Posted on 09/13/2002 7:43:40 AM PDT by traditionalist
1. The Export-Import Bank….But there is still the problem that doing this requires the government to consume capital, which might have created more jobs, (or just more wealth) if it had been allocated elsewhere. The onus is on the author to show that it does not: one cannot criticize on the basis of what might have been.
2. So this is classic corporatism: government allocating capital to private industry on the basis of political favoritism. Where is political favoritism here? As a nation we are interested in exports. As a nation, we hire a national agency --- the federal government --- to facilitate that. What's political about that?
3. Agricultural price-supports. Contrary to myth, most of the money goes to agribusiness, not small farmers. See the comment on the public goods below.
4. Industrial bailouts, like the recent one of the airlines. Ridiculous: this was essentially a wartime measure.
this country has more carriers than the market can support and a few should be allowed to die. Of course, but not at the time of national crisis. Very disingenuous argument here.
No-one who really believes in free-market economics accepts the argument that jobs can be saved in the long run in this fashion. Again dishonest: this was a bailout at a time of national crisis. No one argued that the inefficient airlines are going to be maintained.
5.Corporate bankruptcy law. This law assigns an artificial value, not supported by economics, to keeping dying companies alive, Again false: in court proceedings, experts are called to evaluate these matters.
6. Tariffs, quotas, and other trade restrictions. These transfer wealth from consumers to producers in the affected industries, whatever their other possible merits. The goal here is precisely to take these "other merits" into account. What's so negative or unusual here? One always judges alternatives by the bottom line, not the individual components.
7. Affirmative action is generally viewed as a social-policy question rather than an economic-policy one, but it fits neatly into the corporatist model: government forces private industry to distribute jobs to a favored political constituency. Again, what is political here? Did not Republicans support this measure as well?
8. If people really believed in markets, they would realize that irrational discrimination imposes a cost on employers, who therefore already have an incentive not to engage in it. Well, so does the lack of discrimination in housing; so does the whole bunch of labor laws (like paying for overtime). This is why we moved away from the robber baron days.
9. Fannie Mae, the government agency which raises money for mortgage loans in the private capital markets. This agency has deliberately been spinning out loans to sub-par borrowers who are doomed to default on them. Evidence, please, and specifics.
10. It has become a major prop holding up real-estate prices, and is thus a key culprit in the ongoing mortgage bubble. Fannie Mae existed also when there was no bubble. This statement violates the basic premises of causal reasoning.
11. Conservatives accept it on the grounds that home ownership makes people more conservative. But this may not be true forever Again, argues against ghosts here.
12. Sallie Mae, the government agency which supervises student loans. The government has a system of directly-financed public universities False, some universities are financed by the respective state governments. The government does not have such a system.
but is has also in effect annexed private universities. Cleverly, it uses a relatively small amount of public money to package the flow of a much larger amount of private capital to tuition. What on earth does this mean? Any specifics?
The principal problem with this is that it has become a subsidy machine for the spiraling cost of higher education. SO what's wrong with that?
13. There is also the problem that any institution receiving federal funds becomes susceptible to regulations that otherwise wouldn't be legal. Any examples? Pure demagogue.
14. In local government, corporatism is principally a matter of real estate. Let's take New York as an example, No, New York is not an example of anything; it is a complete idiosyncrasy.
15. In science and technology, corporatism principally takes the form of federal government financing of research expenditures whose value is difficult for the private sector to capture on its own. Wrong. It is not a question of difficulty: private sector has no incentives to invest in fundamental research.
In the capital markets, the quintessential corporatist institution is the Federal Reserve Bank…the responsibilities of the Fed have tended to grow as people expect it, for example, to bail out a falling stock market with cheap credit.. Well, if our increasingly uneducated and ignorant population expects this, it does not follow that the Fed actually act. To the contrary, Greenspan repeatedly said on Capitol Hill, "The Fed looks at the economy, of which the behavior of the stock market is only a small part."
Bankers are quite well aware that they can make speculative loans to financially weak nations So why don't they make loans to these nations exclusively?
The author would be well advised to learn the simple fact that there is a whole host of goods that the markets do not provide. For provision of these, so-called public, goods the coercive power is needed. If he wants to complain about the government, he should at least explain to us what the alternative is: the markets do not necessarily constitute such.
More importantly, it would be nice if he at least advanced arguments, but he regurgitates propaganda instead. A mini reincarnation of Pat Buchanan: smart-sounding words with not much meaning and a lot of distortion behind them.
