What can we expect from government?

by Russ Roberts on May 18, 2007

in Politics

In the comments to this post about lending to the poor, Ryan writes:

It may well be the case that being "poor" is correlated with being
"financially stupid". Perhaps you are uncomfortable with that idea, or
perhaps you are uncomfortable with the idea of government intervening to
assist the financially stupid. But I think there are many cases of the
financially, legally or scientifically stupid asking the government to
restrict their choices. You can’t take it as a given that, in
retrospect, everyone will be happy with the choices they’ve made.

Ryan, you’re right on the first count. I am uncomfortable with the idea that the poor are financially stupid. Lots of rich people make dumb or ill-considered financial decisions, too. I did find the Business Week article condescending—it treats the poor as unable to fend for themselves. And I totally agree with you about the last point. In retrospect, we often regret the choices we have made.

My real disagreement, and it’s a profound one, is what’s implicit in the middle of your comment:

…perhaps you are uncomfortable with the idea of government intervening to
assist the financially stupid. But I think there are many cases of the
financially, legally or scientifically stupid asking the government to
restrict their choices.

There are two themes in this short excerpt that are often linked together: government can help  people so let’s ask government to do so. Missing from the logic is whether it is reasonable to assume that asking government to do X is likely to lead to X happening. I understand the theory. But is there evidence for the theory? And putting evidence to the side—it’s often ambiguous—is it reasonable to assume that government will act in the way you expect? Does government have the information that would enable a wise decision? And most importantly, does government have the incentive to act wisely?

In the case of helping the poor in the area of credit, the typical government intervention is to limit interest rates that lenders can charge the poor. Does this help the poor? It probably helps some poor people—the ones who are sufficiently good credit risks that lenders are willing to lend to them even at low rates of interest. But it clearly hurts other poor people, those who can no longer get a loan. Some of those poor people as you point out, might end up better off from being restrained from borrowing. But others will certainly be worse off.

One interpretation of this story is that life is imperfect. Well-intended policies inevitably have winners and losers. But at the root of the story is the assumption that you make, that government is responding to the request of poor people to help them. Is this plausible? Poor people have very little political power. They don’t vote as often as others and they give little in the way of financial support. So why would you presume that the purpose of the law is to help them?

An alternative assumption is that politicians respond to incentives like everyone else. One of the not so obvious beneficiaries of interest rate limitations are financial firms who now face handicapped competition.

Even if I think people make bad decisions, even if people have regret, even if people want government to help them, why would we presume that the actual policy (as opposed to the way it’s described) will be one that helps them?

In my view, it’s best not to assume any motives on the part of "government." There’s really no such thing as "government" other than an abstraction we use to describe the sausage factory of legislation. Politicians do have motives. They are the same as mine and yours—a mixture of self-interest and altruism. In the case of the poor, I think it is too easy for a politician to convince himself or herself that interest rate limitations are good for the poor. They are actually good for the wealthier constituents.

It is tempting to assume that government is our friend. My friend might see me about to make a bad financial decision and ask me whether I’m sure it’s a good idea. The friend does that out of love or affection. But government does not love. Even the love of a politician is unlikely to extend beyond that of any other stranger. So why do we expect the politician to be our friend and do what is right for us? Given power, I assume the politician will often be tempted to do what is best for the politician. So I think it is best not to ask government to help us make better decisions. Politicians do not have the incentive or the information to help poor people make better financial decisions. And as for the evidence, I see none that suggests that past policies passed in the name of helping the poor have actually done so.

Ryan, thanks for helping me clarify my thinking on this topic.

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{ 32 comments }

jp May 18, 2007 at 10:28 am

Ryan wrote: "But I think there are many cases of the financially, legally or scientifically stupid asking the government to restrict their choices."

An interesting experiment would be to have the government offer "guardians" whom "the financially, legally or scientifically stupid" could ask, on an individual basis, to restrict their choices. Say, for example, that I did not trust myself to make a wise decision in buying a car. I could go to the Office of Guardians and request that a guardian be appointed for me with respect to car purchases. The guardian's consent would then be required for me to enter into an enforceable contract to buy a car. (I would have to be flagged in some way so that car sellers would know that I am disabled from forming an enforceable contract. E.g., my credit report could be flagged, or I could be fitted with some sort of bracelet.)

