A good question would be what is the goal. At one level I do care about globally optimization, but on another global optimization is secondary to my immediate needs for optimization. (Some will be beside themselves and call me all kinds of names, but I am being honest. If others would put the needs of the world ahead of their own immediate needs, they deserve a special place in heaven.) Also, to be clear I am not talking about extreme unreasonable needs. But for example if caring for me and my family required me to level a forest I would do it, even if the net effect was negative globally.

I think this defines the inherent risk with "government" or any type of centralized planning. Not only is there the risk of misestimation of cost, there is the risk "doing" regardless of the cost to promote a political agenda not related to the collective good.

But can a market self-regulate? I think the answer is yes in some cases (at least for a time period) because of the point you make. Banks have an incentive to make sure other banks play by a certain set of rules that won't lead to reckless behavior that harms all banks. However, I think eventually all free markets will reach a point of failure without some regulation. I think EBAY is an example of a basically self-regulated market with just enough centralized control to make the market work on a long-term basis.

I think the market response in the banking industry was to allow the imposition of regulations through FDIC recognizing the problems with bank failures. but it is interesting how in our current crisis many in Washington did not want to allow existing controls in the system work. I think they should have let more banks fail. Failure would have uncovered all of the weaknesses in the system much faster and solutions would have been more direct.

apparently, the gao doesn't buy this la-la markets will fix themselves nonsense.
here's the report of high risk areas released yesterday:

http://www.gao.gov/new.items/d09271.pdf

it takes you straight to the full report. the section on outmoded american regulation of the financial sector is pp. 13-19.
it simply outlines the problem, pointing to it's magnitude, without making specific policy recommendations.
but the central arguments are:

a) financial sector activity has not, cannot and should not be unregulated.
b) a regulatory framework that is hopelessly outdated is no better than no regulation.
c) the current regulatory framework is in no way adequate.

to address this, the most basic requirement is the rejection of neoliberal economic ideology out of hand.

but read it for yourself.
99 ppg. of fun.

If you want to mis-characterize a position and then call it nonsense you will not get a reasonable exchange.

I don't know anyone who suggests that there are not problems with "free markets" (as if you could actually find one). There are risks is "free markets" and there are risks in highly regulated markets.
Here is a quote from page 14:

What this is basically saying is that the market moves/develops/reacts/grows/changes/etc. much faster than regulators can. Basically we have trillions and trillions of financial transaction, we have some of the most highly educated and creative people trying to profit in the system and we have a handful of legislators and bureaucrats in Washington trying to control it, and them actually thinking they can. If anything is nonsense, that is. Oh, and they think it is a risk, I didn't need their report to figure that out. I noticed they offered no solutions to manage the risk.

Don't you mean to say that the markets are developing much faster than regulators have? This is what the report is saying. Regulators aim to reign in the risk taken on by institutions (especially big ones) so that these kinds of failures don't happen in the future—they are more or less, at least, trying to minimize the impact of such failures.

I think the problem that most people have is they think that markets are efficient, when they aren't typically. We tend to overlook the impact of behavioral trends in the marketplace. Investing and borrowing is an emotional thing on all sides of the equation. Leaving the market to "fend for itself" is a dangerous thing when you remember that the market is more human than you think.

Let's not overlook this too, from the report:

[...]despite the increasingly global aspects of financial markets, the
current fragmented U.S. regulatory structure has complicated some
efforts to coordinate internationally with other regulators.

This isn't just about the U.S. and the U.S. government; this is also about global markets and how regulation is a coordinated effort.

The idea of free markets is becoming increasingly dangerous as markets in general become increasingly complex.

the idea of free markets hasn't been credible since the 1870s, except in some sectors of the jurrasic park of reactionary ideologies that is the united states. most of the 20th century can be parsed as a series of attempts to figure out ways out from under the social chaos generated by markets in create instead something approaching a livable form of capitalism, one not controlled by a self-serving type of social darwinist ideology. failure after failure to rig up some adequate regulatory framework, initially at the nation-state level (once these were jammed into place, a process still underway in the lovely afterglow of world war 1) mostly at the trans-national level (via economic interdependencies and political structures like the league of nations)...it was only after world war 2 that something approaching such a structure took shape, but it only managed to produce a veneer of functionality in the metropole for a little over a decade. since the late 70s, the dominant ideological framework "rediscovered" the middle 19th century and deployed through an authoritarian media apparatus to convince some segments of the american jurrasic park of rightwing ideologies that what failed over a century before is now somehow the next step in some fiction of progress.

