is doing a disservice to consumers everywhere by imposing upon them higher prices. Meanwhile, H&R Block is applauding having much of their competition simply legislated out of business. To reinforce the latter point, Newsmax reports that the National Association of Tax Professionals also supports the move.

The typical proponent of these rules would argue that benefits of establishing an industry standard outweigh any potential increase in costs. Yet, what they ignore is that, in the status quo, consumers are still free to see the upscale tax preparers should they desire higher quality. The difference is that they are not currently forced to. Of course, according to these individuals, consumers must be protected from themselves.

The rules don’t go into effect until next tax season. It will be interesting to observe the shift in prices over the next few years.

Update: John Stossel points out:

Of course, IRS help centers give bad advice too (when they actually answer the phone.) A 2004 audit found that IRS help center employees filled out 19 of 23 returns incorrectly. But the IRS Commissioner didn’t mention that in his licensing announcement.

There’s a better way to fix the problem of bad tax advice: simplify the tax code!

The idea of licensing itself, however, is stupid. Stupid, but appealing to an ignorant public. We license drivers. We license dogs. It makes people feel safe. But licensing is often a device that established businesses, colluding with government, use to keep competitors at bay. I’ve reported how licensing for hair salons, far from protecting customers, can put enterprising hair salons out of business.

Might I add that the easiest way to simplify the tax code is to implement a flat tax?

Laws and Lawyers

Published

on December 12, 2009

in Current Events and Economics (General)

. 1 Comment

If you frequently watch television, you may have noticed Verizon Wireless’ “There’s a Map for That” ad campaign, a spin on Apple’s iPhone “There’s an App for That” commercials, poking fun at rival AT&T’s supposedly limited 3G wireless coverage (AT&T is currently the exclusive iPhone carrier). The verbal sparing between the two erupted into an all-out legal war recently. Cnet reports:

Some complaints over “misleading” advertising are filed with the National Advertising Division of the Council of Better Business Bureaus, which is the industry’s main self-regulatory program for national ads. But others go to court and file lawsuits under the Lanham Act, which was passed in 1946 to strengthen trademark law. Verizon’s lawsuit cited the Lanham Act.

Did you notice that the two companies went to an industry arbitration committee first? The existence of the Better Business Bureau is evidence of the self-regulating nature of free markets, through competition and private oversight committees. The advantage of this system of private justice is the reduced costs since Verizon and AT&T don’t have to hire expensive teams of lawyers (which would be passed onto their customers), judgement is swift, and the rulings are based on the merit of each case, not the letter of the law, which can be capricious and arbitrary.

Now imagine that that the Lanham Act didn’t exist- wouldn’t it be logical that each party would give the arbitration system a good-faith effort before resorting to the temptation of legal action? This is how the American justice system, set into place by politicians (mostly lawyers themselves), corrupts human relations. Instead of two individuals or groups seeking a mutually agreeable solution, they utilize the power of the state to impose their will on others.

I am of the opinion that the legal profession should be limited in scope. Justice Antonin Scalia recently remarked that “we are devoting too many of our best minds” to lawyering. Is this not because we have too many laws? From trade to personal relations, almost every aspect of human activity is regulated and/or curtailed. Now, there are appropriate areas for clear, simple rules to be established; criminal justice and contracts and estates/wills come to mind. But entire other areas should be scrapped, most notably intellectual ~~property~~ monopoly, antitrust, drug law (by ending the war on drugs, tax law (by simplifying our tax code into a flat tax), and tort law.

But as long as our politicians believe in the beneficence of government and the courts, and the legal lobby wields enormous influence, the hope for reform is slim.

Update December 14, 2009: This topic reminds me of an exchange between Hank Rearden and Floyd Ferris in Atlas Shrugged. Ferris says,

There’s no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren’t enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What’s there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted and you create a nation of law-breakers.

For more on this topic, a worthwhile resource would be the Heritage Foundation’s Overcriminalized project, as well as the book Three Felonies a Day.