I wonder how many people would go for this? I've dealt with a few old people who really *are* incompetent to make financial decisions on their own but who resist mightily any effort to take away their autonomy. OTOH, many Americans seem to view the FDA as a sort of guardian — they seem to take comfort in the belief that the FDA is not giving them the opportunity to buy only "bad" foods and drugs, and that this restriction "frees" them from the effort of quality control.

Sam Grove May 18, 2007 at 10:28 am

Didn't Walter Williams, in his The State Against Blacks, show that the government took more out of poor communities, in the form of various taxes, than it put back in (welfare, etc.)?

jp May 18, 2007 at 10:39 am

BTW, Russ, you and Don have really been throwing the heat lately. Cafe Hayek is a great service!

methinks May 18, 2007 at 11:20 am

So, a miniscule portion of the mortgage market has a little problem and suddenly every poor person is an idiot. Gotta love that.

I've always known that "helping the poor" translated into "trapping the poor in poverty" so that John Edwards and his ilk always have a ready population to point to when they want to "reform" society. These people feel nothing but revulsion and contempt for the poor. I wonder if Ryan even realizes that "It may well be the case that being 'poor' is correlated with being 'financially stupid'." illustrates that plainly.

I was very very very poor before and while I attended a highly ranked university (for which I paid myself) but I was also an econ and finance major and that made me a whole lot less stupid than some of the rich dumbos I've met on Wall Street since.

What I haven't noticed is that our politicians in "gubment" exactly have a firm grasp on finance either. What I have noticed is that they have extremely well developed extortion skills.

ettubloge May 18, 2007 at 11:55 am

My socialist leaning friends profess faith to the policy proponents of their political party. They ignore the likely ebb and flow of party election success. Then, when their opponents do to properly manage the program, it is because they really do not like the ________ (fill in the victimized constutuents). They believe that if only their party were in power, the program would work out better. They ignore the fact that the stripes of both parties are relatively similar and the program's success has nothing to do with the current overseers.

James R Ament May 18, 2007 at 1:44 pm

What can we expect from government? I don't know who said it, but we can expect government to do: Nothing and overreact.

Lee Kelly May 18, 2007 at 1:55 pm

I might point out that such legilsation is a way of keeping people stupid, since when people are no longer responsibe for making decisions, what's the use in learning to be a good decision maker? The more you "protect" people from their own ignorance, the less incentive they will have to change their ways.

This is a general principle. For example, scientific progress is contigent upon our ability to eliminate false theories. If the rules of science permitted us to explain away ralcicitrant fact indefinitely, perhaps by blaming the measuring equipment, then no progress would ever be achived. There needs to be a selection process at work; the environment which scientific theories exist must be *highly critical*.

Likewise, for economic and cultural progress, we need a selection process, such as profits and losses, or imprisonment. The environment needs to be critical, or else bad cultural and business practices will not be eliminated, thus preventing progress. The kind of legislation that subsidises business, obstructs international trade, or "protects" people from their own foolishness, is precisely the same kind of legislation that weakens the selection process.

The very "stupidity" cited as an explanation for the necessity of such legislation comes to be preserved, because the legislation has prevented the system from learning.

Randy May 18, 2007 at 1:56 pm

Good one, JP. There actually is a precedent for this in the gaming industry. It is possible for an individual to request to be placed on a watch list and be denied the right to enter the casino.

jp May 18, 2007 at 2:22 pm

Thanks, Randy. That's a perfect real-world example of what I was talking about. I didn't know such things existed.

The Albatross May 18, 2007 at 2:59 pm

If we want to "protect" the poor from predatory lenders, then it is best that we leave these supposedly "predatory" companies be. As Thomas Sowell points out for the poor, the alternative to a "predatory" payday loan company is an even more predatory, leg breaking loan shark. In the end the "guardians" feel better about themselves, but they are not the ones with the broken legs.