it's so ludicrous a position that it's hard to imagine how it could possibly have taken hold without reliance on an authoritarian ideological delivery system.

at this point, such debate as there is left about the (delusional) chicken-egg argument of markets/regulation which is primary comes down to a simple proposition:

regulation enables markets to function. so the state has to approach regulation in that manner, from that viewpoint. the american financial regulatory system is as outmoded as it is because the ideological framework that was dominant under neoliberalism presupposed that it was ancillary to the functioning of markets and so was allowed to deteriorate, grow increasingly out of phase.

simple fact of the matter is that while this was happening, the class fractions that stood to benefit from neoliberalism simply pillaged the store. and now you have a wholly dysfunctional system. way to go.

i don't see why american conservative-style market metaphysics are relevant any more.
look around and you see what they've done.

What I am saying is broader. Not only is the financial market developing much faster than regulators can manage that development, the market is too big, the participants too clever. The fundamental problem with regulators is that they are always in a position of being reactionary. Also, in complex markets regulators who no longer participate directly in the market will not be current on what is happening in the market. It is ironic that the current administration is making so much noise regarding lobbyist, people who can connect government to markets in both directions. I understand the issue of conflict of interest, but there can be a bigger risk of regulators simply not being in touch and not having a clue on what is needed to address issues.

I think a bigger problem is the false sense of security naive market participants have thinking regulators have markets under control. The Madoff scandal was due to the fact that investors thought he was in compliance with market regulation and because of that they did not do their own homework.
-----Added 23/1/2009 at 02 : 48 : 42-----
It is relevant because it is dominate.

this sort of "debate" gets exasperating. we aren't talking about the same things. ever. i have worked on the history/political economy of capitalism for a very long time and am accustomed to being able to assume some basic knowledge about that in debates---you don't seem to know anything about that history to speak of, preferring instead to oscillate between some retro-metaphysics about the Magic of Markets and occasional snippy asides about preferring to talk to "real people" rather than folk with academic background, whose heads are pointy and live in chess pieces in some interior quadrant of your imagination.

i don't think you know what you are talking about. like at all.
but maybe i expect something entirely different than makes sense to expect.
either way, this isn't interesting to me---it isn't fun, it doesn't get anywhere.

Under neo-liberal regimes, sure. They created situations where there weren't enough regulators or regulation and by golly, the regulators just couldn't keep up with the dynamism of the market. It was a self-fulfilling prophecy. Once the first attacks were felt, they lopped off even more by saying that those regulators/meddlers were so darn inefficient and reactive.

The neo-liberal balderdash about gummint & markets was a smokescreen to obscure the institution of neo-liberalism. Hiding its own institution was one of the things that made neo-liberalism so anti-democratic.


It was.

It's been negated in practice since last fall by the crapitalists and your man G.W. and crew -- at least before they went limp. Considering that practical negation, it doesn't really matter what is said in factless vacuoles of the superstructure.

one of the interesting problems with any reworking of the extant regulatory regime will be figuring out where to locate mechanisms that impinge on transnational financial flows.

the present regime was assembled ad hoc on the basis of the nation-state understood as a kind of natural horizon--i think this happened more or less organically because like (pace wittgenstein, by way of a graceless paraphrase)---> a curious feature of the most structuring of assumptions is that they do not strike you at all. they're knit into the framework that you impose on the environment, like an a priori. during the long, bloody history of the 20th century, across 3 world wars, nation-states were a baseline feature of capitalist ideology, a device which enabled self-location, the starting point for the ordering of propositions that replace increasingly experience-distant phenomena (by working them into a sequence and so generating a sense of machinery).

to regulate transnational capital flows requires breaking with that assumption concerning location. if the above is right, this poses a cognitive problem, so the outcomes will probably be backed into---it seems to me that the most logical way out of the present fiasco is the fashioning of some kind of transnational regulatory system, which requires institutions, which require some kind of legal authority.

for example, at the moment currency speculation seems to be a real problem, given that the players in that game are not from nowhere and do not operate without political assumptions and so react in ways that are ideologically structured to moves like, for example, the uk project of nationalizing the banking sector outright. the choices are either operate within the present regime, in which case the tanking of the pound will place a obvious limitation on regulatory choices, or change the way currencies operate. this might be a good time to resurrect the tobin tax idea--a tax on transnational currency movements the idea behind which was to create a disincentive for speculation.
but while that would slow down activity in currency markets, it wouldn't change the game. so changing the game seems more logical, as much as theater as anything else--because without such a move, "free markets" remain understood as natural formations at a point where that assumption is being dismantled in other areas. so the theater would be geared around a reassertion of the fact that currency markets are regulatory effects.

