Credit Cards

[Inquartata]

All the more reason that it's a good thing Uncle Miltie doesn't run things. That's very far from what the citizens of our country - or indeed, about any other - want.

Since when was our polity about "what people want"?

I mean, who wants to pay taxes for a confederation of corrupt dunces in Washington to misspend? But that's what we get anyway.

Buying and selling heroin on the street corner is also a private transaction. While there are some that say it shouldn't be a crime, it nonetheless is. Our society (and just about all others) do not assert the primacy of private contracts over everything else. And that's a good thing.

Politically, perhaps. Friedman's arguments are strictly economic, though.

However, the sort of transaction you mention might well have spillover effects, and its regulation would thus be justified. I do not immediately see any of the same sort of spillover effects for the fellow who is flim-flammed out of some money, though.


(

I imagine that there's a technical definition of spillover you have in mind?

I can't speak for Friedman, at least not without an ouija board. But I would think: immediate negative effects on at least one third uninvolved person.

I think that creation of a large number of households that are perpetually in debt to service arbitrarily changed rules and arbitrarily changed interest rates does have some 'spillover' in the normal use of the word.)

I think you may be extrapolating unduly. Surely even the greedy and the foolish would learn by experience eventually?

Besides---don't we have that now, in spite of regulation?

No conflict here - the government is answerable (albeit slowly and imprecisely) to the will of the people - and has the intent of guardianship (to some extent) of the wellbeing of all

Honored more often in the breach than the observance, alas...

while private institutions are answerable only to their shareholders -

Also honored more often in the breach than the observance, alas, it seems.

Wherefore is one failure to be preferred to the other?

To think that profit-making institutions are tasked with the well-being of the nation is to misplace their mission.

Indeed, but---I think that that's where the invisible hand comes in. Each seeks only its own advantage, but the interaction of all doing so works to the common weal...

"Is---a---puzzlement!"

the "government has a lot more clout than any bank" can't be taken at face value.

If not, then I cannot see why "the banks have more clout than individuals" should, either.

Industry organizations have an asymmetric ability to influence government policies in the first place by lobbying and ad campaigns, and even by drafting legislature's actual wording -- forestalling policies contrary to their interests.

But now this has all changed. It's a New America.

the banking and financial industries have pretty much held sway the last 2 decades getting legislature written exactly as they want it, frequently coming from their own pens.

Inasmuch as there are competing industries which also have their own interests and lobbying organizations, I wonder whether that is strictly the case.

Case in point: The AARP, which takes an interest in how banks treat customers and investors, and is not any more shy about influencing lawmakers than are the banks...

When that fails, and law or rules are passed against their wants, industry is very effective at stonewalling in the courts ('justice delayed is justice denied').

Doesn't this speak more to the failure of the legal system than of economics?

So, let's not shed tears about poor weak industry being trampled by the heavy boot of the State.

Meh, but yet I persist in doing so. ( Well, a little, anyway. )

And, they've been essentially unopposed in trampling on consumers, who are essentially powerless in many disputes without government protection.

Consumers have the ultimate power: That of the pocketbook.

I mean, that's what most of the people in the thread on credit cards which charge international transaction fees are saying, isn't it? Go elsewhere, shop for a card which doesn't charge them?

That's how it's supposed to work, anyway.

If there's a magic wand that separates the greedy pigs who borrowed money without the intention of paying it, from the innumerate and desperate who needed the money and had a dim notion of how to pay it off, then I'm all for wielding it.

I'm just not so sure that the two classes are so readily separable.

In the meantime, we do have laws and rules about what constitutes deceptive and unfair practices, and that's also a beneficial thing for society.

See, now were into normative territory, and I can only disagree, not prove...

There are a lot of people paying off cards indefinitely - and due to the arbitrarily set penalties and interest rates, many of them have long ago paid off far more than the original principle and interest.

And did some banker hold a gun to their heads to force them to do this, or was it from the first contractual a voluntary transaction?

I'm disinclined to believe that the card issuers, bankers, and brokers are poor suffering individuals just hanging on due to the way the deck is stacked against them.

Nor is that my argument.

I am simply saying that I think we'd all be better off with less regulation than more. Regulation raises costs, and those get passed on.

Much of Wall Street - the very people who shouldn't believe in such magical returns - got taken in by such dreams, with disastrous results for everyone. If the wizards at the financial services houses fall for this, then there's no hope for the layperson at all.

I still adhere to the belief that this flowed from greed on their part. Financial acumen and intelligence do not guarantee freedom from greed...

[jeff]

Since when was our polity about "what people want"?

I mean, who wants to pay taxes for a confederation of corrupt dunces in Washington to misspend? But that's what we get anyway.

(Cheap shot alert) They can move to Great Britain, and get the same effect and support a monarch, too!

Anyhow, if that's all Washington provided, it would be a different story. Nobody wants to pay taxes, but a lot of people want the things the taxes buy.

Politically, perhaps. Friedman's arguments are strictly economic, though.

However, the sort of transaction you mention might well have spillover effects, and its regulation would thus be justified. I do not immediately see any of the same sort of spillover effects for the fellow who is flim-flammed out of some money, though.

The points then are that (1) economics are only part of what governs policy, and (2) "primacy of private contracts" is not the overarching principle by which things are decided.

I can't speak for Friedman, at least not without an ouija board. But I would think: immediate negative effects on at least one third uninvolved person.

Fair enough - I wanted to know if there was a technical connotation to the phrase I was unaware of.

I think you may be extrapolating unduly. Surely even the greedy and the foolish would learn by experience eventually?

Don't tell me I'm going to out-cynical you on this one!

It's certainly not the case for institutions. Let's look at Citigroup, which has been in multi-billion collapses of loans it has written in each decade since the 1970s (that was Latin American debt, IIRC).

But that's not what I was referring to. I just read some articles on people who are living on the margins get just a little behind, and then the combination of interest rates (which can be changed after the money is hired) and penalties (which also can be imposed arbitrarily) can lock them into perpetual debt service stemming from the original loan.

Besides---don't we have that now, in spite of regulation?

Some, but obviously inadequate. Regulations need to adapt to changing conditions.

Honored more often in the breach than the observance, alas...

Alas indeed.

Also honored more often in the breach than the observance, alas, it seems.

Wherefore is one failure to be preferred to the other?

Because (1) the public sector can be held accountable "slowly and imprecisely", but with a tighter leash than shareholders. Ask anybody who paid Stan O' Neal, or Fuld's payouts and reemergence elsewhere. And (2) they are complementary effects and prevent things being shaped exclusively from one side or another. A primitive form of checks and balances.

Indeed, but---I think that that's where the invisible hand comes in. Each seeks only its own advantage, but the interaction of all doing so works to the common weal...

"Is---a---puzzlement!"

It would be great if the "invisible hand" was a Law Of Science rather than a metaphor which sometimes applies, and sometimes doesn't.

Just, how did the invisible hand of each trader looking to earn the basis points on the top of each mortgage backed securities deal for individual advantage work to our common weal?

If not, then I cannot see why "the banks have more clout than individuals" should, either.

Hang on, just a sentence or two later...

But now this has all changed. It's a New America.

Yeah, and we own parts of it we hadn't intended to.

Inasmuch as there are competing industries which also have their own interests and lobbying organizations, I wonder whether that is strictly the case.

Case in point: The AARP, which takes an interest in how banks treat customers and investors, and is not any more shy about influencing lawmakers than are the banks...

Consider the proportions: the actual effectiveness of driving legislation regarding banking and every portion of financial services, and the number of individuals rotating between Goldman Sachs and high-placed government offices (on a bilateral basis, I should add). The financial services industry has done a fabulous job in getting laws crafted to their desire.

Doesn't this speak more to the failure of the legal system than of economics?

They work together: the economics provide powerful incentive for parties working to their own advantage - which includes the primary players, plus the lawyers, lobbyists, and politicians they employ. The legal system fails here because of the economics.

Meh, but yet I persist in doing so. ( Well, a little, anyway. )

You soft-hearted guy. Never saw a banker without putting a coin in his cup...

Consumers have the ultimate power: That of the pocketbook.

I mean, that's what most of the people in the thread on credit cards which charge international transaction fees are saying, isn't it? Go elsewhere, shop for a card which doesn't charge them?

That's how it's supposed to work, anyway.

If there's a lot of consumer choice in the market, it might. But it doesn't seem to work all the time, does it?

I'm just not so sure that the two classes are so readily separable.

Exactly.

See, now were into normative territory, and I can only disagree, not prove...

Quite so - I was expressing an opinion in the last clause.

And did some banker hold a gun to their heads to force them to do this, or was it from the first contractual a voluntary transaction?

Happily phrased: in many cases the first transaction was voluntary but not understood by the borrower (for example, did the banker really explain that the loan terms were structured that they pay many times the loan amount?). After that, they may be stuck in a trap.

Nor is that my argument.

I am simply saying that I think we'd all be better off with less regulation than more. Regulation raises costs, and those get passed on.

Here we disagree. While regulation can and does raise costs, it also permits markets to thrive. Code regulations on houses permit a smoother market in houses than would exist if loan originators and buyers had no way of knowing if the house were wired stupidly and ready to go up in smoke. Similarly - and as a point of historical fact, banks and the stock market thrive as markets because there are regulations that permit trust in the markets to exist and drive savings, loans, and capital formation.

I still adhere to the belief that this flowed from greed on their part. Financial acumen and intelligence do not guarantee freedom from greed...

Yes.

'Greed is Good' is Gone, eh?

[Inquartata]

(Cheap shot alert) They can move to Great Britain, and get the same effect and support a monarch, too!

Oh, can't we have a monarch here? Maybe if we can find a strange woman lying about in a pond distributing swords...

More anon, perhaps. For now, it's off to fencing.

[Inquartata]

Anyhow, if that's all Washington provided, it would be a different story. Nobody wants to pay taxes, but a lot of people want the things the taxes buy

OK, here's another example.

If experience is any guide, no one wants to obey the speed limits when driving. So why do we have them anyway? Why are some people still unlucky enough to be cited for exceeding them? Surely the majority of "citizens of our country" should get the sort of laws it wants?

Unfortunately, life is full of things which most people don't want but which a small elite with power has decided are for our own good and we are going to have them anyway. I would guess that rather a lot of those things are economic in nature. I suspect that you have no problem with some of them, at least not solely on the basis of the fact that they lack majority support... so there's got to be a better rationale for discarding a rationally beneficial policy than "the people don't want that". No?