P.S. Apologies for all the quotes–been spending too much time reading over at the BBC.

trumpetbob15 May 18, 2007 at 3:00 pm

jp,

While I like your idea, I would rather see a private group use it (like the casino) than the government. Once a government office opens to protect people, they will drive out other private groups, such as a financial planner. I would also be afraid of the government official assigning someone who has become corrupted. For example, a "car buying guardian" only choosing to deal with a used car dealership that sells cars at three times their value. Then we would be stuck with another need for a government service to protect consumers from the government protectors.

Dave May 18, 2007 at 3:10 pm

I really question whether Business Week is pointing out a REAL problem or a PERCEIVED problem. In particular, the scenario seems to be:
1) Low income person is lent money
2) Low income person buys goods and services
3) Low income person can't pay back the debt

The next natural step is:
4)Low income person fails to pay back the loan in part or whole (resulting in an impaired ability to get further loans).

In this scenario, the lender has certainly suffered the loss of their loan investment. The low income person, however, has received free goods and services. I don't have sympathy for the lender; they made a business decision that didn't work out. I don't have sympathy for the borrower either. If they have not had a recent bankruptcy, they can certainly file one. If they do have a recent bankruptcy, it is unlikely that lenders would have extended them very much credit.

I'd say that existing US law provides adequate protection in this case without making substantial sacrifices to the economic flexibility of our system.

Am I missing something?

Methink May 18, 2007 at 4:04 pm

Dave,

You're missing nothing. That's an accurate summation of the situation.

Mesa EconoGuy May 18, 2007 at 6:52 pm

Methinks methinks is absolutely correct.

And insightful about various Wall Streeters, like, say, one Warren Buffett. Now, I’m not necessarily calling him a dumbo, but he ain’t all he’s cracked up to be. His stance on the estate tax is offensive, and incorrect.

So maybe I am calling him a dumbo. I know many stupid-but-lucky mutual fund managers…..

M. Hodak May 18, 2007 at 9:16 pm

Is Buffett dumb? I don't know. He thinks that giving up one's money at death is the right thing to do. (His opinion) He doesn't seem to distinguish the government as a monopoly on violence in promoting the estate tax or other taxes. (Maybe dumb, but may be his morality) He doesn't seem to care that the government actually uses tax dollars with a level of waste that would make any honest midwesterner blush. (But may assume that most people know this and would do what he's doing–giving it away before he dies.) On the other hand, he doesn't seem to get, as noted in Russell's post, that government agents have neither the intent, capability, or incentive to do anything with the money other than serve their private ends. That might be evidence that even smart people are idiots about everything except the one thing they're paid to be good at, even if they're paid handsomely for their unique talent.

Methinks May 18, 2007 at 10:28 pm

I wasn't talking specifically about Buffet but, now that you mention it, I don't think much of him.

I was thinking more along the lines of people who don't understand the difference between arbitrage and a directional trade.

Or one equity research yahoo at a major investment bank in NY who published a whole report because an accounting rule change increased the EPS. He argued that applying the current earnings multiple to the new EPS number gave you a higher value per share, so the company was (I'm not kidding) "worth more".

How about that stupid carry trade?

Methinks May 18, 2007 at 10:57 pm

M. Hodak,

Okay, maybe the "sage of Omaha" has started taking his media-made title too seriously. He has generously donated his money and that's nice. However, what does he exactly suppose entitles him to decide what OTHER people (maybe even people who aren't billionaires but are subject to this post-mortem seizure of assets) should do with their money?

But smart people shouldn't make basic logic errors. I rewound the tivo several times to make sure I heard him correctly in an interview with CNBC. The subject of taxes and tax cuts came up. Buffet became apopleptic (for Buffet) about the insanity of "the rich" paying less taxes than "my secretary" (I doubt it, somehow). But he said this right AFTER he told the interviewer that he employs an army of CPA's and tax attorneys to minimize his tax liability. So which is it? Does "the sage" think he's paying too much or too little as one of "the rich"? If you think you should pay more, why employ so many people to figure out a way to pay less?