Econ 101. The market would not allocate resources the same way as the Export-Import Bank. We know this because otherwise you would not need an Export-import Bank. Now why would the market allocate resources differently? Because the risk-adjusted rate of return on invested resources is higher when those resources are allocated differently. Why is it higher? Because, provided there are no externality or public goods questions, and there are none when it comes to exports, invested resources create more wealth when allocated differently. Hence the export-import bank destorys wealth by allocating resources differently from the manner in which they would generate the highest rate of return.
Where is political favoritism here? As a nation we are interested in exports. As a nation, we hire a national agency --- the federal government --- to facilitate that. What's political about that?
Actually, no, we are not interested in exports in and of themselves. As far as economic policy is concerned, we are interested in creating as much wealth as possible. Of course we care about things other than money, but the import export bank does not concern itself with such things. I already showed how more wealth gets created if resources are allocated differently from the manner in which the Export-Import Bank allocates them.
Hence, the Export-Import Bank is a subsidy, granted at the expense of taxpayers and consumers, to a special interest group: exporters.
3. Agricultural price-supports. Contrary to myth, most of the money goes to agribusiness, not small farmers. See the comment on the public goods below.
I don't think you understand what public goods are. Fram products most certainly do not qualify.
4. Industrial bailouts, like the recent one of the airlines. Ridiculous: this was essentially a wartime measure.
Was the Chrysler bailout a wartime measure?
this country has more carriers than the market can support and a few should be allowed to die. Of course, but not at the time of national crisis. Very disingenuous argument here.
Actually, it is quite true. Even before 9-11, a number of carriers of carriers were losing money.
No-one who really believes in free-market economics accepts the argument that jobs can be saved in the long run in this fashion. Again dishonest: this was a bailout at a time of national crisis. No one argued that the inefficient airlines are going to be maintained.
But they were. The airlines received more money than they lost as a result of the post 9-11 grounding, and this extra infusion of cash certainly at the very least delayed some bankruptcies.
5.Corporate bankruptcy law. This law assigns an artificial value, not supported by economics, to keeping dying companies alive. Again false: in court proceedings, experts are called to evaluate these matters.
I see you are not familiar with the economic literature on bankruptcy. I suggest you read it before making comments.
6. Tariffs, quotas, and other trade restrictions. These transfer wealth from consumers to producers in the affected industries, whatever their other possible merits. The goal here is precisely to take these "other merits" into account. What's so negative or unusual here? One always judges alternatives by the bottom line, not the individual components.
Your view of the way laws are made is quite naive. Tell me, what beneift do we derive from protecting the sugar industry? Why is it that it is always the most politically powerful industries that get trade protection?
7. Affirmative action is generally viewed as a social-policy question rather than an economic-policy one, but it fits neatly into the corporatist model: government forces private industry to distribute jobs to a favored political constituency. Again, what is political here? Did not Republicans support this measure as well?
Republicans support Affirmative Action for political reasons just like the democrats. They fear being called racist. Why is that so surprising?
8. If people really believed in markets, they would realize that irrational discrimination imposes a cost on employers, who therefore already have an incentive not to engage in it. Well, so does the lack of discrimination in housing; so does the whole bunch of labor laws (like paying for overtime). This is why we moved away from the robber baron days.
Racial discrimination in housing, unlike in the job market, is usually rational. The presense of certain minority groups who tend to suffer from social pathologies tends to drive down property values. In addition, I would venture to say that most people or any race would prefer, other things equal, to live an a mostly white neighborhood, though most are not honest enough to admit it.
Job discrimination is not economically viable unless the customers care who is doing the work. This might be a factor in a restaurant business and similar lines of work, but studies have shown it is not a factor in most industries.
The consensous of the economics profession is that most labor laws, such overtime and minimum wage laws, on the whole hurt workers. Workers' standard of living did not improve since the begining of the 19th century because of such laws. They improved because of increased productivity. This can be shown by the fact that most workers do not work for minimum wage and do not work much overtime.
9. Fannie Mae, the government agency which raises money for mortgage loans in the private capital markets. This agency has deliberately been spinning out loans to sub-par borrowers who are doomed to default on them. Evidence, please, and specifics.
The financials for Fannie Mae are publiclly available. I suggest you look them up.
10. It has become a major prop holding up real-estate prices, and is thus a key culprit in the ongoing mortgage bubble. Fannie Mae existed also when there was no bubble. This statement violates the basic premises of causal reasoning.
Actually, real-estate follows a cycle whereby bubbles are inflated, burst, and inflated again. The last bubble burst in the early nintees, inflated again, and will burst within a few years. All institutions which dump cheap credit into the housing market feed this bubble, and Fannie Mae is one of them. The Fed is another.