Walter Williams on the Pretense of Knowledge

Published

on December 6, 2009

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I cannot possibly say it any better than Williams, so I’ll leave the floor to him. (h/t LewRockwell.com)

The ultimate constraint that we all face is knowledge — what we know and don’t know. The knowledge problem is pervasive and by no means trivial as hinted at by just a few examples. You’ve purchased a house. Was it the best deal you could have gotten? Was there some other house you could have purchased that 10 years later would not have needed extensive repairs or was in a community with more likeable neighbors and a better environment for your children? What about the person you married? Was there another person who would have made for a more pleasing spouse? Though these are important questions, the most intelligent answer you can give to all of them is: “I don’t know.”

Since you don’t know the answers, who do you think, here on Earth, is likely to know and whom would you like to make these decisions for you — Nancy Pelosi, Harry Reid, George Bush, a czar appointed by Obama or a committee of Washington bureaucrats? I bet that if these people were to forcibly make housing or marital decisions for us, most would deem it tyranny.

You say, “Williams, Congress is not making such monumental decisions that affect my life.” Try this. You are a 22-year-old healthy person. Instead of spending $3,000 or $4,000 a year for health insurance, you’d prefer investing that money in equipment to start a landscaping business. Which is the best use of that $3,000 or $4,000 a year — purchasing health insurance or starting up a landscaping business — and who should decide that question: Nancy Pelosi, Harry Reid, George Bush, a czar appointed by Obama or a committee of Washington bureaucrats? How can they possibly know what’s the best use of your earnings, particularly in light of the fact that they have no idea of who you are?

UES Minutes December 1st

Published

on December 3, 2009

in UES

. 0 Comments

UES meeting December 1, 2009

Announcements:
-Elections are next Tuesday! Available positions are president, vice president, treasurer, secretary, and historian. Let Matt know if you plan on running. You can slate/trickle down if you do not get your first choice position.
-Banquet will be next Thursday, December 10th at Ale House at 7PM.

Awkward Intros

Net Neutrality

Alan: The debate is over whether internet providers should be forced to allow all traffic to go at the same speed, to not have preferences. With the alternative, without net neutrality, the providers could favor websites that would pay them money to access their content more.

Matthew Lytton Hughes, The Great: The main question is how much control should the government have over the internet?

Nathan: I want to mention that there is obviously a moral/ethical argument. Based on what the network says, they either have to raise the price for everyone, or people who use the most have to pay the most. It is not just a matter of treating everything discriminately, but how should you treat the traffic?

David F.: My opinion is that the government should not interfere in the business of private companies. As long as they inform you that they will be regulating traffic, the free market solves problems, not creates them. It’s not like there is no net neutrality now. I can’t illegally download music. So why do they get faster traffic than me?

Eric F.: I am going to immediately rebut. There is so many barriers to entry for ISP to start up. In Gainesville, all you have is Cox.

James D.: You can’t say it’s a monopoly; when we talk about regulation it’s a free market, but when we talk about entry, it’s a monopoly. It’s one or the other. We can’t say both. We could regulate them, or what they want is only 2 cable companies and they are allowed to do whatever they want. You can’t just put cable lines up anywhere.

Derek: We allow them to collude with the understanding that for geographic reasons we will only need 1 cable company. There is special protection. It’s not really a free market.

James F.: If we allow cable companies to go to websites and regulate the speed and access, it allows them to behave like a mafia. It’s just like going to stores and saying, “if you don’t behave like I want you to, I will slash your throat and shoot your customers.”

Nathan: What is the parallel?

James F.: It will be able to say I am not going to let certain consumers access your market. AT&T is saying, “eBay pay me a certain fee every month or no one in Florida can look at your website.” Therefore, eBay will pay AT&T. They have gatekeeper ability. If there is violence around your store, you have less customers-same concept.

Eric S.: The way it is now, and what will probably happen is it will be based on data consumed and downloaded. It will charge you for use. If you download 300GB of movies, you will be paying more. I think that is what the market will lead to. The ISP does not want the government regulating them. It will happen with the wireless carriers too.

James D.: That still doesn’t solve the problem of net neutrality. Adelphia is a monopoly basically and they don’t have the same incentives. It does not really have to do with data total. They could still do that if we didn’t have net neutrality.

Eric S.: But if you just use data you will have no reason to have net neutrality.