The points then are that (1) economics are only part of what governs policy, and (2) "primacy of private contracts" is not the overarching principle by which things are decided.

Unfortunately, IMO.

"If only people would realize---"

It's certainly not the case for institutions. Let's look at Citigroup, which has been in multi-billion collapses of loans it has written in each decade since the 1970s (that was Latin American debt, IIRC).

Well, the pursuit of profit does tend to involve the running of higher and higher risk as expected returns rise. I would guess that overall it's investment decisions have resulted in good average returns, even after accounting for those which have not turned out well.

But the average individual does not face the same sorts of choices. His average return is often derived from one or two investment choices. He is unlikely to be able to spread his risks thin enough to be able to sustain serious losses and still come out ahead. Consequently the lessons of failure are much more immediate and painful to him. And unless something like addiction ( eg gambling ) enters the picture, I would expect greedy and/or foolish individuals to learn from mistakes, in a way that is not as consequential to a large corporation...

I just read some articles on people who are living on the margins get just a little behind, and then the combination of interest rates (which can be changed after the money is hired) and penalties (which also can be imposed arbitrarily) can lock them into perpetual debt service stemming from the original loan.

And then we have things like bankruptcy laws, which enable them to escape the full consequences of their own bad decisions.

Perhaps the reason things like this continue to occur is the same reason that our punishments of crime do not seem to have much effect: They are too watered down and too long delayed to exercise any real deterrence any more.

However, I do not believe that it is really impossible to make one's way out of debt, even credit card debt, given time and determination. Else why are there so many legitimate people and organizations out there offering advice and help doing just that? How do they stay in business if all is hopeless once one has fallen into the bottomless pit of debt to these wicked tempters of credit world?

Some, but obviously inadequate. Regulations need to adapt to changing conditions.

I am not convinced of the former thesis. Certainly some regulation is probably necessary, IMO too much is as bad or worse than too little...and how do we ever locate the "sweet spot"? We cannot simply keep piling new rules onto those which already exist every time someone finds a way around one of them, can we? That's why we have so many lawyers engaged full-time in manipulating and avoiding regulation, is it not?

Certainly we do not seem to repeal many regulations. So the mass just keeps increasing, until it just bewilders any but experts. It is a wonder to me that businesses, particularly small ones, manage to comply with half of the rules to which they are subject. In fact, I wonder whether they are even aware of half the rules to which they are subject. That this is commonly seen by those who do not have to deal with them not only as unobjectionable but actually as insufficient escapes me quite...

Because (1) the public sector can be held accountable "slowly and imprecisely", but with a tighter leash than shareholders.

Well, but why only shareholders? Why not adopt the modern fashion of the "stakeholder"? It is not only shareholders, after all, who influence business. Customer behavior does as well. Suppliers do, in varying degrees. The communities in which businesses produce and market. Etc. Are ALL of these together weaker in affecting business behavior than are voters in affecting the behaviors of elected representatives and bureaucrats?

It would be great if the "invisible hand" was a Law Of Science rather than a metaphor which sometimes applies, and sometimes doesn't.

Oh, it IS a law of science. It's just not an invariable law of hard science. It's tough to find those anywhere that human beings are involved as variables, but this particular ones is one of the more universal of those...

Just, how did the invisible hand of each trader looking to earn the basis points on the top of each mortgage backed securities deal for individual advantage work to our common weal?

I think that remains to be seen. It is possible that it constitutes a necessary wringing out of excess...

Yeah, and we own parts of it we hadn't intended to.

Indeed. Indeed.

But you know, here again there's a difference between the public and private sectors. In the private sector, those who actually supply the capital to a business in trouble have at least the chance to reap an eventual profit should the rescue succeed. That is seldom the case in the public sector. The taxpayers provide the capital to rescue these banks and insurers automakers, but will never see a penny of return on their investment. Any profit will be retained by our masters in Washington, to be spent as they decide. We are extremely unlikely to see any special dividend checks repaying us for our investments, IMO.

And again, that we now own parts of the economy we hadn't intended to own was not the decision of the citizenry. It was the decision of a few policymakers in Washington, whether the people wanted it or not. There again is the "we know what's best for you" theory in operation...

Consider the proportions: the actual effectiveness of driving legislation regarding banking and every portion of financial services, and the number of individuals rotating between Goldman Sachs and high-placed government offices (on a bilateral basis, I should add). The financial services industry has done a fabulous job in getting laws crafted to their desire.

Didn't particularly help Lehman Brothers, though, did it?

In fact, I am not alone in wondering whether the presence of, say, a "Morgan Stanley man" in high governmental position hasn't in fact resulted in conferring disproportionate power on this or that firm to the detriment of its competitors and the industry as a whole...

In other words, I'm not convinced that this phenomenon has in any way advantaged the industry in the ways you seem to be saying it has.

They work together: the economics provide powerful incentive for parties working to their own advantage - which includes the primary players, plus the lawyers, lobbyists, and politicians they employ. The legal system fails here because of the economics.

I do not follow your causal chain here. Can you elaborate?

You soft-hearted guy. Never saw a banker without putting a coin in his cup...

Well, if only I could get past the security.

If there's a lot of consumer choice in the market, it might. But it doesn't seem to work all the time, does it?

No, it doesn't. Which is why I admit that some regulation is necessary.


Ugh. "The library is closing".

[jeff]

Oh, can't we have a monarch here? Maybe if we can find a strange woman lying about in a pond distributing swords...

More anon, perhaps. For now, it's off to fencing.

Don't drag Brad into it! My fencing was last night; we're out of sync.

[jeff]

OK, here's another example.

If experience is any guide, no one wants to obey the speed limits when driving.(snip)

I think people like speed limits in general principle but overestimate their own driving abilities, but that's a whole other story. The real answer is that while people go over the limit by a few MPH, they still are roughly bound to that speed. So, there is a societal good by keeping people from doing 70 in a 35.

Unfortunately, life is full of things (snip)

Well, I don't buy the example, so I don't know where to go with this. I think drivers like the idea of speed limits and wouldn't approve of removing them altogether, even if they exceed them. So, I don't think there's majority support for removing them - if so, where's the referendum or popular movement that shows it?

Unfortunately, IMO.

"If only people would realize---"

That's what you call a "normative statement", right?

Even if you're right - and I don't think you are - it doesn't reflect reality. Economic reasons alone do not override all other issues. Otherwise, some people would still be slaves and other people would still own them.

Well, the pursuit of profit does tend to involve the running of higher and higher risk as expected returns rise. I would guess that overall it's investment decisions have resulted in good average returns, even after accounting for those which have not turned out well.

I don't think the numbers support that assertion. In any case, I picked some totally brain-dead multi-billion dollar screwups. The problem isn't that the profit curve did or did not outpace the risk and loss curve, it was that the profits and risks were not evenly allocated: the trader got compensated for the risk, and everybody else took the haircut.

But the average individual does not face the same sorts of choices.(snip)

Some people do learn, but the consequences of the learning experience can be quite severe.

And then we have things like bankruptcy laws, which enable them to escape the full consequences of their own bad decisions.

Perhaps the reason things like this continue to occur is the same reason that our punishments of crime do not seem to have much effect: (snip)

Maybe so. OTOH, I read an article some months ago that said that our bankruptcy laws permitted innovation by letting people take chances. Do we really want to bring back the debtor's prison? They don't actually pay down the debt while in the pokie...

I think "too long delayed" is a big factor. Action and consequence are at a distance.

However, I do not believe that it is really impossible to make one's way out of debt, even credit card debt, given time and determination. Else why are there so many legitimate people and organizations out there offering advice and help doing just that? How do they stay in business if all is hopeless once one has fallen into the bottomless pit of debt to these wicked tempters of credit world?

Not impossible, but can be quite difficult, and people living on the margins (and especially if poorly educated) find it hard. Turns out that $-guru Suze Orman was living on the edge and a $250K payday for doing lectures for GE is what saved her bacon. Thing about quicksand is that some escape, some can't.

I am not convinced of the former thesis. Certainly some regulation is probably necessary, IMO too much is as bad or worse than too little...and how do we ever locate the "sweet spot"? We cannot simply keep piling new rules onto those which already exist every time someone finds a way around one of them, can we? That's why we have so many lawyers engaged full-time in manipulating and avoiding regulation, is it not?

I have no argument here. If there was a habit of legislators to go back and clean up obsolete regulation (and laws in general, for that matter) it would be a Good Thing.

I think they work essentially in a reactive style, and that regulations grow by accretion. Not because there's some power-mad bureaucrat in an office, but because Something Bad happens, a fuss is made, and a new regulation is devised to address that bad situation. A month or two ago here there was a school bus accident - so there was an outcry to make more regulations. It's purely reactive - and the new rules will still be on the books when we're flying around like the Jetsons!

Certainly we do not seem to repeal many regulations. So the mass just keeps increasing, until it just bewilders any but experts. It is a wonder to me that businesses, particularly small ones, manage to comply with half of the rules to which they are subject. In fact, I wonder whether they are even aware of half the rules to which they are subject. That this is commonly seen by those who do not have to deal with them not only as unobjectionable but actually as insufficient escapes me quite...

I agree. It becomes incomprehensible. Look at the tax code, for goodness sake. Now, who will fund the task force to investigate regulations to discard, and what interests will protest because they've made themselves a comfy nook dealing with that regulation? The path of least resistance is to leave it alone. I am NOT saying that's a good thing.

Well, but why only shareholders? Why not adopt the modern fashion of the "stakeholder"? It is not only shareholders, after all, who influence business. Customer behavior does as well. Suppliers do, in varying degrees. The communities in which businesses produce and market. Etc. Are ALL of these together weaker in affecting business behavior than are voters in affecting the behaviors of elected representatives and bureaucrats?

Yes. Not ALL the time, but MUCH of the time.

Oh, it IS a law of science. It's just not an invariable law of hard science. It's tough to find those anywhere that human beings are involved as variables, but this particular ones is one of the more universal of those...

I remain dubious. It doesn't rise to the standards of a law of science and conveys an air of certainty that it doesn't merit. Real LoS - http://en.wikipedia.org/wiki/Law_of_science - are not "sometimes right", and boundary conditions where they do or do not apply are stated and quantified. Call it a "frequently observed but not invariable principle", but not a scientific law.