Also, while Buffet has a firm grip on Graham Dodd, he doesn't seem to understand basic financial instruments like derivatives. He's terrified of options. Worse, he implies that since he doesn't understand them, nobody really does and we are headed for financial apocolypse. I know plenty of people who not only understand options but have built lucrative careers pricing and trading very complex options. And what these people don't understand is why a financial "sage" pontificates publicly and loudly on subjects he admits he doesn't understand. I think that's pretty dumb.

I'm not saying Buffet is a dumbo. I just agree with Mesa EconoGuy that the old guy ain't all he's cracked up to be.

M. Hodak May 19, 2007 at 12:39 am

I'm suggesting that liberal Wall Street types, of which there are many, can be brilliant at the one thing that makes them rich (and, yes, there are many who are luckier than smart, but I don't believe Buffett falls in that camp), and dumb on political issues, or at least at odds with my preference for freedom.

The difference between Buffett and us isn't that he has opinions outside of his area of expertise, but that that when he speaks, people write and record what he has to say. I hope that more commenters here can buy their soapbox to counteract him. But we'll probably have to get more focused on wealth building than commenting on blogs!

Mesa EconoGuy May 19, 2007 at 1:57 am

Geez, I sparked debate.

I hate that.

I had the privilege of recording with Buffett’s son Peter (Dances With Wolves soundtrack, Narada Records, etc.) Nice guy. Cool, very expensive toys (e.g. Synclavier) http://www.synclavier.com

[New England Digital, 15 years ago, when I did it]

Daddy Warren, however, is very entrenched in Graham and Dodd, like every single portfolio manager since 1975.

And since his unusual success gave him his extraordinary wealth, (and while I’ve gained mine in the interim using nearly opposite methods, which he has completely missed) he now wants me to pay inheritance taxes that his generation is responsible for enacting.

And then he avoids those same taxes, but continues to tell me my family has obligation to pay.

OK, Warren Buffett is a moron:

– Other Voices:Views from Beyond the Barron's Staff—Questioning the Cult of Buffett—-By Stephen P. Mauzy –
Is any chairman and CEO more revered by his company's shareholders than
Berkshire Hathaway's avuncular Warren Buffett? Witness the spectacle in Omaha,
Neb., that is the Berkshire Hathaway annual convocation. Every first weekend in
May, the owners and notable hangers-on squeeze into the Qwest Center to absorb
first-hand parables from their high priest of investing.
Those of us unable to pony up $3,600 for a B ticket or $109,000 for an A
ticket (based on share prices for different classes of Berkshire stock) can turn
to technology to substitute for the holy experience. Type "Warren Buffett" into
Amazon.com and you'll return 48 hits from almost as many hagiographers. Type it
into Google and you'll return 1.4 million hits. Tune in to any cable-television
business show and his name will surely be invoked when the subject turns to
investing. Warren Buffett is the business world's pope.
Fealty should be expected when someone has produced an average annual return
of 21% over 40 years, especially when that someone can still ply his
alpha-generating trade. As recently as last year, Buffett carried Berkshire
Hathaway shares 24% higher, beating the S&P 500 by 10 percentage points.
Despite the hosannas directed Buffett's way, all is not well at the church of
Berkshire Hathaway. Upon closer inspection, capitalists may note that the bulk
of that 21% average-annual return was generated when Berkshire was a much
svelter version of its current self. Over the past five years, the company's
average annual return is closer to 8%, even with the high return of 2006.
Berkshire tips the scale with a belt-busting $42 billion cash hoard, a $165
billion market cap, and a $66,000 per-share book value. The wide girth extracts
a tribute, as evidenced by the ever-growing time frame required to add a zero to
the firm's gaudy share price: Berkshire shares required six years to appreciate
from $100 to $1,000, nine years to appreciate from $1,000 to $10,000 and 14
years to appreciate from $10,000 to $100,000.
By the way, what's the rationale for maintaining a stock price that doesn't
fit in the stock tables? Buffett has long opposed a stock split on the theory
that the high price discourages buying by short-term traders. In the 1992
shareholder letter, he stated: "Overall, we believe our owner-related policies
– including the no-split policy — have helped us assemble a body of
shareholders that is the best associated with any widely-held American
corporation."
Another claim is that the high price allows Buffett to rise above the market
fray and avoid the clamor that accompanies normal trading activity. But the
argument lacks force when the CEO owns 31% of the firm's stock. Can't he rise
above the fray as easily with a $10-per-share stock as a $100,000-per-share
stock?
Buffett's desire for aristocratic ownership hasn't squelched petty-bourgeois
demand. A decade ago, Berkshire issued the lower-priced Class B shares to
pre-empt a Philadelphia-based entrepreneur from launching a fund offering
fractional exposure to Class A shares.
The Class B shares satisfy a certain investor demand, to be sure, though Class
B investors are indeed second-class parishioners, for the Class B shares carry
one-thirtieth the rights of Class A shares, except that they wield
one-two-hundredth of Class A shares' voting rights.
Concern with trading expenses is another justification for maintaining the
six-figure price. ". . . we believe that our shares turn over far less actively
than do the shares of any other widely held company. The frictional costs of
trading — which act as a major "tax" on the owners of many companies — are
virtually non-existent at Berkshire," Buffett stated in the same 1992 letter.
Unfortunately, the trading-tax contention crumbles when carried to its logical
conclusion. If all firms (especially the great ones) practiced what Buffett
preaches, only the wealthy could afford direct investment. The investing plebs
of the world would suffer the "tax" of an additional level of intermediation –
up to a 5.75% front-end load and an annual 1% mutual fund management fee — far
exceeding any tax imposed by the "frictional costs of trading."
Imagine if mighty ExxonMobil shared Buffett's stock-constituent sentiments.
Had the energy giant retained its dividends and original share count since the
early New Jersey Standard-Standard Oil of New York days, it would dwarf
Berkshire in every measurable metric. But what would be the point of such an
inefficient enormity, aside from cocktail-hour bragging rights and precluding me
from purchasing ExxonMobil stock?
Fortunately, ExxonMobil has more pressing concerns than fretting over its
ownership. What's more, it pays a dividend because sound corporate governance
decrees that management return money to shareholders when faced with inadequate
investment opportunity.
Buffett is the greatest investor alive, but his prior successes have forced
him to buy in $5 billion to $10 billion chunks to impact Berkshire's bottom
line. Would a Blue Chip Stamps or a See's Candy make a bit of difference in
Berkshire's portfolio today? Would it make a difference in yours?
Another downside to the problem of the too-much-cash for
too-few-investing-opportunities paradigm is cash intoxication, which causes
management to abandon sensibility and seek positive net-present value outside of
normal business activities. Buffett's recent foray into less-than-zero-sum
games, such as currency and commodity speculation, suggests he's susceptible to
the effect.
The worst aspect of Berkshire's size and ballooning cash account is that
Buffett has had to abandon the real source of his success — concentrated
contrarian investing. Buffett once said, "Wide diversification is only required
when investors do not understand what they are doing." During the halcyon days
of 1977-1983, when the share price soared from $100 to $1,000, Berkshire
finished one year (1978) owning as few as eight publicly traded securities and
never finished a year owning more than 18 (1980).
Peruse Berkshire's most recent 13F filing, and you'll find those concentrated,
contrarian days of yore are long gone. As of Dec. 31, 2006, Berkshire held
minority stakes in 41 publicly traded companies, complemented by complete or
supermajority ownership in 46 more. Its business interests include insurance,
materials and construction, furniture, apparel, transportation, food, energy,
retail, jewelry, newspapers and business services. Berkshire is a closed-end
mutual fund (and one trading at a 60% premium to book value).
Buffett refers to Berkshire's shareholders as "partners and co-owners." If
true, then he should treat them like partners and co-owners by losing the
dual-class stock system, combining the A and B shares, splitting the share price
down to $50 or so, and paying a dividend.
So what if a short seller or speculator takes a position or two? These
shareholder-friendly measures will not only increase the stock's liquidity and
ownership base — good news for both current and future shareholders — but will
release cash for higher-value investment opportunities.