Derek: Comcast and AT&T both did test markets. In both markets they found that neither one was receptive to data limiting in any regard. The payment model didn’t work and led to the idea that cities should provide these services publicly. They diverge whenever it turns out that the market doesn’t want them at all. If you try to limit it on any respect, we simply go to other options. It becomes personal. A city near Boston tried to start their own company to provide high speed internet to everyone. This brought them to court. The telecom companies will try to protect their monopolies. Because cable companies were restricting pure peer usage…

David F.: It’s theft.

James D.: No it’s not. Peer to peer network is the best to transfer large amounts of data that wouldn’t fit on a flash drive.

Eric F.: It’s a low cost solution for transferring large files.

Alan: I think there’s a couple of issues regarding net neutrality. There’s an issue about favoring Disney over Mattel. How much data is actually being transferred? When people who are in favor of enforcing net neutrality, they give the worst case scenario. If you don’t approve net neutrality, someone will favor Disney over Mattel. People who are opposed to net neutrality, if the net neutrality were approved companies could not discriminate on how much people use it. People who are using peer to peer networks will crowd out others. There is an interest for the companies to slow down or limit peer to peer usage. These are the arguments used. Most people recognize that it’s a monopoly then we have a right to regulate it. However, if it’s not a monopoly, we can’t regulate it. But is it a monopoly or not? To which is it closer and how should we treat it? It’s not a monopoly. You only have 1 cable and telephone provider. You can connect to the internet through several different options: clear wire, satellite, cellular, fairly quickly it becomes competition rather than monopoly. If we are going to treat it at as monopoly, then we should regulate prices. Prices are not completely outrageous for the internet. The cost of regulating it would be a lot higher than the benefits. There are at least three providers therefore it is closer to perfect competition than pure monopoly, so it shouldn’t be regulated.

Jeff: I am going to give one of my favorite quotes: Ted Stevens said that “the internet is not a dump truck, it’s a series of tubes.” Old people don’t really understand the internet needless to say. The internet was invented (for practical use) in our lifetime. It’s an extremely new and rapidly changing technology as far as how it is used. If you look at how we use the internet versus our parents its night and day. Issues like these are bound to come up. We don’t know how the internet will be used 10 years from now. Internet is such an integral part of our life and yet it basically begun in our lifetime. This is amazing to me. I think one of the key things that the internet provides is a method of spreading knowledge to people around the world. I know that people, maybe not us, use it as this. This could restrict people from gaining that knowledge. Therefore, that’s one argument in favor of net neutrality.

David G.: I didn’t know much about this topic. I don’t know how it’s feasible to fairly charge customers based on different levels of service or tiers with regards to the sites. If you charge people something, you have to let them know about what the charges will be. Twitter was nothing, maybe didn’t exist three years ago, but there are dinosaurs in the internet. The point is that it is really difficult to continually let people know what the prices would be on different sites. Even if you had a pop up for every website you entered, it just doesn’t seem feasible.

Daniel: The internet is just communication. There’s competition. Being a part of my generation and seeing the precious internet regulated, we are blowing this out of proportion.

Eric F.: I want to respond to that. In regulated media we see magazine, TV, newspaper. The internet is a gem. To regulate in this case seems like a good idea. I don’t believe in privatizing internet access. I don’t want net neutrality to go away. If you put regulatory detail on TV, radio, it’s like the same thing. It would crapify the internet. It would have the reverse effect. The internet can’t compete with TV.

Daniel: It’s the same thing, just faster and cheaper.

Eric F.: You can use the internet for research. You flip on the TV and watch junk.

Jeff: In my house, we watch the Discovery Channel.

James F.: We have to remember that sometimes government regulation can be there to make things more free, and net neutrality is one of those things. We can regulate our way to more freedom.

Nathan: Someone said something about books. Limiting certain people’s access to knowledge you can get through the internet. The money it costs to buy books is also a limiting factor. There’s always a limiting factor to whatever you do. The price now is a limiting factor for the internet. David’s argument is very good. You can’t effectively block the websites.

Eric F.: You have a white list of websites to access.

Matthew Lytton Hughes, The Great: If you buy tier 1 you can visit rich media sites, like hulu and youtube.

Nathan: You can’t realistically block websites individually.

Derek: It’s entirely possible and it’s been done in the past.