I think that remains to be seen. It is possible that it constitutes a necessary wringing out of excess...

Something might eventually construed as good? That feels like wishful thinking in the absence of evidence. We have to judge on the basis of what is observed, not hoped-for. What excess, precisely? The case for the opposite is much stronger. People were paid vast amounts of money to do deals that bankrupted their own companies, and beggared many more. Individual gain working against the common weal.

Indeed. Indeed.

But you know, here again there's a difference between the public and private sectors. In the private sector, those who actually supply the capital to a business in trouble have at least the chance to reap an eventual profit should the rescue succeed. That is seldom the case in the public sector (snip)

We were buying distressed properties so that's likely true. OTOH, we made money on some Resolution Trust Company that fixed the S&Ls of the 80's. So, there is precedent, and there was actually positive cash at the end.

And again, that we now own parts of the economy we hadn't intended to own was not the decision of the citizenry. It was the decision of a few policymakers in Washington, whether the people wanted it or not. There again is the "we know what's best for you" theory in operation...

Not everything is amenable to posing a referendum. You well know we have a system of government where we elect people we hope will represent our need and intentions best, rather than a direct democracy. It's imperfect...

Didn't particularly help Lehman Brothers, though, did it?

In fact, I am not alone in wondering whether the presence of, say, a "Morgan Stanley man" in high governmental position hasn't in fact resulted in conferring disproportionate power on this or that firm to the detriment of its competitors and the industry as a whole...

In other words, I'm not convinced that this phenomenon has in any way advantaged the industry in the ways you seem to be saying it has.

Pre-crash - oh yes, to the tune of many billions of dollars. That's very clear. With the crash, it advantaged them in terms of a bailout other industries don't seem to get.

I do not follow your causal chain here. Can you elaborate?

You don't have to fight 'em if you buy 'em off...

Well, if only I could get past the security.

No, it doesn't. Which is why I admit that some regulation is necessary.

We largely agree. How much, and what kinds, is tricky to do, and messy. Believe me, I don't want regulation for regulation sake.

Ugh. "The library is closing".

Out of curiosity: Any kids actually go there to, you know, "read books"? Or is that vanishing?

[Inquartata]

I think people like speed limits in general principle

I dunno. I talk to people who lied in Germany and they're all nostalgic over those autobahns. People who haven't been there still get a gleam in their eyes when the talk turns to them...

there is a societal good by keeping people from doing 70 in a 35.

And that of course is another question than "the society should get what it wants".

I don't think there's majority support for removing them - if so, where's the referendum or popular movement that shows it?

Is that the criterion? Anything people haven't organized to resist they must want?

That's what you call a "normative statement", right?

Quite.

Otherwise, some people would still be slaves and other people would still own them.

Unless one adheres to the rationale that slavery simply became uneconomical in modern societies.

Besides, we DO still have slaves. They're called children.

Some people do learn, but the consequences of the learning experience can be quite severe.

Yes. Experientia docet stultos. But wherefore empower government to protect them from themselves just because of this?

The consequences of driving drunk are also severe, but we do not force automakers to limit the speed of cars to 5 mph or distillers to sell only low-alcohol drinks because "it's best for us"...

Thank goodness.

Drat, I've run though my measly allotment of emoticons already!

I read an article some months ago that said that our bankruptcy laws permitted innovation by letting people take chances.

No doubt in some cases, especially for businesses. But it looks like the majority of personal bankruptcies are not in that category.

Do we really want to bring back the debtor's prison?

No, no. But making it harder to escape the consequences of one's own rashness might not be out of order.

I think "too long delayed" is a big factor. Action and consequence are at a distance.

Yes. At least we aren't quite as badly off in that regard as India. Yet.

Thing about quicksand is that some escape, some can't.

The latter are struggling too hard. ( Forbidden fifth smily. )

Yes. Not ALL the time, but MUCH of the time.

Why? Or rather, how so?

I remain dubious. It doesn't rise to the standards of a law of science and conveys an air of certainty that it doesn't merit.

I must disagree. By all descriptions, economics is a science. A social science, but still a science. It's laws do not have to rise to the levels of laws of physics to be useful and predictive, and thus to be fundamental to policies governing human beings, as opposed to subatomic particles...

Call it a "frequently observed but not invariable principle", but not a scientific law.

Traditionally it's MY role to quibble over terms. ( Prohibited sixth smily. )

Something might eventually construed as good? That feels like wishful thinking in the absence of evidence. We have to judge on the basis of what is observed, not hoped-for.

Possibly, but my point was that it may want the perspective of a few years or economic cycles to judge properly.

What excess, precisely?

Take your pick. Excess in the mortgage industry, or in credit generally? Excess in the home-buying market? Excess in the creation and trading of financial derivatives ( many of the earliest of which were intended to reduce risk and uncertainty, not simply to shoot at higher profits ). Excess in commodities speculation?

The case for the opposite is much stronger. People were paid vast amounts of money to do deals that bankrupted their own companies, and beggared many more. Individual gain working against the common weal.

This assumes that the traders perfectly understood what the heck they were doing, let alone the possible downside of what they were doing...

We were buying distressed properties so that's likely true. OTOH, we made money on some Resolution Trust Company that fixed the S&Ls of the 80's. So, there is precedent, and there was actually positive cash at the end.

Well, there was money made, but not for US. It was made, retained and spent by the government. We can say that it was spent on our behalves, but it was not returned TO us to spend. And as we all know, a lot of the ways the government chooses to spend money "on our behalves" is dubious at best and peculative at worst.

Not everything is amenable to posing a referendum.

Heh. You wait until you've been here a few more years, and you will see just how much DOES get referred to referenda, or at least how much people attempt to refer to them! ( Unconscionable big seventh smily! )

You well know we have a system of government where we elect people we hope will represent our need and intentions best, rather than a direct democracy. It's imperfect...

I bow to your mastery of understatement! ( Horrid, beastly eighth---well, you get the idea. )

With the crash, it advantaged them in terms of a bailout other industries don't seem to get.

Being forced out of business is an advantage?!

Out of curiosity: Any kids actually go there to, you know, "read books"? Or is that vanishing?

Some. Alas, it's mostly older folks, or kids whose parents are getting books for them to read, so their level of willingness is unknown. But some.

[jeff]

I dunno. I talk to people who lied in Germany and they're all nostalgic over those autobahns. People who haven't been there still get a gleam in their eyes when the talk turns to them...

"lied in Germany" - heh, a helpful typo!

You know the Bill Cosby routine where all the drivers (except him) are crazy? Everyone knows that it's the other driver who's a nut...

And that of course is another question than "the society should get what it wants".

Well, I'm not convinced that society wants people doing 35 in a 70. Are you?

Is that the criterion? Anything people haven't organized to resist they must want?

I'm just looking for some clue that there is serious resistance to speed limits, and that this isn't just an amuse-bouche to play with

Unless one adheres to the rationale that slavery simply became uneconomical in modern societies.

We didn't end the practice because it was ineffective, and before modern times.

Besides, we DO still have slaves. They're called children

Or are the parents slaves to the kids? We should ask those afflicted by rug-rats.

Yes. Experientia docet stultos. But wherefore empower government to protect them from themselves just because of this?

Depends where you want to draw the bar. If everyone drove perfectly all the time, we wouldn't need traffic cops, lights or guard-rails either.

The consequences of driving drunk are also severe, but we do not force automakers to limit the speed of cars to 5 mph or distillers to sell only low-alcohol drinks because "it's best for us"...

Thank goodness.

Drat, I've run though my measly allotment of emoticons already!

It's not binary "are there constraints to protect people, yes or no" (after all, we do have speed limits, and we do have laws on who can consume alcohol and when), but where to draw the line.

emoticons? it's either that or the character limit that foils us!

No doubt in some cases, especially for businesses. But it looks like the majority of personal bankruptcies are not in that category.

Not clear to me - a substantial percentage of individuals that start business do so with their personal savings (and of their families) - the American dream starting small. The article argued that our more liberal bankruptcy laws were part of our higher levels of innovation and social mobility than Europe. I'm just tossing that out there for observation.

No, no. But making it harder to escape the consequences of one's own rashness might not be out of order.

Force them to work at Chuckie Cheese for 10 years. But then we have to do the same with the Fulds and Stan O'Neils!

Yes. At least we aren't quite as badly off in that regard as India. Yet.

What happens there?

The latter are struggling too hard.

Tell 'em to go with the flow!

Why? Or rather, how so?

I was terse trying to finish up. There don't seem to be really good levers for the public to "vote the bums out" of a private institution. Hold that thought a bit...

I must disagree. By all descriptions, economics is a science. A social science, but still a science. It's laws do not have to rise to the levels of laws of physics to be useful and predictive, and thus to be fundamental to policies governing human beings, as opposed to subatomic particles...

By that expression it attains an aura of infallibility that it doesn't warrant, hence my dissatisfaction. The same goes for psychology and other weakly (IMO) supported areas.

Traditionally it's MY role to quibble over terms

Just tryin' to help out!

Possibly, but my point was that it may want the perspective of a few years or economic cycles to judge properly

I think the direct evidence of individuals working to their gain - which overwhelmingly was successful for them - has already been shown to be a great destroyer of wealth. Or we can go look back to LTCM or Latin American debt if we want similar cases.

Take your pick. Excess in the mortgage industry, or in credit generally? Excess in the home-buying market? Excess in the creation and trading of financial derivatives ( many of the earliest of which were intended to reduce risk and uncertainty, not simply to shoot at higher profits ). Excess in commodities speculation?

Remember you were responding to my how did the invisible hand of each trader looking to earn the basis points on the top of each mortgage backed securities deal for individual advantage work to our common weal? So, the excess was necessary to remove itself?

This assumes that the traders perfectly understood what the heck they were doing, let alone the possible downside of what they were doing...

No, that would be necessary to make it securities fraud, as in today's NYT for Countrywide's ex-chief: http://www.nytimes.com/2009/06/05/bu...l?ref=business.

It's not necessary that they were consciously screwing the public, it's only necessary that they were all working to their individual gain. The "invisible hand" is supposed to be invisible, and 'just work'. Therefore the "law" is violated; the "law" is false. QED.

Look at the traders, bankers, and their executives - they made a killing and walked away with it. What could the public do to them besides call them bad names while they held onto their swag?