11. Conservatives accept it on the grounds that home ownership makes people more conservative. But this may not be true forever Again, argues against ghosts here.
He justifies this later in the article.
12. Sallie Mae, the government agency which supervises student loans. The government has a system of directly-financed public universities False, some universities are financed by the respective state governments. The government does not have such a system.
So state governments aren't governments?
but is has also in effect annexed private universities. Cleverly, it uses a relatively small amount of public money to package the flow of a much larger amount of private capital to tuition. What on earth does this mean? Any specifics?
Private universities are hooked on federal money. They get it in many different forms, from NSF grants to pell grants to NIH grants, subsidized loans, etc, etc, etc. This money comes with strings attached, and hence the universities, even though private, must subject themselves to a great deal of government control. The government often uses this control to force universities to adopt certain policies. Affirmative action is just one of many examples.
The principal problem with this is that it has become a subsidy machine for the spiraling cost of higher education. SO what's wrong with that?
Nothing if you're on the receiving end, as I plan on being. Plenty, if you're a middle-class kid who has to go 100K or more into debt just to get a college enducation.
13. There is also the problem that any institution receiving federal funds becomes susceptible to regulations that otherwise wouldn't be legal. Any examples? Pure demagogue.
Affirmative action. There are others.
14. In local government, corporatism is principally a matter of real estate. Let's take New York as an example, No, New York is not an example of anything; it is a complete idiosyncrasy.
The same thing occurs in all other big cities: Chicago, Boston, Philadelphia, just to name a few.
15. In science and technology, corporatism principally takes the form of federal government financing of research expenditures whose value is difficult for the private sector to capture on its own. Wrong. It is not a question of difficulty: private sector has no incentives to invest in fundamental research.
Really? Then why do the pharmaceutical companies engage in it?
In the capital markets, the quintessential corporatist institution is the Federal Reserve Bank…the responsibilities of the Fed have tended to grow as people expect it, for example, to bail out a falling stock market with cheap credit.. Well, if our increasingly uneducated and ignorant population expects this, it does not follow that the Fed actually act. To the contrary, Greenspan repeatedly said on Capitol Hill, "The Fed looks at the economy, of which the behavior of the stock market is only a small part."
Actually, the Greenspan did prop up the stock market bubble. I worked at the NY fed from 1999-2001. There was a big debate going on between the New York staff economists and Greenspan's staff ecnomoists. There were a few articles in the financial press about it. You should look them up. Greenspan's boys were arguing that the Fed needed to keep the stockmarket value high in order to sustain consumption levels. We argued, based on historical data, that consumption levels already had fallen to levels that would be compatible with a substantial reduction in market value. It turns out we were right, but Greenspan didn't listen to us and he continued to prop up the unsustainable valuations.
Bankers are quite well aware that they can make speculative loans to financially weak nations So why don't they make loans to these nations exclusively?
Because bailouts don't remove all the risk but enough to cause the banks' portfolios to be allocated inefficiently.
The author would be well advised to learn the simple fact that there is a whole host of goods that the markets do not provide. For provision of these, so-called public, goods the coercive power is needed.
Agreed, but none of the things you mentioned above, except for some types of basic research, qualify as public goods. I suggest you obtain a good micro-economics textbook and read the chapter on public goods. Here's one I recommend. It has become the standard in college micro-economics classes.
Because, provided there are no externality or public goods questions, and there are none when it comes to exports, There are some: the one I has in mind is foreign policy.
Further, as far as I know --- and I do not claim to be intimately familiar with the workings of that institution --- The I/E Bank acts as an insurance company where none would be provided by the market (spreading the risk over the pool of taxpayers).
Also, are you saying that selling a good outside the economy is the same as internally?
Hence, the Export-Import Bank is a subsidy, granted at the expense of taxpayers and consumers, to a special interest group: exporters. How do consumers pay for it?
most of the money goes to agribusiness, not small farmers. See the comment on the public goods below. In different times, the country instituted the price controls to ensure that there is no hunger, even at the bottom of the cycles. In other, words, minimal nutrition is judged here as a public good, much like the lighting in the street.
T: I don't think you understand what public goods are. Farm products most certainly do not qualify. And you certainly are not in the habit of asking clarifying question before rushing to conclusions. I never referred to "farm products" as a public good.
4. Industrial bailouts, like the recent one of the airlines.
Ridiculous: this was essentially a wartime measure.
T:Was the Chrysler bailout a wartime measure? I referred to the author's writing: the example given is a non-example, as I stated. In fact, I found it to be as offensive as claiming that you like to kill people having observed you in a wartime battle. this country has more carriers than the market can support and a few should be allowed to die.