Nathan: You can block protocol, different kinds of traffic, and limit it. One says you can use this or that, there is ways. It’s bad for consumers when my grandma pays $30 when she only goes on websites to look at plane tickets. I’m pretty sure that it’s not a stretch that 40% of users use the internet 3 times a month.

James D.: Basically if you are charged for water you are charged for water and the cost of getting it to you. In that sense, the internet is not water. The cable companies provide the tubes.

Jeff: did Al Gore invent all of that?

James D.: Yes. There is plenty of internet to go around. It doesn’t just increase exponentially. It’s like 2n. The computing power doubles every two years. That South Park episode where the internet dried up was funny because it was wrong. When you are saying, she’s using this and this, that’s what we get from the internet, the cost is the speed. Someone who is using 50GB in 10 seconds is expensive. Someone who used 50GB in a month will be very cheap. If they need to get the data fast then you need…The cost is not based on the data as much as it is based on speed.

Alan: It’s both.

James D.: Speed is a better way of saying it. If we want prices to go down we have to look at costs, not usage. If you use more data really slowly, it’s not slowing down the internet. So you think you should pay about how much you are getting. If your grandma uses the internet and it’s not worth a lot to her, she shouldn’t pay a lot. But if I use Wikipedia….your grandmother needs to shop around. I have AT&T the most basic package for $9.99. What’s best for consumers is the lowest price. If you look at it from the perspective of why are they doing this now? 2 years from now the internet will be double the speed.

Does Paul Krugman Censor Comments?

Published

on November 12, 2009

in Persona

. 1 Comment

In response to Paul Krugman’s post The Agony of Fox Business yesterday, I submitted the following comment:

Mankiw already demolished your logic on this one Paul. First, you assume that stock market returns are equivalent to economic growth, which I’m sure you already know aren’t comparable. Second, you can’t just draw a line between stock market performance under a president and the policies that president promotes. There are, you know, other factors- friendly or unfriendly Congresses, a lag in the implementation and effect of said policies, etc. Even you have used the latter reason as support for the stimulus (but it hasn’t even taken effect yet!). For example, Clinton had a conservative Republican Congress for 6/8 years. Can you attribute the growth to them? Bush II had a Democrat Senate for 2 years and Democrat Congress for another 2. Can you blame them? But then again, that shouldn’t stop an ideological liberal like you from raising a dishonest argument.

I entered this comment very shortly after his original post appeared in my RSS Reader. Yet, as of today at noon, my comment still has not appeared on his website. Indeed, remarks submitted later than mine have shown up.

It’s sad to see a Nobel Prize winner reduced to this.

UES Minutes November 3rd

Published

on November 11, 2009

in UES

. 0 Comments

UES meeting November 3, 2009
I. Announcements:

Next week we are showing Power of the Poor in Matherly 119. Two weeks from now we have our guest speaker who was a Vice President for Iran, and graduated from UF.

II. Awkward Intros

III. Discussion: First 287 Days

John: Well, I think this is the kind of question where the criteria has to be addressed. Realistically and politically, we have to realize what is possible. I give him a “C” based on freedom of action, and I’m sure a bunch of people are upset about bail outs, but that had to happen given our political system. A lot of the supposed measures to have regulations, well, there is a time and place for state intervention, but a lot of the attempted ways are counterproductive or amount to pointless subsidies. I’m not impressed. As far as the big economic issues: banking process, the energy bill looks like mostly subsidies we don’t know what the return on investment will be. Again, I give him a “C”, I think a lot of people on the left want quotas, carbon taxes, this is just impossible in the U.S. Also, we wouldn’t let the banks just drown.

Ali: Republicans are douche bags, as a disclaimer. The Republicans are trying to cock block everything Obama is doing. There are so many variables we should look at when analyzing the economic situation. As Hillary Clinton said, he seems to be doing a lot of learning on the job. In the treasury, some of the positions weren’t filled within 4-6 months of his presidency. Overall, he is trying to do good. He is absolutely excelling in comparison to George Bush. There is willingness to do good.

John: I thought there were appointees, but they were just waiting to be appointed in the Senate?

David G.: You are referring to the staff positions.