Well, there was money made, but not for US. It was made, retained and spent by the government. We can say that it was spent on our behalves, but it was not returned TO us to spend. And as we all know, a lot of the ways the government chooses to spend money "on our behalves" is dubious at best and peculative at worst.

Government made some money net-net on the deals, so it's better than the opposite, no?

Heh. You wait until you've been here a few more years, and you will see just how much DOES get referred to referenda, or at least how much people attempt to refer to them!

I thought that was California - and look how much good it's done THEM! (shudder)

I bow to your mastery of understatement! ( Horrid, beastly eighth---well, you get the idea. )

Sometimes a light touch is a good thing

Being forced out of business is an advantage?!

Lehman croaked (I actually visited their offices, now part of Barclay's - I know people there).

But other companies definitely benefited (read: the survivors, who would be in worse state if they weren't covered by a (pun!) TARP)

And to my earlier point, they are STILL very effective at manipulating government to their needs. See today's http://www.nytimes.com/2009/06/05/bu...l?ref=business

Some. Alas, it's mostly older folks, or kids whose parents are getting books for them to read, so their level of willingness is unknown. But some.

thanks for that info. I don't think a future of tapping at keyboards is going to be as good as going to a library or bookstore and holding an actual book....

[Inquartata]

"lied in Germany" - heh, a helpful typo!

Grrr. The 'v' key on my laptop sticks, and the spellcheck didn't pick it up because it's a valid word.

Well, I'm not convinced that society wants people doing 35 in a 70. Are you?

Going back to your Cosby bit, no, I think most individual members of society feel they deserve to be exempt but everyone else should comply...

Actually, that's not entirely accurate. From my experiences, it seems that every driver wants to go as fast as he feels like going, and that everyone else should go at least as fast so that they don't impede his speeding. Or maybe faster, so that someone else attracts the attention of all the highway patrol officers and he can just blast on by them as they are getting the tickets.

Parenthetically, I believe that most people would prefer that their cars came without turn signals, since they almost never use them. But that probably belongs in the discussion about how regulations increase apace and never seem to retreat...

I'm just looking for some clue that there is serious resistance to speed limits, and that this isn't just an amuse-bouche to play with

Well, I was amused.

Seriously, it was just the first example that sprang to mind after you rejected my taxation one. Not much thought went into it. I suppose that I could probably come up with more if you want to prolong the agony.

We didn't end the practice because it was ineffective, and before modern times.

No, but it was already dying a natural death. It was hastened by one of those fits of morality which mutates into a political cause to which we are so prone. Which is not to say that it wasn't worth killing, just that it was a bit of a Kervorkianesque endeavor...

Or are the parents slaves to the kids? We should ask those afflicted by rug-rats.

Yes. Good choice of word, by the way.

Someone, maybe Bierce, once defined marriage as "The state or condition of a community consisting of a master, a mistress and two slaves, making in all, two". I daresay he would have added children to that would it not have rendered the bromide too unwieldy...

Depends where you want to draw the bar.

A-HA! I set the bar at the existence of spillover effects!

Round and round we go... ( And here we go again with the forbidden emoticons. )

emoticons? it's either that or the character limit that foils us!

Or in my case accidentally depressing an unfortunate button and deleting an hour of writing...

Haven't done that in a while. I'm overdue.

Not clear to me - a substantial percentage of individuals that start business do so with their personal savings (and of their families) - the American dream starting small.

At the risk of reviving old arguments on health care issues, I read something last week which purported that something like 60%+ of all personal bankruptcies resulted from medical bills. So while those who go bankrupt may indeed be running businesses, if that story is correct it's not the businesses that get them into trouble debt-wise.

Of course, 40% is still a substantial number. But hey, I only said "the majority".

Ah, here it is:

http://www.modernmedicine.com/modern...tegoryId=40130

Although probably you or your wife have already seen it...

The article argued that our more liberal bankruptcy laws were part of our higher levels of innovation and social mobility than Europe. I'm just tossing that out there for observation.

I'm not rejecting the hypothesis out of hand. It sounds plausible enough to me.

What happens there?

It's the only country more hagridden by lawyers than the US. Apparently it's not uncommon for civil suits to take 3 generations to reach a conclusion.

By that expression it attains an aura of infallibility that it doesn't warrant, hence my dissatisfaction. The same goes for psychology and other weakly (IMO) supported areas.

If I didn't know you I would probably be picturing you as Sheldon on "The Big Bang Theory" right now, you big hard-science elitist, you! ( Another transgression of the emoticon limit goes here. )

I think the direct evidence of individuals working to their gain - which overwhelmingly was successful for them - has already been shown to be a great destroyer of wealth.

But it's not yet clear that something better will not come of it. Sometimes purges are necessary, and even in nature there are forest fires and floods. They wreak much damage in the short run, but renew the landscape in the long.

So, the excess was necessary to remove itself?

No, my answer was that the answer is not yet clear. ( A Magic 8 Ball emoticon here. )

It's not necessary that they were consciously screwing the public, it's only necessary that they were all working to their individual gain. The "invisible hand" is supposed to be invisible, and 'just work'. Therefore the "law" is violated; the "law" is false. QED.

Again...not yet clear.

Look at the traders, bankers, and their executives - they made a killing and walked away with it.

So did a lot of investors, so long as they got out at the right time. And most of the rest were trying to do so. Relatively few people seem to have been buying houses to inhabit. They wanted to make millions flipping properties, like the pitchmen on TV infomercials told them they all could.

This was a classic bubble, and I haven't a great deal of sympathy for any of the players involved in it---certainly I do not think that we need to protect them from their own greed and foolhardiness by drafting reams of new regulations...

What could the public do to them besides call them bad names while they held onto their swag?

Kick themselves for having participated in the debacle?

Government made some money net-net on the deals, so it's better than the opposite, no?

I'm not sure. It may just have encouraged it to think it can work again, and that therefore there's no need to shy away from future bailouts and shifty schemes. This may turn into a lobbyist's dream. Again, it's not yet clear.

I thought that was California - and look how much good it's done THEM!

Yes. It goes on here, too, though so far without quite the same unintended consequences.

During the "season" I have to run a gantlet of proposition-petition volunteers every time I enter or leave the library....

Lehman croaked (I actually visited their offices, now part of Barclay's - I know people there).

But other companies definitely benefited (read: the survivors, who would be in worse state if they weren't covered by a (pun!) TARP)

That's what I mean. The "other companies" tended to have had former employees in positions of political power within the financial wings of the federal government. It seems to me that it's less a business of these people doing things to help the industry than doing things to help their own firms get a competitive edge. This is just what I'd expect firms to do, in a system which allows them to do it...

I don't think a future of tapping at keyboards is going to be as good as going to a library or bookstore and holding an actual book....

A library or bookstore full of Kindles, maybe!

[jeff]

Sorry for late response - I've been swamped with work.

Grrr. The 'v' key on my laptop sticks, and the spellcheck didn't pick it up because it's a valid word.

Spellcheck is not our best friend! http://catless.ncl.ac.uk/Risks/15.73.html#subj2

Going back to your Cosby bit, no, I think most individual members of society feel they deserve to be exempt but everyone else should comply...(snip) Parenthetically, I believe that most people would prefer that their cars came without turn signals, since they almost never use them. But that probably belongs in the discussion about how regulations increase apace and never seem to retreat....

I use my signals - it's to my advantage to signal my intent so I don't get plowed into. So, what does this say about (a) lazy drivers? or (b) the theory of "rational actors" in economic and other contexts?

Well, I was amused.

Then those pixels and bytes did not die in vain!

Seriously, it was just the first example that sprang to mind after you rejected my taxation one. Not much thought went into it. I suppose that I could probably come up with more if you want to prolong the agony.

Okay for a spur of the moment kind of thing...

No, but it was already dying a natural death. It was hastened by one of those fits of morality which mutates into a political cause to which we are so prone. Which is not to say that it wasn't worth killing, just that it was a bit of a Kervorkianesque endeavor...

OT but interesting: do you think slavery was dying in the US and would have gone away due to economic reasons in the mid-1800s? We were a little late to ending slavery - the Brits were ahead by a few decades. I never heard that it was economically unviable at that time. Point being, though - that slavery was forcibly ended for reasons entirely separate from whether it turned a profit.

Yes. Good choice of word, by the way.

Someone, maybe Bierce, once defined marriage as "The state or condition of a community consisting of a master, a mistress and two slaves, making in all, two". I daresay he would have added children to that would it not have rendered the bromide too unwieldy...

Yeah, Bierce is another romantic softy, fer sure.

A-HA! I set the bar at the existence of spillover effects!

When there's spillover at the bar, ask the bartender to wipe it up!

Or in my case accidentally depressing an unfortunate button and deleting an hour of writing...

Haven't done that in a while. I'm overdue.

Practice safe computing - save date early, save often!

At the risk of reviving old arguments on health care issues, I read something last week which purported that something like 60%+ of all personal bankruptcies resulted from medical bills. So while those who go bankrupt may indeed be running businesses, if that story is correct it's not the businesses that get them into trouble debt-wise.

Of course, 40% is still a substantial number. But hey, I only said "the majority".

Ah, here it is:

http://www.modernmedicine.com/modern...tegoryId=40130

Although probably you or your wife have already seen it...

Seen it? I think I've quoted similar stories to you!

It's the only country more hagridden by lawyers than the US. Apparently it's not uncommon for civil suits to take 3 generations to reach a conclusion.

I had no idea. It sounds very Dickens-ish "Jarndyce and Jarndyce". Maybe it's a legacy of the British Raj.

Well, if that's the case, we can write off India as the country that's supposed to displace the US as the world economic power. Any country more hobbled by lawyers than we are has a big liability.

IIf I didn't know you I would probably be picturing you as Sheldon on "The Big Bang Theory" right now, you big hard-science elitist, you!

I have to confess that I had to Google the reference since I've never watched the show or even knew it existed. For me, "The Big Bang Theory" is the, you know, the theory, not a show I hadn't heard of! Boy, am I ever out of touch with mass culture.

I do like rigor (not the mortis type of rigor, the other types). If something is a "law" it should behave like one.