Mesa EconoGuy May 19, 2007 at 3:48 am

Economists refer to this as “diseconomies of scale:”

During the halcyon days of 1977-1983, when the share price soared from $100 to $1,000, Berkshire finished one year (1978) owning as few as eight publicly traded securities and never finished a year owning more than 18 (1980).

Peruse Berkshire's most recent 13F filing, and you'll find those concentrated, contrarian days of yore are long gone. As of Dec. 31, 2006, Berkshire held
minority stakes in 41 publicly traded companies, complemented by complete or supermajority ownership in 46 more. Its business interests include insurance,
materials and construction, furniture, apparel, transportation, food, energy, retail, jewelry, newspapers and business services. Berkshire is a closed-end mutual fund (and one trading at a 60% premium to book value).

This is also an endorsement of overall wealth expansion since Bill Clinton jacked up both estate and bonus taxes, neither of which Warren need concern himself with, yet he’ll tell you anyway.

I’m fairly certain I’m not going to Omaha anytime soon. I have an uncontrollable urge to allow Warren’s face to suddenly encounter my fist.

Bill Koehler May 19, 2007 at 9:26 am

One of the problems the poor have when it comes to loans
is that they go to illegal sources because the legal sources
are closed to them. Al Capone was a collector for a loan shark
before he went into the beer business.
Ever notice how almost every malum prohibitum is a catalyst
for organized crime. The real question is would organized crime
exist without malum prohibitum?

spencer May 19, 2007 at 10:24 am

You said:
And as for the evidence, I see none that suggests that past policies passed in the name of helping the poor have actually done so.

Numerous laws are in existence that require lenders to provide borrowers with detailed,
clearly understood statements of what the
repayment provisions actually are.

Yes, people often do not read the facts actually provided. However, it is an example of government actually doing something to help the poor.

Consequently, your argument that the government never does anything that actually helps the poor is about as false as the rest of your great analytical ability.

Grow up and look at the real world. You are no longer a 13 year old reading Ayn Ryan.
You are suppose to be a PhD economist. Try acting like it once in a while.

Flynn May 19, 2007 at 5:39 pm

Who the hell is Ayn Ryan?

True_liberal May 20, 2007 at 4:37 pm

Quoth Sir Winston: "The great principle which this house ought to guard and cherish is that, when the tax collector comes to the private citizen and takes from him of his wealth for the services of the public, the whole of that money taken shall go for the purposes for which it is intended, and that no private interests, however powerfully they may be organized and however eloquently advocated, shall thrust their dirty fingers into the pie and take the profits for themselves."

True_liberal May 20, 2007 at 4:44 pm

Spencer says: "Numerous laws are in existence that require lenders to provide borrowers with detailed,
clearly understood statements of what the
repayment provisions actually are.

Yes, people often do not read the facts actually provided. However, it is an example of government actually doing something to help the poor.

Consequently, your argument that the government never does anything that actually helps the poor is about as false as the rest of your great analytical ability."

This is akin to the gov't providing a superhighway, but denying access to the guy who affords only a bicycle or motorized wheelchair..

The fineprint disclaimers serve only to provide legal shelter to the lender. No government can legislate against lack of comprehension by the public; in fact all governments DEPEND on lack of comprehension!

Arkady May 20, 2007 at 7:33 pm

Spencer, the stated purposes for government policies are not equivalent to their actual results.

Have you ever actually read, say, the materials that come with a credit card offer? Did you find them to be clear and understandable? Do you think the average high school dropout would find them clear and understandable?

Just kidding! Ultimately it doesn't matter what you think, since the nine, 8-point-font, jargon-laden pages that come in every credit card direct mailing satisfy the "numerous laws" mandating the detail and clarity of lending agreements.

Russell Nelson May 21, 2007 at 1:55 am
St Wendeler May 21, 2007 at 11:18 am

[Buffett's] stance on the estate tax is offensive, and incorrect.

If you look at Buffett's position on the estate tax from a business strategy standpoint, it's not that strange that he favors the death tax.