Jeff: I would have to say that since I am a pretty pure liberal, I wish Obama would do more about one thing or another, prosecute former Bush staff members for example, but realistically, he has to focus on the future. I wish he would focus on a public option for healthcare, but he is just looking to have a healthcare bill at all. He is doing a pretty good job. Job losses would have been much worse than they are now, laying off a lot more teachers, etc. The bank recovery is inevitable. There is still a lot of work to be done with regulation. He’s already won the Nobel Peace prize which is pretty awesome. He restored our standing with the rest of the world, for no other reason than not being as big of a douche bag as George Bush. They are really making strides with Iran. They are taking their time with Afghanistan, which is probably a good thing, abandonment or take out some troops, I don’t know yet. I trust that he puts the right people in the room. The economic advisors he has are top notch. I want to respond to John, the president does not make laws; he is not Congress, so he can’t be judged like that. All he can do is corral Congress to do things. He doesn’t write regulations. Health care and the environment are two of his top priorities and he is working on those. He fulfilled his Constitutional duty by appointing a Supreme Court justice.

David G.: I’m glad Jeff brought up the Egypt speech because it’s a very important speech. I haven’t really liked him much since. I want to talk about GDP. GDP grew by 3.5 percent, we should all be happy, but most of that is from Cash for Clunkers (40% of 3.5% increase). The rest of the percent is because of government spending. I think the spending is happening, but we can’t say that the stimulus is working. If you are going to buy a car, you may have bought one 6 months from now. Let’s not get excited about it just yet. Most of it is not genuine consumer spending, most of it is government spending. We can judge later. Today there are elections that will show how people view the government. In Virginia, a Republican will win. This liberal Republican was running, and dropped out, now a conservative candidate will be taking that seat.

Travis: A quick response to the elections: the NJ governor race, the independent guy who is not really conservative, although people see him as this…a Republican will win VA for a number of reasons: the Democratic candidate promised to increase tolls and is an awful public speaker: Deeds. He has had a difficult campaign. One of the founders of BET just mocked him and said he is awful because he can’t speak English. You have a reaction, multiple sides of the political spectrum: Democrats, liberal Republicans, Conservative party candidate. That’s why the liberal Republican dropped out. The chairman of the Republican party had to endorse a Republican candidate but the conservatives in the party wanted the conservative party candidate. Sara Palin probably started that trend. “I’m more conservative than you.” “ No you aren’t”, etc. I am being facetious. Point being, the Republican Party is facing a lot of pressure from the right.

David G.: I think it’s another important thing to keep in mind. The pressure from the right could be a factor of the growth of government under Obama.

Eric F.: The most important issue is making sure the US stands in healthy competition in the global economy. I want to pose a question to our Republican friends: we are already stuck with a Federal Reserve System, so what would McCain have done differently?

Tia: I voted for McCain, although Obama is a better figurehead. I agreed more with what McCain said he wanted to do. I think he probably would have ended up doing the same thing because it was the only option. I thought he could accomplish more, and I agreed with him more. I think what Obama says he could do, he couldn’t. With economic policy, it’s like we were up the creek without a paddle.

David F.: Obama said he knew everything about the economy, and McCain admitted he didn’t. That’s the difference.

Ali: Don’t generalize.

John: Who are experts on the economy?

Ali: David Denslow.

Jeff: Are you asking who knows the financial sector or the economy? The financial sector is only one part of the economy. As we have seen in the past year it is a very important part, but it’s only a part. Now one with a system of shadow banking and crazy derivatives, no one really understands that.

Alan: Looking at if Obama is successful, is he successful by his terms, mine, or what he has said he will do? He may be successful by his terms; he is not successful by mine. I want him to fail. I want his policy initiatives to fail. I continue to think there are too many political appointees and civil service career people. I don’t know if the president will tackle that problem. I do agree with his Supreme Court appointee. I was expecting a disaster. As far as foreign policy, I don’t think he has succeeded in getting foreign powers together. He should not have received or accepted the Nobel Peace prize.

Jeff: Is that a rule that no president should accept it?

Alan: If he donates the money, he gives it to a cause he wants. If the Constitution forbids him to accept the money….