The problem is that the "invisible hand" is construed as a "law" in contexts in which it doesn't apply. The idea that merchants, manufacturers, service providers work to create the best, most competitive products and services in order to serve their specific interests, but to the common good is a great story where it applies. But it doesn't apply to all situations: such as here where the compensation to a banker paid to make loans isn't tied to whether that loan is ever paid. Or other cases in which somebody is paid to sell rubbish (knowingly or not). Only when the interests of all parties are aligned does the law work. Described as a universal law that applies in all situations

But it's not yet clear that something better will not come of it. Sometimes purges are necessary, and even in nature there are forest fires and floods. They wreak much damage in the short run, but renew the landscape in the long.

It's not clear to me that these are necessary, and in any case it's too reductive and convenient to say that great amounts of wealth have to be destroyed in order to - what, go make new wealth? That kind of analogy can be used to excuse anything at all. "Well, bad things happened, but it's okay because that's the normal course of events" A bit of wishful thinking, a bit of apologetics.

Even Communists could justify their behavior by saying that something better may come of what they do. The old joke (have we used this one already?) is the skeptic saying to the Commissar "well, I see the broken eggs, but where is this omelet you speak of?"

My hope is that something better will come of it - a commitment to appropriate regulation that neither cramps commerce nor permits it to get out of hand. But it would have been better to not have the drunken excess and the following hangover in the first place.

No, my answer was that the answer is not yet clear. ( A Magic 8 Ball emoticon here. )
Again...not yet clear.

So did a lot of investors, so long as they got out at the right time. And most of the rest were trying to do so. Relatively few people seem to have been buying houses to inhabit. They wanted to make millions flipping properties, like the pitchmen on TV infomercials told them they all could.

This was a classic bubble, and I haven't a great deal of sympathy for any of the players involved in it---certainly I do not think that we need to protect them from their own greed and foolhardiness by drafting reams of new regulations...

Bubbles - and in this case a massive pump and dump scenario - can be mitigated by appropriate controls in the markets. If the private sector can't be counted on not wrecking the car and trashing the neighborhood, then alternate sources of restraint are needed...

Kick themselves for having participated in the debacle?

Twice, since we now have to pay for the cleanup...

I'm not sure. It may just have encouraged it to think it can work again, and that therefore there's no need to shy away from future bailouts and shifty schemes. This may turn into a lobbyist's dream. Again, it's not yet clear.

Agreed. "There, that wasn't so bad. Let's go do that again". I sure hope not.

Yes. It goes on here, too, though so far without quite the same unintended consequences.

During the "season" I have to run a gantlet of proposition-petition volunteers every time I enter or leave the library....

At least their aren't Hare Krishna types...

That's what I mean. The "other companies" tended to have had former employees in positions of political power within the financial wings of the federal government. It seems to me that it's less a business of these people doing things to help the industry than doing things to help their own firms get a competitive edge. This is just what I'd expect firms to do, in a system which allows them to do it...

For sure. Primarily for one's own company, secondarily for the industry, when they ally together in common cause, as the banks successfully did recently.

It's actually an old gambit: use laws or regulations to nail a competitor. Many years ago, one trick was for brokerages to "fail" valid stock trades (a trade can fail for a number of reasons) where the counterparty was a brokerage that didn't have a good back end for trade processing. If the other firm can't keep up with the failed trades, they can get further and further behind in a few days, not know their positions (inventory) or the $ value of their inventory. And then the SEC shut's them down. Some firms were deliberately put out of business that way. Like sharks smelling blood, the Street firms would pile on kill a competitor.

A library or bookstore full of Kindles, maybe!

They better come down on the price!

cheers, Jeff

[Inquartata]

I use my signals - it's to my advantage to signal my intent so I don't get plowed into.

Indeed.

There are three reasons to use them ( and the number of the counting shall be....three ):

1) Safety
2) It's the law
5) I mean, 3) It's just polite.

One of these is always operative. Even when one is the only driver on the road, 2) is still the case.

So, what does this say about (a) lazy drivers?

Probably that the cell phone they are clutching to their ear does not leave them a free hand to operate their turn signals.

or (b) the theory of "rational actors" in economic and other contexts?

Now we are back to the probability and swiftness of consequences. Presently the behavior is all but costless...

OT but interesting: do you think slavery was dying in the US and would have gone away due to economic reasons in the mid-1800s?

Impossible to know when. Social institutions tend to cling on well past their real utility. But IMO technological inventions like the cotton gin and the steam engine were fast making the usefulness of labor less valuable in those occupations where it was primarily employed, and the utility above cost of feeding, clothing and above all controlling and motivating slaves was in rapid decline. This was probably why it and indenture had already been discarded in the industrial north and elsewhere.

slavery was forcibly ended for reasons entirely separate from whether it turned a profit.

Yes. At a terrible cost, but yes.

Maybe it's a legacy of the British Raj.

Almost certainly. Alas.

I have to confess that I had to Google the reference since I've never watched the show or even knew it existed. For me, "The Big Bang Theory" is the, you know, the theory, not a show I hadn't heard of! Boy, am I ever out of touch with mass culture.

I confess that I watch it mostly because of the hot blonde.

The problem is that the "invisible hand" is construed as a "law" in contexts in which it doesn't apply.

Such as?

But it doesn't apply to all situations: such as here where the compensation to a banker paid to make loans isn't tied to whether that loan is ever paid. Or other cases in which somebody is paid to sell rubbish (knowingly or not).

It's just allocating scarce rubbish to it's most societally valued uses.

Only when the interests of all parties are aligned does the law work.

No, that's not true. I cannot think of any sort of transaction in which the interests of all parties are aligned. The very point of the law is that the various interests conflict, and out of that conflict comes the optimum compromise for the conditions...

It's not clear to me that these are necessary, and in any case it's too reductive and convenient to say that great amounts of wealth have to be destroyed in order to - what, go make new wealth?

Perhaps to establish the conditions upon new, even greater wealth can be built.

For instance, a number of great fortunes of the last century arose from the ashes of the ruin of the Great Depression. The greatest prosperity the US has ever experienced followed the privation, death and destruction of WWWII. Etc.

"Well, bad things happened, but it's okay because that's the normal course of events"

Perhaps...but it's largely true, IMO.

Or rather, not "okay", but useful in some respects. Whether the good will in the long run outweigh the bad or not is IMO the best guide for policy. I go back to the forest analogy. For a long time we tried to squelch all fires, on the grounds that they were "bad", that is, destructive of valued resources, be it timber, wildlife, beauty or what have you. And now we are discovering that that approach may have harmed forests more than the fires ever did when the country was wilderness and natural fires burned until they went out on their own, yielding great short-run destruction but clearing the land for new growth...

Bubbles - and in this case a massive pump and dump scenario - can be mitigated by appropriate controls in the markets.

Again I think of the dictum that it is impossible to create a foolproof system because fools are so ingenious.

There have been many past bubbles, and the regulations which followed each did not prevent or, from the looks of it, mitigate the one which followed. Usually because it turned up in a completely different context. Now tulip bulbs, now penny stocks, now dot.coms, now mortgage-based derivatives. And any regulations we pass will probably not even approach the fringe of the next area to be affected by a mass mania.

And we keep creating new venues for these bubbles. It's not as though there are a finite number of things to be regulated, and once they are all sufficiently controlled by rules we'd be all set...


On a side note, I heard a mother of an 8-year-old ( or so ) in the library earlier telling someone that he loved to read, and then telling the boy that he'd better get a few more books because he went through them so quickly. Ah, memories.

[jeff]

Indeed.

There are three reasons to use them ( and the number of the counting shall be....three ):

1) Safety
2) It's the law
5) I mean, 3) It's just polite.

One of these is always operative. Even when one is the only driver on the road, 2) is still the case.

Queue Monty Python jokes....

Probably that the cell phone they are clutching to their ear does not leave them a free hand to operate their turn signals.

...much like clutching the Holy Hand Grenade.

Or they're texting, and even the steering wheel is held between their knees!

Now we are back to the probability and swiftness of consequences. Presently the behavior is all but costless...

Or, getting clipped by somebody because you didn't signal educates those who have gone through the experience. "Experience is a dear teacher and fools learn by no other."

Impossible to know when. Social institutions tend to cling on well past their real utility. But IMO technological inventions like the cotton gin and the steam engine were fast making the usefulness of labor less valuable in those occupations where it was primarily employed, and the utility above cost of feeding, clothing and above all controlling and motivating slaves was in rapid decline. This was probably why it and indenture had already been discarded in the industrial north and elsewhere.

Actually, it worked the other way. The cotton gin made mass production of cotton more profitable and made slavery economically attractive. I learned that in school and (ta da!) it's in Wikipedia too: http://en.wikipedia.org/wiki/Cotton_gin

I confess that I watch it mostly because of the hot blonde.

Sounds like a good enough reason to me! How many people watched recent versions of Star Trek shows only because there was at least one hot alien in a cat suit per series?

Such as?

Uh, that's what I'm trying to describe (just below)

It's just allocating scarce rubbish to it's most societally valued uses.

Oh, now you're just having fun. Okay, it's a Friday...

No, that's not true. I cannot think of any sort of transaction in which the interests of all parties are aligned. The very point of the law is that the various interests conflict, and out of that conflict comes the optimum compromise for the conditions...

Not even in a classic buyer-seller transaction? Buyer gets the goods or service he or she wants, the seller makes a profit? The common good is enhanced by different vendors coming up with better wares, for the benefit of all?

That's quite different from a trader being paid millions of dollars to sell debt regardless of whether or not it is ever paid off.

Perhaps to establish the conditions upon new, even greater wealth can be built.

For instance, a number of great fortunes of the last century arose from the ashes of the ruin of the Great Depression. The greatest prosperity the US has ever experienced followed the privation, death and destruction of WWWII. Etc.

Hmm, government intervention and massive spending - the vehicle of wealth. I never thought I'd ever hear that from you!

Perhaps...but it's largely true, IMO.

Or rather, not "okay", but useful in some respects. Whether the good will in the long run outweigh the bad or not is IMO the best guide for policy. I go back to the forest analogy. For a long time we tried to squelch all fires, on the grounds that they were "bad", that is, destructive of valued resources, be it timber, wildlife, beauty or what have you. And now we are discovering that that approach may have harmed forests more than the fires ever did when the country was wilderness and natural fires burned until they went out on their own, yielding great short-run destruction but clearing the land for new growth...