TQ: Of course, but not at the time of national crisis. Very disingenuous argument here.
TActually, it is quite true. Even before 9-11, a number of carriers of carriers were losing money. So what does it have to do with what I said?
TQ:No one argued that the inefficient airlines are going to be maintained.
T: But they were. The airlines received more money than they lost as a result of the post 9-11 grounding, and this extra infusion of cash certainly at the very least delayed some bankruptcies. That well may be. Firstly, this is NOT what the author argued against: not the size but the very fact of the bailout. Secondly, even if what you said is true, it only points to a technical mistake of estimating the damages.
I see you are not familiar with the economic literature on bankruptcy. I suggest you read it before making comments. And I suggest that, as the standard practice dictates, you state what specifically you disagreed with before referring to the literature. I am amazed that someone so familiar with the intermediate microeconomics does not follow this practice habitually.
6. Tariffs, quotas, and other trade restrictions. These transfer wealth from consumers to producers in the affected industries, whatever their other possible merits.
TW: The goal here is precisely to take these "other merits" into account. What's so negative or unusual here? One always judges alternatives by the bottom line, not the individual components.
Your view of the way laws are made is quite naive. That well may be, but you cannot conclude that before you improve your learning skills. All I said that the standard criterion of decision-making is to select that which give the best overall result and not a particular component. I am sorry you have not recognized it when you saw it.
7. Affirmative action is generally viewed as a social-policy question rather than an economic-policy one, but it fits neatly into the corporatist model: government forces private industry to distribute jobs to a favored political constituency.
Again, what is political here? Did not Republicans support this measure as well?
T: Republicans support Affirmative Action for political reasons just like the democrats. They fear being called racist. Precisely. This, in turn, says that such is the overall preference of society. Hence, no one particular party benefits from it: this is expected by the electorate, rightly or wrongly, from both parties.
8. If people really believed in markets, they would realize that irrational discrimination imposes a cost on employers, who therefore already have an incentive not to engage in it.
TQ: Well, so does the lack of discrimination in housing; so does the whole bunch of labor laws (like paying for overtime). This is why we moved away from the robber baron days.
T: Racial discrimination in housing, unlike in the job market, is usually rational. Precisely: it is individually rational but abhorring. Culture, however, is a public good.
Sorry you missed that: Varian does not give it as an example. Perhaps you should also read up on control and begin to consider problems of moving a system from one equilibrium to another. This is precisely what the country has faced: moving from the old standard of racial prejudice and discrimination to a society free from these obstacles to mobility. Your framing of the problem, does correspond to the intermediate level of economics.
Job discrimination is not economically viable unless the customers care who is doing the work. Really?
You are continuing to be stuck at the intermediate level. What about the workers who actually produce the good? Was the race of the co-worker not an externality in their utility functions? Recall also that these people are your agents that are better informed than you, who as principal may yourself be entirely indifferent.
The consensous of the economics profession is that most labor laws, such overtime and minimum wage laws, on the whole hurt workers. Come on, be at least truthful: most people focus on the low-income labor when talking about the minimal wage. Incidentally, please look up the difference between "minimum" and "minimal." Varian, in particular, my have an appendix on that. Workers' standard of living did not improve since the beginning of the 19th century because of such laws. Wow! You are a really great spokesman for the profession! The econometric studies have indeed established this causality?
Perhaps, you should familiarize yourself with threats to the validity of quasi-experiments. Cook and Campbell (1956) may be a good start.
TQ: Fannie Mae existed also when there was no bubble. This statement violates the basic premises of causal reasoning. Comte has identified three necessary conditions for establishing causality, of which the third, concomitant variation is familiar to many. I referred to the first one. Again, I am amazed that someone purporting to read the econometric literature cannot recognize and, moreover, gives an irrelevant argument:
All institutions which dump cheap credit into the housing market feed this bubble, and Fannie Mae is one of them. The Fed is another. But, by the same argument, they help at the bottom. So, the task of someone that subscribes to the argument that these institutions must be abolished is to show that they hurt more than they help. Pointing to mere existence of costs is insufficient, much like arguing that one should not sell to more consumers just because it will also involve more costs. This is a logical fallacy, regardless of one's beliefs.
12. Sallie Mae, the government agency which supervises student loans. The government has a system of directly-financed public universities
TQ: False, some universities are financed by the respective state governments. The government does not have such a system.
I: So state governments aren't governments?