Jimmy: Mother Theresa lived in a sand hut for years and won the Nobel Peace Prize. I don’t think Obama has done that. If he were such a Peace Prize kind-of guy, it’s all bull shit you know. He is still fighting a war in Afghanistan and Pakistan now. Jimmy Carter solved the Palestinian crisis and won the Nobel Peace prize. He did something. It’s not Obama’s fault he was nominated. But it’s a microcosm that is wrong with his first 300 days, he spends more time on TV than any other president. He has played more golf. The criticisms of Obama are that you got a guy that is more hype than action.

John: …and Bush got re-elected in 2004 because he was going to protect us from terrorist attacks.

Tia: and we haven’t had one, have we?

Alan: He has hurt our relations with a bunch of different countries. He signed the stimulus bill, has caused trade disputes , won’t back the Colombian free trade agreement, appealed the missile defense shield which has angered eastern Europeans, he has to deal with the crisis in Iran and problems of right now instead of just the future, he hasn’t backed the government of Honduras. Nobody talks about the two other branches of government.

John: That’s ridiculous. It wasn’t a liberal democracy to start with.

Jimmy: Whatever minutia of liberal democracy the president was trying to get rid of.

Alan: The constitution of Honduras states that if a president attempts an unlawful re-election, he immediately ceases office. It doesn’t require impeachment, but he did attempt to subvert the electoral process. They issued an order to the military to remove him from office. The US government under a Republican administration would have backed this up. No one understands this. No one has read these Constitutional provisions. What happened in Honduras makes perfect Constitutional sense.

John: You keep going back to the Constitution.

Alan: A constitutional provision, does that go against liberal democracy concepts?

John: In modern democracy, power flows from legitimately elected officials. If you have troops go in and exile. Who else will walk into a palace and remove a president?

David G.: I want to make a quick comment on Honduras. There used to be a time, and I think it’s still that time, that the U.S. used to put time and money into this. I think we got confused about this.

John: You are saying it’s good historically that we have altered Latin American politics.

Matthew Lytton Hughes, the Great: Yes, David is a big fan of coups.

David G.: These are important countries, growing in importance to the US. You don’t want these countries going in the wrong direction. The US has broad interests.

John: So if their population has different interests than ours, then what? What if our interests don’t coincide?

David G.: We want to have that control. I’m saying it’s more important to have the right people in power. Look at history.

Alan: Isn’t stimulus supposed to work by providing government jobs? In theory, it’s supposed to have a multiplier effect, take money and spend it elsewhere. I don’t think that is actually happening. Let’s look at this 3.5% and see what it really is. It’s an annualized rate of growth. The economy did not grow at 3.5%. It actually grew .9%. The bigger problem is that what causes stimulus is not government spending per say but increased government spending. The stimulus is already in effect and increased government spending will continue for two more years. We maintain it at this level in which case we have unsustainable debt and deficit, which I am surprised no one has talked about yet.

Ali: Talking about foreign policy, you have explained well how complex it is for Obama to fix. But the problem is that historically American foreign policy is that we don’t give a fuck about anything else. Agree with us or go fuck yourself. It’s strong for America to police the world. The whole point is that using this policy is clearly wrong for moral reasons. Obama is trying to fix this as much as he can although this is very difficult. The speech in Cairo, people are amazed at this. What he said was very courageous. The attitude should change, and Obama is working to change that. September 11th is nothing compared to what will happen if these old policies continue.

David F.: I do agree that America interferes with other countries’ affairs. On Obama specifically, the thing I find irritating is his dealing with North Korea. I don’t think George Bush would have let them launch that missile in March.

John: What would George Bush have done differently?

David F.: I don’t think this time that China will back up North Korea like in the past. Kim Ganelle’s threat is to sell the missiles to Iran. Obama is doing the same thing Bush did with Iran, appeasing them.

John: You can’t just bomb a few places in Iran. There is naivety about this.

David F.: Even I was not too impressed when Obama was elected, even though I knew he was a socialist. He said he would bring a more transparent government, but he is worse than anyone before him; he put czars in power. Obama said he would show every bill within 72 hours for Americans to see it before he passes it, but then he got the stimulus bill passed in 2 days.