I understand the metaphor, but I think you see what I'm worried about - a kind of Candide-ish argument that everything is for the good, no matter how bad current evidence indicates.

Again I think of the dictum that it is impossible to create a foolproof system because fools are so ingenious (snip)

We can't solve all problems, but we can mitigate or prevent some of them. Also, I would suggest there's a difference between a bubble caused by a craze for a product that gets bargained up beyond a "real value", and one where people are paid to sell loans that may never be paid (that created conditions for a real estate bubble of the classic form, but was a separate type of phonomenon).

On a side note, I heard a mother of an 8-year-old ( or so ) in the library earlier telling someone that he loved to read, and then telling the boy that he'd better get a few more books because he went through them so quickly. Ah, memories.

That is a nice story.

[Inquartata]

Actually, it worked the other way. The cotton gin made mass production of cotton more profitable and made slavery economically attractive. I learned that in school and (ta da!) it's in Wikipedia too: http://en.wikipedia.org/wiki/Cotton_gin

Well, if it's in Wiki it MUST be true.

Politics and morality have overwhelmed economic analysis of the institution of slavery. Any intimation that the sacrifices not only of abolitionist activists and slaves themselves but of the nation itself were not the only thing that saved America from a the permanent besmirchment of an odious practice like slavery is...well...not particularly appreciated by the academic establishment. So yes, there are a lot of scholars who will insist that the practice was NOT moribund, that it was getting MORE profitable. That raises the ethical arguments that were brought to bear before the Civil War to an even higher level, and further justifies the carnage of the War. But I have always found the arguments of these scholars unconvincing given what I know of the precepts of labor economics...

Parenthetically, I presume that you are familiar with the story of John Henry. Yes, it's just a folk song, but it was also a commentary on the replacement of labor with technology.

Not even in a classic buyer-seller transaction? Buyer gets the goods or service he or she wants, the seller makes a profit? The common good is enhanced by different vendors coming up with better wares, for the benefit of all?

That's the outcome...but even then it's a compromise, and we know that those seldom make anyone completely happy. The seller still wanted a higher price, the buyer wanted a lower one and/or better quality, both probably feel remorse that they could not get them.

Before any transaction, though, their interests conflict. This is what "competition" is all about. Each wants something diametrically opposed to what the other wants. They each settle somewhere between, but this does not mean that their interests were always the same.

That's quite different from a trader being paid millions of dollars to sell debt regardless of whether or not it is ever paid off.

The problem here is imperfect information. The employers believed that the traders were worth their salaries. They believed that they too would make more money than they had been doing with traditional loan policies. They were incorrect, probably because almost no one understood the various instruments involved completely---and since they were new, there was no past experience upon which to fall back. But this does not make the employers' decisions irrational, immoral or criminal. Or those of the traders, either, for that matter.

Hmm, government intervention and massive spending - the vehicle of wealth. I never thought I'd ever hear that from you!

Correlation is not causation.

I understand the metaphor, but I think you see what I'm worried about - a kind of Candide-ish argument that everything is for the good, no matter how bad current evidence indicates.

Maybe it's all in one's pint of view.

To blend a couple of quotes, The optimist believes that all is for the best in the best of all possible worlds...and the pessimist fears that this is so.

[jeff]

Well, if it's in Wiki it MUST be true.

Which is why I mentioned that I learned this in school. For other sources:, including the Eli Whitney museum website:

http://www.eliwhitney.org/museum/eli-whitney/cotton-gin
http://www.essortment.com/all/cottongin_rciv.htm
http://bryant3.bryant.edu/~gas1/effects_of_the_gin.htm

To restate: Advent of the cotton gin made slavery more, rather than less profitable. It was not an economically failing system at the time of the Civil War.

Many policy decisions are made for reasons for other than economics. The end of slavery is one example (the anti-slavery movement started decades earlier by the British is further proof: it was directly based on morality even when counter to financial interests). I have no doubt other examples can be discovered without difficulty.

So: economics is not the only basis for policy decisions, and frequently takes a back seat. That's the way the world works. Statements that it works primarily on an economic basis are not consistent with reality.

Now for the normative statement: that's the way it should be, and a moral position is an essential part of public polity. Or are statements about freedom merely slogans to fool the masses? Statements that the world should be run according to economic principles are themselves only normative statements. Should the war against slavery not have been done because somebody would lose money? This is reductionist and largely misses the point. Eliminating slavery is about the most obvious Good one can think of, and if it reduced economic efficiency (debatable) that's hardly a consideration.

Parenthetically, I presume that you are familiar with the story of John Henry. Yes, it's just a folk song, but it was also a commentary on the replacement of labor with technology.

Yes, it's just a folk song. If the technology of the time had been different such that slaves were no longer economically attractive things would have been otherwise. But that's not the case, and to dwell on the hypothetical is a distraction.

That's the outcome...but even then it's a compromise, and we know that those seldom make anyone completely happy. The seller still wanted a higher price, the buyer wanted a lower one and/or better quality, both probably feel remorse that they could not get them.

Before any transaction, though, their interests conflict. This is what "competition" is all about. Each wants something diametrically opposed to what the other wants. They each settle somewhere between, but this does not mean that their interests were always the same.

That's an incomplete, if not naive, summary of purchases. Very frequently in commerce it works differently. Both buyer and seller want to have a set of T&Cs, including price, that are mutually agreeable and understand that a price that permits profit to the seller while being affordable to the buyer. Their interests are not "diametrically opposed": one party wants to sell something of value, and the other wants to buy it. In general, their interests are aligned. Or there would be no transaction, and one party or the other would walk away from it. That's how business really works.

It's quite different when something is represented as being of value when it has none. Or in the case I'm talking about: when one party is compensated for sell a loan - based on a hypothetical or imaginary or contrived facade of future payments - regardless of whether the loan is ever to be paid off, then we are talking about a completely different category of transaction, and a completely different type of "alignment:"

The problem here is imperfect information. The employers believed that the traders were worth their salaries. They believed that they too would make more money than they had been doing with traditional loan policies. They were incorrect, probably because almost no one understood the various instruments involved completely---and since they were new, there was no past experience upon which to fall back. But this does not make the employers' decisions irrational, immoral or criminal. Or those of the traders, either, for that matter.

"Criminality" may still be in question - in this bubble there are enough instances of misrepresentation of fact that fraud still may raise legal reaction.

Imperfect information is part of the problem - the other is greed. When a trader makes millions of dollars for writing contracts, and executives pocket millions based on the transaction fee, they are - as experience has shown - perfectly willing to ignore the crap added to their balance sheets. That's somebody else's problem, and in the meantime, they got paid so they really don't care. That's really the attitude.

Besides, that doesn't refute my argument. Imperfect knowledge makes the "invisible hand" useless when neither buyer or seller know if what is being sold is crap, and the latter has no reason to even care. On what basis does the magic of competition proceed when the value is just what somebody was conned into believing? Nope, the "invisible hand" - if at all a law - is one of the weakens and imprecise ones out there. More a metaphor or a slogan than a law.

Correlation is not causation.

Heh-heh-heh!

Maybe it's all in one's pint of view.:

Another lucky typo permitted by your keyboard and spellchecker?

To blend a couple of quotes, The optimist believes that all is for the best in the best of all possible worlds...and the pessimist fears that this is so.

I like that too. But in the interest of rigor (plus the ability to have an discussion in which "consequences of actions" can be discussed with any meaning) we can't just throw out arguments of the form "well, it may all work out for the best". That neuters any possible discussion about what was a good or bad idea or administration because anyone could toss out that reality denying show stopper.

Hey, we could use that to say Jimmy Carter and George Bush were great presidents, because maybe, somehow, in some indefinite point in the future, we'll have benefits from their policies, no matter how invisible they are now.

[Inquartata]

To restate: Advent of the cotton gin made slavery more, rather than less profitable.

No...it made cotton production more profitable. This is not the same thing as making a factor used in said production more profitable. Often profit goes up in one industry only because it goes down for a factor of its production...

It was not an economically failing system at the time of the Civil War.

I still maintain that it was.

The idea that it was not traces almost entirely to a single book "Time on the Cross", by two economists, Robert Fogel and Stanley Engerman. It was written in 1974 and though many of its methods and conclusions have been eroded over time and with the work of later scholars, its conclusions are still trumpeted because, IMO, they fit in so well with the meme of the American crusade against its own great evil...and I think that many fear that the nobility of that cause might be tarnished by the prospect that the Enemy could have been dying already of natural causes. What horror, to look too closely at the possibility that the awful carnage and destruction of the Civil War might have been, from a purely economic standpoint, unnecessary...

In any case, Fogel and Engerman based their conclusion that slavery was profitable almost entirely on the fact that the price of slaves was "high" and had been rising. But this is not in itself proof that they were profitable. One must know their cost also, among other things. If a slave brought, say, $600 but had cost $590 to "produce", for example...

I find it odd that an economist would assume that a high price indicates profitability, considering that high price is THE main motive behind the substitution effect---that is, the more costly a given factor of production, the greater the tendency to substitute other factors of production. In this case, high prices for ( slave ) labor should have driven business owners to substitute capital wherever possible. ( It's in this context that I mentioned the increasing shift to the use of technology. )


Coincidentally, I was watching a PBS program on Thomas Jefferson's slave operations, and was struck by the fact that ( as the commentator said ) although Jefferson's slaves "created great wealth" he still died in debt. Apparently the great wealth created by slave labor was overcome by the great costs of slavery...

Unfortunately, it was the law of the time---that is, government interference in the free marketplace---which provided an artificial prop to slavery, as it tends to do with most human institutions. Without it, the inherent inefficiency of unfree labor would, I believe, have hastened what was already the decadence of the practice...

Many policy decisions are made for reasons for other than economics.

No argument from me there. I will even allow that many policy decisions should be made for noneconomic reasons. ( Although I still think that in most cases the economic consequences should at least be examined in making those decisions. )

And yes, ending slavery was, on balance, one of these instances, IMO. That does not mean that we must magnify the moral component by asserting that there cannot have been an economic aspect...

the anti-slavery movement started decades earlier by the British is further proof: it was directly based on morality even when counter to financial interests).

I am not wholly convinced. If we are to assume that American "financial interests" led the South to resist the end of slavery even to the point of secession and open war, with the terrible results that it had, why are we to accept that Europeans, if they also had these interests, did NOT do so? Do you contend that they were simply more moral? Or if not, why did Americans not also acquiesce peacefully in the ending of the practice, as Europeans did?