Your critique gets from bad to worse> The issue of centralization is essential when discussing government. I have objected to the author's use of the singular. I further emphasized that point, italicizing the word "The." Now, where on earth did you get that I do not consider state governments to be governments?
but is has also in effect annexed private universities. Cleverly, it uses a relatively small amount of public money to package the flow of a much larger amount of private capital to tuition.
TQ: What on earth does this mean? Any specifics?
The government often uses this control to force universities to adopt certain policies. Affirmative action is just one of many examples. Correct, and this is the essence of regulation: one receives a subsidy (which may be negative) when exhibiting the desired behavior.
This is not what the author said, however: it is not clear at all what he meant, and that is what I noted.
I: Nothing if you're on the receiving end, as I plan on being. Plenty, if you're a middle-class kid who has to go 100K or more into debt just to get a college education.
This is a statement I mostly hear from the demagogues of the populist kind. The economists, in contrast, to break down the costs of higher education.
13. There is also the problem that any institution receiving federal funds becomes susceptible to regulations that otherwise wouldn't be legal. Any examples? Pure demagogue.
T: Affirmative action. There are others.
Wrong. Racial discrimination is illegal regardless of whether an institution receives funding. Again, in line with the very essence of regulation, the subsidies provide incentives for the desired behavior.
Further, one may object to a specific regulatory policy, such as the affirmative action. This is NOT what the author said. He objected to the very fact of regulation. And this is the point to which I gave a reply.
TQ: 4. In local government, corporatism is principally a matter of real estate. Let's take New York as an example, No, New York is not an example of anything; it is a complete idiosyncrasy.
T: The same thing occurs in all other big cities: Chicago, Boston, Philadelphia, just to name a few.
I am not aware of Chicago, for instance, having price controls on rental property. Probably you meant similar tendencies. But whatever you meant, I do not know anyone who would object to the view that the NYC is pathological when it comes to real estate. The author shows also that his tendency to use exceptions as examples is not an inadvertent mistake. I am sorry that, not only you do not catch this tendency yourself, you do not recognize it even when someone points it out. TQ: It is not a question of difficulty: private sector has no incentives to invest in fundamental research.
I: Really? Then why do the pharmaceutical companies engage in it?
I wish all of your post was written in the spirit of your reply here: with clarifying questions before rushing to judgment.
Pharmaceutical companies do not engage in fundamental research; whatever they do is very applied. In industry, there were places, until recently, which were borderline: T.J. Watson Center and Bell Labs. Some parts of these institutions were actually doing fundamental research. Recently, it appears that both were curtailed (a disclaimer: I have only anecdotal evidence for the last statement).
In the capital markets, the quintessential corporatist institution is the Federal Reserve Bank…the responsibilities of the Fed have tended to grow as people expect it, for example, to bail out a falling stock market with cheap credit..
TQ: Well, if our increasingly uneducated and ignorant population expects this, it does not follow that the Fed actually act. To the contrary, Greenspan repeatedly said on Capitol Hill, "The Fed looks at the economy, of which the behavior of the stock market is only a small part."
T: It turns out we were right, but Greenspan didn't listen to us and he continued to prop up the unsustainable valuations.
Congratulations! It is always gratifying to be validated, even after the fact. I appreciate your sharing this detail, which I find important. At the same time, it tells me that (i) Greenspan has not disregarded the stock prices, and (ii) may have given too much weight to "consumption out of wealth." The author, in contrast, made it sound that it was the objective of the Fed --- even worse, that they did that in response to the public (those d-mned, corrupt bankers, in bed with the politicians).
The author would be well advised to learn the simple fact that there is a whole host of goods that the markets do not provide. For provision of these, so-called public, goods the coercive power is needed.
I:Agreed, but none of the things you mentioned above, except for some types of basic research, qualify as public goods. Sorry, in the previous post I did not think I gave any examples thereof. I:
I suggest you obtain a good micro-economics textbook and read the chapter on public goods. Here's one I recommend. It has become the standard in college micro-economics classes.
Thank you. I would gladly follow your suggestion, but that book probably contains too few derivatives. Some time ago, I acquired the book by Tirole but found that it contains too many essential errors that make individual-rationality difficult to acquire event intuition.
Normally, I go out of my way to refrain from emotions and value judgments when replying to posts on this board. I regret that the present post did not follow this rule: I very much objected to the hectoring tone and hasty, damning conclusions in yours. Perhaps, misinterpretations of this kind are a consequence of the nature of the boards such as this: somehow, I feel that, if we were to talk in person, we would find quite a bit in common. I do sincerely thank you for the extent of your reply to my post.
Regards, TQ.
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