Derek: He is considering the executive branch not the legislative branch, and that alone is a pretty big leap to democracy; he has only had three electronic statements so far. As far as actual actions, I think that the Supreme Court justice was a Palin-esque pick. I think he will have to veto the health bill. At a minimum, he will not cover even 11 million people, which is a disgrace. Obama picked the justice because she is a woman and thinks that he agrees with her on some things. The court was too right. They needed a justice to swing it back to the left. We have now a president who has done nothing for and is getting a lot of offers and peace words from Hamas, which is still labeled as a peace organization. This is a sign of progress on the foreign policy front. We came out and said this was very flawed and said Palestine is a part of Israel and we still have Hamas wanting to talk to us. That’s progress from the past 8 years.

James L.: I don’t understand how both of you guys think that Obama’s actions toward the governments of countries abroad are going to somehow effect, or change the outcomes of possible actions of extreme groups.

Derek: Those groups are funded externally by other groups outside of their own. When you have multilateral conversations outside of this, it limits their functions. When you have France, Russia, locking down security features on ex-weaponry, that’s what we know as a good example.

James L: We always try to regulate and try to find how these organizations operate.

Derek: We know how these organizations operate.

James L.: It seems like it is a main goal to move toward world peace.

Derek: I think we have other goals a head of it. The dickheadedness of the Bush Administration creates alone obstacles.

James L.: A monologue or order would not prevent me from doing actions.

Sometimes, Even the Right Gets it Wrong

Published

on November 11, 2009

in History

. 0 Comments

In a post for Andrew Breitbart’s Big Government, a conservative blog and website, CNBC’s Charles Gasparino blames Robert Rubin (former Goldman Sachs and Citgroup executive and long-time Clinton Treasury Secretary) and the repeal of the Glass-Steagal Act for TARP and the financial crisis:

More than that, Bob Rubin helped kill the very law that would have prevented Citigroup from being a company in the first place, and would have saved taxpayers a lot of money. The law is known as Glass-Steagall, named after Depression era lawmakers who believed it was a pretty good idea not to mix the risk taking of investment banking and trading, with traditional banking practices such as safeguarding deposits and making loans to small businesses.

While Gasparino gets it right that Rubin is an example of everything that is wrong about big business and big government colluding to control the marketplace- the revolving door between Wall Street and the Treasury/Fed, the extensive lobbying for additional regulations that lock out competition, the eventual bailouts (TARP) and operational subsidies (like the Fed’s overnight lending)- Glass-Steagall is not evidence of this phenomenon. To say so confuses the order of intervention into the marketplace.

Glass-Steagall was a set of two laws, the second (and more important) one passed in 1933, when New Deal politicians were rushing to control the “wild and unstable” free market. Like all regulations, GS limited the flexibility of the market. Like all regulations, GS strengthened the hand of government. Thus, repealing Glass-Steagall in 1999 via Gramm-Leach-Bliley was the appropriate thing to do. And there is little evidence GLB contributed to the current crisis, and in fact, may have mitigated it. As Megan McArdle puts it:

The argument is that this was a bad idea because Glass-Steagall wisely prevented commercial banks from mad speculation. This is what you might call “Folk Economics”–wrapped in the lurid lore of the New Deal and very superficially appealling, it is close to an axiom of faith for many on the left…

GLB had nothing to do with either lending standards at commercial banks, or leverage ratios at broker-dealers, the two most plausible candidates for regulatory failure here.

Most importantly, commercial banks are not the main problems. If Glass-Steagall’s repeal had meaningfully contributed to this crisis, we should see the failures concentrated among megabanks where speculation put deposits at risk. Instead we see the exact opposite: the failures are among either commercial banks with no significant investment arm (Washington Mutual, Countrywide), or standalone investment banks. It is the diversified financial institutions that are riding to the rescue.

The root of the problem here is the implicit understanding of a bailout- for Fannie Mae, Freddie Mac, JP Morgan, Citigroup, Goldman Sachs- and any bank deemed “too big to fail.” These firms should be forced to bear their risk, not prohibited from assuming it.

But, then again, Gasparino’s article also appeared on the left-wing Huffington Post. To him, controlling Wall Street is protecting the public.

Update: Andrea Sachs of Time Magazine cites an anonymous Wall Street executive, who calls Gasparino “a monumental asshole, who added dramatically to the financial instability during ‘08 and early ‘09.”

How Big Government Makes You Fat

Published

on November 9, 2009