Perhaps the financial interests of European slaveholders had simply dissipated sooner than they had in the colonies, eroding resistance to outlawing the practice?

So: economics is not the only basis for policy decisions, and frequently takes a back seat. That's the way the world works. Statements that it works primarily on an economic basis are not consistent with reality.

Certainly, that is the state of affairs.

And that, IMO, is why we so often get into trouble.

Now for the normative statement: that's the way it should be, and a moral position is an essential part of public polity.

To this I cannot quite sign on. I think that we would be much better off if we could make more decisions on the basis of cold, rational consideration of costs and benefits rather than on that of moralizing or of religious precepts...

Or are statements about freedom merely slogans to fool the masses?

I don't understand. Are you saying that the free market is somehow antithetical to freedom?

Statements that the world should be run according to economic principles are themselves only normative statements.

Agreed.

However, economics has a lot more going for it as a decision-making framework than most of its competitors, IMO.

Should the war against slavery not have been done because somebody would lose money?

Quite the opposite.

It is because slavery offered ( IMO ) few and decreasing economic benefits that the time for ending it had come. If one were making policy decisions based on economic assessments, as I advocate, then in fact the situation you accept---that it was profitable---would be a reason against ending it. Which is one reason I do not believe that it WAS economically viable...

That is, the cost of ending the practice was low ( economically speaking ) and its benefit high.

Unfortunately, the South was thoroughly steeped in a culture of slavery. It could not accept that the practice had become a mere revenant, in terms of economic utility. Thus it fought tooth and nail against its loss because it was a moral issue for them as much as it was for the North---not because it really offered an economically competitive model any longer.

Eliminating slavery is about the most obvious Good one can think of, and if it reduced economic efficiency (debatable) that's hardly a consideration.

Exactly.

However, this does not change the fact that ( IMO ) its economic usefulness was drawing to a natural end already.

My argument is not that ending it, even if it HAD been a competitive system, was not warranted. It's merely that it wasn't even a competitive system, and that had we not killed it it would have withered and died eventually of its own internal defects.

Both buyer and seller want to have a set of T&Cs, including price, that are mutually agreeable and understand that a price that permits profit to the seller while being affordable to the buyer.

A given "purchase" is not the entirety of a "transaction".

What you are describing is an economic transaction which has already been largely negotiated out. No buyer, starting from square one, has any desire to provide sellers with a profit; no seller wants to get less than all he can for his product. Their interests are opposed in almost all respects. That they arrive, eventually, at the realization that they MUST give ground in order to make any headway at all does not change that fact. That they come to some middle ground as a position for drafting their agreements doesn't, either...

Their interests are not "diametrically opposed": one party wants to sell something of value, and the other wants to buy it.

But these are not their interests.

At the extreme, the interest of the one is in getting something for nothing; the interest of the other is in giving nothing for everything. Compromise is not proof that they were partners all along. It is merely the result of both realizing independently that something is better than nothing.

Imperfect information is part of the problem - the other is greed.

I disagree. "Greed, for want of a better word, is good." It is what drives all industry, invention and labor.

That's somebody else's problem, and in the meantime, they got paid so they really don't care. That's really the attitude

In your opinion.

Nope, the "invisible hand" - if at all a law - is one of the weakens and imprecise ones out there. More a metaphor or a slogan than a law.

Have it your own way, but realize that it's unlikely to change its accepted status because you don't like the word we apply to it.

Another lucky typo permitted by your keyboard and spellchecker?

That one was almost TOO good! Perhaps some godlet ( or devil ) took a hand there...

But in the interest of rigor (plus the ability to have an discussion in which "consequences of actions" can be discussed with any meaning) we can't just throw out arguments of the form "well, it may all work out for the best". That neuters any possible discussion about what was a good or bad idea or administration because anyone could toss out that reality denying show stopper.

I'm only saying that we are already too prone to hasty judgements these days. I'd rather wait a while before I assign either complete condemnation or complete praise to anything. Perspective is usually a good thing, no?

[BenTheEMOP]

Things are not as bad as they seem.

And then we have things like bankruptcy laws, which enable them to escape the full consequences of their own bad decisions.

Certainly we do not seem to repeal many regulations. So the mass just keeps increasing, until it just bewilders any but experts. It is a wonder to me that businesses, particularly small ones, manage to comply with half of the rules to which they are subject. In fact, I wonder whether they are even aware of half the rules to which they are subject. That this is commonly seen by those who do not have to deal with them not only as unobjectionable but actually as insufficient escapes me quite...

The bankruptcy laws were tightened up in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act to make it harder to file for Chapter 7 and 13 bankruptcy. The changes included means testing and mandatory pre-filing credit counseling.

As for repealing regulations, I might recommend looking into the Graham Leach Bliley Act of 1999 which repealed provisions of the Glass Steagall Act to allow the formation of holding companies for banks and helped them engage in some of the behavior that lead to the current situation.

Also, GLB preempted a number of state laws (as did elements of the Federal Deposit Insurance Act), also reducing the number of regulations that financial institutions had to comply with.

As to the power of the banking industry, they were able to prevent Wal-Mart from getting a bank charter.

[jeff]

No...it made cotton production more profitable. This is not the same thing as making a factor used in said production more profitable. Often profit goes up in one industry only because it goes down for a factor of its production...

I see no contradiction. From the museum page: "While it was true that the cotton gin reduced the labor of removing seeds, it did not reduce the need for slaves to grow and pick the cotton. In fact, the opposite occurred. Cotton growing became so profitable for the planters that it greatly increased their demand for both land and slave labor."

Your last sentence is key: costs for a factor of production went down. The gin made mass scale possible, and the need for cheap labor was amplified.

I still maintain that it was The idea that it was not traces almost entirely to a single book "Time on the Cross", by two economists, Robert Fogel and Stanley Engerman.(snip)

Maybe Fogel and Engerman were wrong, but just from the brief material I found it doesn't seem they were the sole proponents of the idea that slavery was fading organically - I was taught to the contrary in school prior to 1974!

I would like to see proof to the contrary, rather than assertion than one source was faulty. Where's your evidence slavery was economically failing? You previously mentioned Whitney and other technology - but they increased the demand for slaves, not reduced it

the Civil War might have been, from a purely economic standpoint, unnecessary...

Even if it was an economic failure is correct) it still might have taken generations for the institution to fail. The "purely economic" standpoint misses the point...

(snip)Jefferson's slaves "created great wealth" he still died in debt. Apparently the great wealth created by slave labor was overcome by the great costs of slavery...

Not at all- You could say that If the class of slave owners lost money, but if Jefferson lost money it might be due to his not having been very good at business, or the time spent as a founding father

Unfortunately, it was the law of the time---that is, government interference in the free marketplace---which provided an artificial prop to slavery, as it tends to do with most human institutions. Without it, the inherent inefficiency of unfree labor would, I believe, have hastened what was already the decadence of the practice...

*puzzled emoticon* To which law do you refer that interfered and forced slaveowners to keep slaves even if that cost more than $ value. What prop?

If your theory holds, plantations with free labor would have outperformed the slave owners, and the institution would have evaporated on its own.

No argument from me there. I will even allow that many policy decisions should be made for noneconomic reasons. ( Although I still think that in most cases the economic consequences should at least be examined in making those decisions. )

Certainly - I don't oppose that. And a moral statement might be that "Policy X is the right course of action even if it has a negative economic impact". Heck, if doing the right thing always is profitable, there's not a lot of sacrifice, is there?

And yes, ending slavery was, on balance, one of these instances, IMO. That does not mean that we must magnify the moral component by asserting that there cannot have been an economic aspect...

Agreed - and in fact my position has been that there was an economic aspect - a negative one - but the deep immorality of slavery demanded its end regardless.

(snip)Perhaps the financial interests of European slaveholders had simply dissipated sooner than they had in the colonies, eroding resistance to outlawing the practice?

Actually, two excellent books on this subject came out in the last year or so. It was explicitly presented as a moral obligation, lost profits be damned, rather than something that could be conveniently eliminated since it no longer was profitable. As these histories make clear, slavery had to be eliminated despite the financial cost.

One cannot eliminate the non-financial aspects of this. Whites of the time held racist views of blacks and many felt they had the right to subjugate them, but incredibly that this improved the position of black people. See http://www.wfu.edu/~zulick/340/calhoun2.html at sections 6.14 and 8.1. They felt their "right" to own slaves was being attacked.

I'm puzzled by this line of discussion. Slavery was an immense evil that had to be ended. Whether slavery was profitable or not had little to do with it: it would have persisted for generations more if unopposed. I don't even know why we're discussing whether it had a good ROI. Eeew, TCO with a different meaning to the "O". Yuk.

Certainly, that is the state of affairs.

And that, IMO, is why we so often get into trouble.

Another point that puzzles me. If we should base policy on economics, isn't the underlying idea that this is the "greater good". That sounds like utilitarianism (I speak whereof I know but little ) - so an economic argument is based on a moral one. It's futile to try to separate the category of "economic reasons" from moral ones. Then, the question easily becomes "Qui bono?" . Is the greater good based on maximum total economic output? Why? Or greatest creation for wealth for a few, or the highest average income, or the smallest standard deviation? Which is the "right" one to maximize, hm?

To this I cannot quite sign on. I think that we would be much better off if we could make more decisions on the basis of cold, rational consideration of costs and benefits rather than on that of moralizing or of religious precepts...

By what criteria do we define "better off"? and for whom?

I don't understand. Are you saying that the free market is somehow antithetical to freedom?

I'm saying they are two completely independent uses of the word "freedom" that have very little to do with one another.

Agreed.

However, economics has a lot more going for it as a decision-making framework than most of its competitors, IMO

Well, we need more definitions of terms!

Quite the opposite.

It is because slavery offered ( IMO ) few and decreasing economic benefits that the time for ending it had come. If one were making policy decisions based on economic assessments, as I advocate, then in fact the situation you accept---that it was profitable---would be a reason against ending it. Which is one reason I do not believe that it WAS economically viable...

That is, the cost of ending the practice was low ( economically speaking ) and its benefit high.

Unfortunately, the South was thoroughly steeped in a culture of slavery. It could not accept that the practice had become a mere revenant, in terms of economic utility. Thus it fought tooth and nail against its loss because it was a moral issue for them as much as it was for the North---not because it really offered an economically competitive model any longer.