one option would be something like a new bretton woods arrangement---another would be the articulation of a different type of regulatory logic that operates at the transnational, rather than at the multinational, level. it could be instituted as a transitional regime, as an expedient that would enable states to operate with greater flexibility in elaborating a relation to capital flows that is a practical atomization of neoliberalism. but i think something like that needs to happen, or the process will be hamstrung from the outset.

i don't have an idea of content to this regime yet, though.
do you think this reasonable?
if so, what kind of currency regime would you think effective?

The Rules of National Socialist Acquisition

a. To each according to his ability to work the system.
b. Compassion without coercion is useless.
c. Never ask, when you can use the government to take.
d. The vast majority of the rich in this galaxy are undertaxed.
e. All we want is what's yours.
f. Class envy makes a good running mate.
g. Never feed the hungry on an empty stomach.
h. A liberal without guilt is no liberal at all.
i. Entitlements and handouts will always overcome freedom and opportunity.
j. Beware of relatives giving speeches.
k. Citing Global Warming yields more cash than pointing a gun.
l. Moral choice is a complex personal issue that is better defined by focus groups.
m. Never argue with a loaded Kennedy.
n. Labor camps are full of people who opposed someone's beautiful dream.
o. Entitlement is the easiest way to enslave a population.
p. Democracy has limits. Dictatorship has none.
q. Give someone a fish, you feed him for one day. Teach him how to fish, and you lose a Democrat voter.
r. Money taken as profit is immoral; money taken by government is the highest form of Lightworking.
s. Poverty is no crime. Better yet, it's an excellent source of votes for the Democrat party.
t. There's nothing wrong with big business as long as they donate to anti-business causes.
u. Never cross Michelle Obama.

what is the point of that, powerclown?

Couldn't think of the last five, eh?

*sigh*

v. Actual progress is not guaranteed.
w. When someone says, "I'm not a racist," he's lying.
x. Never confuse powerful financial backers with luck.
y. The most beautiful thing about the environment is that you can turn it into an election issue.
z. Never snort cocaine and have sex in a limo with a homosexual drug user named Larry Sinclair.

where's sf?

Quoi quoi? Did I miss something somewhere?

Some folks cling to the idea of Obama as a socialist just as tenaciously as they cling to guns, religion and xenophobia.

Wait. What does that even mean?

The recent Group of Thirty report is likely to be the framework for some very comprehensive regulatory reform by Obama.

Obama's economic team were significant players in the report - Paul Volcker, Tim Geitner, Larry Summers. Its likely that we will see the framework of significant US regulatory reform by the time that Obama attends his first G-8 summit meeting this summer.

More from the Economist - Financial regulation...How to fix finance

The push back from the right will be interesting to watch over the next few months as the proposed reform dribbles out.

Prepare for more charges of "euro-socialism" or "New World Order" fueled by the Limbaurghs, O'Reillys, Malkins and other ignoramuses who claim they know better than any economist.

We seem to be more of a kleptocracy than a capitalistic democracy.

No matter which economic system we wish to embrace, we will have major problems until voters insist on accountability from our elected officials and their connections in the so called private sector. It seems that large politically connected companies are bailed out with taxpayer money when their bad decisions cause failure while small companies and individuals are mostly left to fend for themselves.

This is not a debate.

How did this personal attack add value to the thread?

You control what you read, you control how you respond. If something is not fun to you, why not act on it accordingly?
-----Added 27/1/2009 at 03 : 27 : 55-----
Perhaps you can enlighten and give us the best response to the primary point they will bring up in regard to the financial status of one of the most heavily regulated/highest tax rate states in the country, California? Is California an example of the final failure of tax and spend, highly regulated economies?
-----Added 27/1/2009 at 03 : 33 : 01-----
We have a man in charge of the IRS, that was not able to figure out how to do his own taxes, and this government official is going to fix the most complex financial market in the history of man kind. I don't think so.




The US sneezed and the world caught a cold. That is, comparatively speaking, what happened. 50/100/200 years ago other economies were not so dependent on the US economy.

Sadly true.