He's made a killing finding small, undervalued companies that (oftentimes) are family-owned. Once the implications of the death tax hits the surviving family members, he swoops in and purchases the company.

He's just a vulture, that's all. And vultures have to have a large supply of carrion.

Methinks May 21, 2007 at 11:34 am

I’m going to just beat the Buffet horse one more time because I think there’s an important point in it.

In his 2002 letter, Buffet told Berkshire Hathaway shareholders “Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

Buffet makes it clear in other statements too that he doesn’t understand derivatives. But does that stop him trading them? Why, no. Why would not understanding a transaction prevent one from entering that transaction?

In a letter released in March, Buffet wrote “Why, you may wonder, are we fooling around with such potentially toxic material?” He answers: “Derivatives, just like stocks and bonds, are sometimes wildly mispriced.”

So, we’re expected to believe a guy who doesn’t understand derivatives understands the nuances of pricing them so well that he can arbitrage the stuff. Huh.

The fact is that Buffet made money in the highly liquid and extremely robust market of currency derivates. Highly liquid, robust markets are NEVER “wildly mispriced”. They are rarely even a little bit mispriced and you pretty much have to be a market maker to take advantage of these mispricings – which Buffet is not. The sad thing is that Buffet was dumb enough to think he was engaged in arbitrage when he was, in fact, taking a directional position. Luckily, he won on that position. Unfortunately, he doesn’t understand that’s what happened.

First rule of trading: don’t enter into transactions you don’t understand (like the Berkshire Hathaway owned Gen Re did with Bermuda options and Buffet himself with currency derivatives). I guess Buffet didn’t get the memo.

This is a PERFECT example of how even the “brightest minds in finance” make huge mistakes (also an example of a good outcome not necessarily rooted in a good decision). Stupid transactions are not limited to the poor, uneducated and unwashed masses. And if the “brightest minds” don’t understand what they’re doing from time to time, what makes us think that government does? And why set a higher bar for the poor merely because of their current economic circumstances when a rich "sage" is clearly as mistake-prone as the poor?

Jon May 21, 2007 at 2:59 pm

Thought drawn from jp's original comment:
"The guardian's consent would then be required for me to enter into an enforceable contract to buy a car. (I would have to be flagged in some way so that car sellers would know that I am disabled from forming an enforceable contract. E.g., my credit report could be flagged, or I could be fitted with some sort of bracelet.)"

Wouldn't we then expect the "market" for guardians to becom saturated with "contributions" from major auto makers, or what if in some people's effort to prop up failing US auto makers the guardians suggest to 80% of their consumers that they should buy an American made car.

We get into the same damn problem of having gov't in bed with business and vice versa. We go from having the government as a referee for the game, to actively handicapping those players who do well.

True_liberal May 22, 2007 at 7:46 am

If spencer thinks the government requires the fine print to protect the individual, he should hope he never is injured in an accident in which another party is clearly at fault, but spencer's own insurance invokes a subrogation clause.

Read and weep:
http://www.sconet.state.oh.us/
Communications_office/summaries/
2004/0929/031880.asp

Do YOU know what the subrogation language in your health policy states?

cpurick May 23, 2007 at 7:24 am

Spencer said:
Numerous laws are in existence that require lenders to provide borrowers with detailed,
clearly understood statements of what the
repayment provisions actually are.

Yes, people often do not read the facts actually provided. However, it is an example of government actually doing something to help the poor.

Actually, those requirements benefit all borrowers, and they benefit the lender as well. IMO, that's a pretty good law: it increases the quality of the knowledge that factors into decision making without reducing the choices available to the consumer.

That is not the case with the interest rate restrictions in Dr Roberts' original post, which presume that people cannot make their own decisions and therefore should be denied certain choices.

Your position is frought with irrationality. Perhaps you should try reading some Ayn Ryan yourself.

Politicians don't want solutions that work — they want solutions that get them votes. Tell me you don't honestly believe government will ever solve poverty, education, health care or environmental problems — those issues are cash cows, and you can bet they will never be resolved.

A reasonable person would feel pretty foolish for supporting such massive efforts to make us all slaves.

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