I follow and agree with this argument (I alluded to the Southerner's belief in their right to own slaves), however the case that slavery was unprofitable and known to be unprofitable has not yet been established. I may have read sloppily: have you previously produced documentation to support this?

Exactly.

However, this does not change the fact that ( IMO ) its economic usefulness was drawing to a natural end already.

Got it - I just don't see the basis of this claim.

My argument is not that ending it, even if it HAD been a competitive system, was not warranted. It's merely that it wasn't even a competitive system, and that had we not killed it it would have withered and died eventually of its own internal defects.

Right, I get that now - but it would have lingered a long and unknown time and many would have suffered the tragedy of slavery.

A given "purchase" is not the entirety of a "transaction".

What you are describing is (snip for 10000 limit)

Actually, many transactions start with the basis that both must do well for either to do well. But the relation to MBS is getting more and more tangential!

But these are not their interests.(snip)

See above (rinse lather repeat!)

I disagree. "Greed, for want of a better word, is good." It is what drives all industry, invention and labor.

Merely insert "not always" before "good".

In your opinion

To my certain knowledge, having worked with these types. They really don't care, I assure you.

Have it your own way, but realize that it's unlikely to change its accepted status because you don't like the word we apply to it.

But I can call it for what it really is - a slogan!

That one was almost TOO good! Perhaps some godlet ( or devil ) took a hand there...

There's a divinity that shapes our ends - but I didn't think it was in the computer!

(snip)I'd rather wait a while before I assign either complete condemnation or complete praise to anything. Perspective is usually a good thing, no?

Absolutely - but let's also be slow to make excuses of the form "oh, it might all work out somehow"

[Hauptman]

It seems the argument is that slavery was not really economically viable, and that it would have failed on it's own regardless of the Civil War and abolitionist movement.

Wouldn't this require a substitution to replace all that manpower? Did Southern agriculture suddenly become less labor intensive? I don't see that.

After the Civil War the South shifted from slavery to a system of tenant farming which, given the lack of any labor law at the time, was almost slavery without the corporal punishment (although lynchings were still common).

Even today much agriculture is still labor intensive. Not all crops can be harvested using machinery, and certainly few could be done in the late 1800s. I guess I really don't see how slavery was not economically viable at the time.

[Inquartata]

I see no contradiction. From the museum page: "While it was true that the cotton gin reduced the labor of removing seeds, it did not reduce the need for slaves to grow and pick the cotton. In fact, the opposite occurred. Cotton growing became so profitable for the planters that it greatly increased their demand for both land and slave labor."

There is no contradiction, as long as one assumes that slaves were the only available labor. But they were not. Free men could also have been used. ( And were---there were many farms on which no slaves were used. One of the other claims of Fogel and Engerman made was that slave-using plantations were more "efficient" than those which used wage laborers. But they examined only a single slave operation and extrapolated their results across the whole of the South...and in any case any observed greater "efficiency" could have been explained by many other factors, most obviously perhaps by the economies of scale of large plantations. )

I would think it obvious that free labor would be less costly than slave labor.

Both need to be fed, clothed and housed. For slaves the former is done by the owner directly, for free workers indirectly in the form of pay, but the overall amounts are likely to be about equal.

You might object that free workers must be paid something additional above subsistence to induce them to take the job. But even if we stipulate this, we must recall that slaves, too, at this period often received money payments.

Most importantly, slaves entailed a major cost which free labor did not: The costs of monitoring and control, not only while working---I am not talking about mere supervision to prevent shirking here---but 24 hours a day, 365 days a year.

But as I said, the use of slaves was a way of life for many plantation owners. Like modern businessmen who engage in hiring discrimination based on personal preferences and prejudices, Southern farm owners discriminated against free workers because they preferred slaves. This was their custom and their tradition, they were accustomed to it, and they continued it...probably also not really understanding that the alternative probably offered a competitive advantage to them, either.

Your last sentence is key: costs for a factor of production went down.

And that of another...went up. By some estimates it topped out at around $40,000 per field hand in today's dollars; that's $40,000 each.

As a rational business owner, what do you then do with your mix of labor and capital when those things happen?

When the price of jet fuel goes way up, do airlines try to use more of it, or less?

The problem, I think, is that many of those business owners behaved irrationally. It was IMO another example of a practice surviving long beyond its functional usefulness by mutating into a social institution.

Maybe Fogel and Engerman were wrong, but just from the brief material I found it doesn't seem they were the sole proponents of the idea that slavery was fading organically - I was taught to the contrary in school prior to 1974!

To this I cannot speak, as I was not in your classrooms.

It's true that historians like Stampp advanced the same sort of propositions earlier, but I believe that Fogel and Engerman were the first economists to do so...

Where's your evidence slavery was economically failing?

It's called basic economic theory---even Adam Smith claimed that it was inherently unprofitable ! If you expect me to repeat the econometric studies that Fogel and Engerman carried out, don't hold your breath. ( Unfortunately, no one else seems to have done it, either. Even most of the critiques of their results have been conducted by historians, not economists. )

But seriously, look at what happened everywhere else in the industrial world at the time. In one place after another, slavery fell away. Why would the American South have been an exempt from the general trend?

When it becomes possible to substitute a cheaper alternative to a factor of production, rational economic actors do so. They may refuse to do so for a time, for various noneconomic reasons, but in the long run they will be outcompeted by those who make the change and become lower-cost producers.

For that matter, if slave labor was so efficient when combined with technology, why was is not utilized in the factories of the north? Why did those factories switch entirely to the use of waged free laborers?

You previously mentioned Whitney and other technology - but they increased the demand for slaves, not reduced it

And drove up the price, since the supply could no longer be increased by the importation of new slaves.

What happens to quantity demanded when price rises, and supply is fixed?

But of course none of this touches on the basic question: Why use increasingly costly slaves instead of wage workers, if not for some noneconomic reason?

Even if it was an economic failure is correct) it still might have taken generations for the institution to fail. The "purely economic" standpoint misses the point...

I agree.

Did you think that I was arguing that we should just have let it go on until it died a natural death?

I argue that that the possibility of that as an option would make for a cognitively dissonant note in the song that is the American crusade against the greatest example of its own moral turpitude. I argue that we prefer not to hear that sour note, because its omission makes the song of our eventual self-redemption the sweeter. I do not argue that that note should have had its own song!

Not every intellectual position must be accompanied a political policy conclusion. That I believe that slavery was an economically doomed practice does not require that I believe it should have been left alone to perish from its own internal rot...

The "purely economic" standpoint misses the point...

Only if it's only policy and action that's important to you. As economic analysis, it rather IS the point.

Not at all- You could say that If the class of slave owners lost money, but if Jefferson lost money it might be due to his not having been very good at business, or the time spent as a founding father

Yes, you're right. Although that does seem to have been the conclusion that the program in question was advancing.

To which law do you refer that interfered and forced slaveowners to keep slaves even if that cost more than $ value. What prop?

No, the laws which artificially ameliorated many of the otherwise naturally occuring costs of slavery, specifically the Fugitive Slave Act, which in the words of one economist "socialized the enforcement costs...thereby artificially inflating slave prices". ( Thomas DiLorenzo, prof. of economics at Loyola )

If your theory holds, plantations with free labor would have outperformed the slave owners, and the institution would have evaporated on its own.

In time, exactly. See above. This is precisely my argument.

Certainly - I don't oppose that. And a moral statement might be that "Policy X is the right course of action even if it has a negative economic impact". Heck, if doing the right thing always is profitable, there's not a lot of sacrifice, is there?

Agreed - and in fact my position has been that there was an economic aspect - a negative one - but the deep immorality of slavery demanded its end regardless.

Well, perhaps we have been misunderstanding each others' positions...

Stand by for Part 2...

[Inquartata]

Stupid character limits.

Actually, two excellent books on this subject came out in the last year or so. It was explicitly presented as a moral obligation, lost profits be damned, rather than something that could be conveniently eliminated since it no longer was profitable.

Eh...the way that politicians and social activists "present" a policy means that in fact there actually must have BEEN huge profits involved? I don't get that...

As these histories make clear, slavery had to be eliminated despite the financial cost.

So, historians, not economists, so concluded? Color me shocked! ( Lambada, the Forbidden Emoti---oh, wait, this is a new post, I get 4 more smilies! )

One cannot eliminate the non-financial aspects of this. Whites of the time held racist views of blacks and many felt they had the right to subjugate them, but incredibly that this improved the position of black people.

if you interpreted my position as implying that I did not recognize or care about that, my apologies. That is not my position.

I'm puzzled by this line of discussion. Slavery was an immense evil that had to be ended. Whether slavery was profitable or not had little to do with it: it would have persisted for generations more if unopposed.

Perhaps. That has not been my concern in this thread, though. I have been saying only that slavery was not economically viable in the long run, that it would have become obsolescent eventually for this reason, and nothing more. No policy interpretations attached...

I don't even know why we're discussing whether it had a good ROI. Eeew, TCO with a different meaning to the "O". Yuk.

'Cause I'm an economist through and through!

If we should base policy on economics, isn't the underlying idea that this is the "greater good". That sounds like utilitarianism...so an economic argument is based on a moral one.

Mmmm...no, I don't...think so. It's still an economic argument, because the "good" in this case is simply utility.

This comes back to the theory of Pareto optimality ( a yardstick by which, even had slavery been in fact highly profitable and economically superior to other labor alternatives, the practice still would have failed miserably ).

Boiled down to its essence, Pareto optimality says that if one individual can be made better of by a policy, and no one else made worse off, the policy is indicated because it moves the welfare of all closer to the best possible situation ( optimality ). Kaldor-Hicks efficiency takes this a step further and avers that if a policy can make some so much better off that they can (a) compensate anyone made worse off, and (b) still be better off themselves, the policy is indicated.

See? Even propositions that we think to be purely political in nature---like "the greater good"---turn out to have economic foundations! "That's what I'm on about! If people would only realize---"!

By what criteria do we define "better off"?

Why, Pareto criteria, of course!

It all comes full circle in the end, you know!

I'm saying they are two completely independent uses of the word "freedom" that have very little to do with one another.

Well, that wants expatiation. I don't understand what you're trying to say...

And the rest will have to wait, I must away to fencing!