In today's IBD on the editorial page:

Today in Investor's Business Daily stock analysis and business news

There you have $22 billion of stimulus money going into a black hole.

In fact, it is probably closer to 38 (states facing deficit) black holes if you like the IBD characterization and its hit job on California.

Many more objective economists attribute the fact that California has experienced severe budget shortfalls as a result of nearly 1/4 of all housing foreclosures coming in California.

California was doing pretty damned well until the housing bubble burst.....the 5th largest economy in the world...despite all those anti-business taxes that has IBD bitching and crying like a spoiled child.

In fact, one growing sector in California has been in green technology start-ups brought about by the state's forward looking environmental program, despite the IBD's false claims.

For the record, in FY 09, 38 states are facing budget deficits and nearly half the states in FY 10.

NCSL table

States can either raise taxes or cut spending. When they cut spending, they lay off employees, cancel contracts with the private sector, reduce payments to businesses and nonprofits that provide services, and cut benefis to individuals.

All of these actions remove demand from the economy, which only worsens a downturn, particularly for the most vulnerable populations that are hurt by state budget cuts.

ace..do you even know how that $22 billion would be allocated? I suspect not.

The IBD solution?.....just give more tax cuts to the wealthiest taxpayers and it will all work out?

Is there a difference between going into a deficit compared to the crisis California is in? I think there is a big difference. The government is anti-business, high tax, high spend, high regulate, with no discipline. This is a recipe for failure and the track our federal government is on.

Can you give a name of one or a source?

The California downward spiral started long before the housing problem. Remember the dot com, bubble bursting, remember the rolling power outages, remember the hospital problems... Housing and the dot com. boom covered up California's problems.

Have "green" technology start-ups had a material impact? An impact compensating for all the lost jobs due to companies moving out of the state?


The tax cuts in Obama's plan is the only thing that will actually have a lasting impact on stimulating the economy. People investing in the future creates lasting opportunity and jobs, not one time projects, pork or handouts. Why did Obama put tax cuts in his plan if they don't have an impact? Why not raise taxes, like he said he would on the rich?

it's funny that the causes the idb edito--and WHY do you still post these pieces of crap, ace?---points to are all functions of deregulation (financial bubbles, the fiasco of attempting to put electrical power into non-controlled markets, the housing meltdown).

as for the "solution" offered: at this point, all that's repeated is a neoliberal article of faith. that it's repeated in a situation shaped by the failure of that article of faith to generate anything like the desired outcomes in 3-d indicates that once again the few remaining neoliberals have closed in on themselves, have entirely run away from reality.

at it's center is that tired, useless neoliberal conception of the state.

it's kinda funny to read it, particularly given that the rnc a couple days ago decided to "return to fiscal conservatism" as a way of attempting to maintain something of a republican brand identity. so there's this in the idb editorial page, and the results in the house last night on the economic package.

i look forward to the republicans exploring new and improved degrees of irrelevance as they adopt a neo-hooverite strategy to neither acknowledge their own ideology's centrality in creating this mess and offering nothing in the way of solutions.

I enjoy IBD editorials and I think they have a style that cuts to the underlying issue mixed with a bit of humor. I post the editorials because I often think of you and a few others on TFP after I have read them.

I am surprised about the amount of concern over the remaining Republicans in the House. The Democrats basically have the control to do what they want, they have the WH, and public opinion.

ibd editos are irrelevant. i mean, post what you like---but they're irrelevant as analyses.
but who knows?
it's statistically inevitable that something coherent may turn up in them as a function of the fact they continue to appear.


i'm not personally concerned about the republicans in the house---i just thought it funny that the rnc decided over the past few days to stake it's brand identity on opposing obama's economic initiative and then there's a straight party-line vote in the house.
i'm not sure that the republicans imagine themselves to be accomplishing--maybe it was a safe vote in their view because they knew they'd loose.

Agreed. However, the point is that California is a failed example of over-regulation, high tax rates and excessive spending with no legislative discipline. If there is data or opinions to the contrary, I am interested.

California is, or perhaps was, home to the "Californian ideology" & other such nonsense like Ronnie Reagan, Prop. 13, 3 strikes yerout, the "taxpayer revolt", deregulation, etc... You guys won! Now is the time for you guys to sit back and enjoy the fruits of your labours. Sweet ain't it?

California's current crisis is the result of Reagan, Prop 13... and not current tax rates, excessive regulation, government spending and lack of legislative discipline? We disagree if that is your view.