Here’s a letter that I sent yesterday to the New York Times:
Deeply upset that the House of Represetatives voted against the bailout
plan, David Brooks writes that "We’re living in an age when a vast
excess of capital sloshes around the world fueling cycles of bubble and
bust. When the capital floods into a sector or economy, it washes away
sober business practices, and habits of discipline and self-denial"
("Revolt of the Nihilists," September 30).
So, pray tell, how
will a massive government bailout of persons who behaved imprudently -
a bailout inevitably injecting hundreds of billions of dollars of
additional paper capital into the economy – solve the underlying
problem?
As my colleague Richard Wagner points out, markets
aren’t intoxicated by large flows of capital per se. Such bubblicious
drunkenness results from capital that is politically supplied and
directed – just the sort of capital promised by the bailout plan.
Sincerely,
Donald J. Boudreaux
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{ 49 comments }
Great letter, one more time.
I don't comment often, but I must applaud your use of the phrase "bubblicious drunkenness."
Great letter! David Brooks is an anti-capitalist. That article is almost as bad as his one railing against individualism.
Like Brain, a round of applause for the idiom "bubblicious drunkenness."
Recently forwarded to me a another spunky piece by Donald Boudreaux
Thoughts on Freedom ~ Sad Democracy
September 2008
http://www.fee.org/publications/the-freeman/article.asp?aid=8331
http://www.burlingtonfreepress.com/apps/pbcs.dll/article?AID=/20081001/NEWS03/81001041/1009/NEWS01
A story about the 10% surcharge amendment.
I knew America was descending into socialism, but I never expected it to go downhill so quickly.
Methinks,
Thanks for the info; even though it is thoroughly depressing, its better to be informed about such things.
Well Methinks, if we are going the way of the USSR, I might as well start getting used to numbing the pain of psuedo-slavery with some Russian Vodka; Das Vidania!
…and while our political class wants to nationalize everything that moves others:
privatize…
A child is born.
http://peakrent.blogspot.com/
So if a couple makes $1,100,000 they would instead have $1,090,000 of taxable income. And if they made $2,000,000 million they would only have $1,900,000 of taxable income. That is aweful. I feel their pain.
I can't imagine what it would be like to have to live off $1,900,000 million of taxable dollars when you could/should have had a full $2,000,000. What soulless bastards those politicians are.
Don't they remember the last time we had those high tax rates in the 40's , 50's and 60's we had all those terrible economic crisis and depressions and bank collapses. Oh the agony….. I think these people should just abandon the monetary system and barter all their pieces of paper… I mean wares. Oh but wait that IS how they got so rich…. NEVERMIND!
"what it would be like to have to live off…" With this logic, why not have a 100% marginal tax on income over $50,000? Half the population is able to live off that, what's wrong with the other decadent half?
I see many people using these peculiar justifications with current issues i.e. "With this plan, the government could make a nice profit!" And the government could make even nicer profit by seizing assets outright. Would that make the plan better?
Hoping that our political class knows what to do to fix the mess we're in is like opening the kitchen to a horde of three-year-olds and hoping that they fix dinner.
George, that money you want to take (which doesn't belong to you anyway) will likely not sit in a shoebox in the back of their closets. It will likely be reinvested somehow, likely in ways you can't comprehend. Even if they blew it all on a big party, that money will give business to bartenders, DJs, limo drivers, caterers, etcetera.
What do you have against caterers? Do you think caterers are bad people who should all go out of business? Don't caterers deserve to make a living, too?
I'm trying to appeal to you on an emotional level, since that is the only level you seem to have.
Also, once again, it's not your money. It's wrong to take that which does not belong to you. But you seem too gleeful at the idea of sticking it to the rich to see that this theft of property will have consequences.
Hans,
Muirgeo wants to take that money and entrust it in politicians' hands so they can spend it as they see fit in order to increase their chances of reelection. Muirgeo loves politicians so much he wants to make them rich.
What George seems to forget is that someone who earns $2,000,000 per year does so by trading with others for mutual benefit. Many of the people whom are being traded with will earn less than $2,000,000 per year, but will never the less benefit from the opportunity to trade.
Increasing taxes, among other things, decreases the incentive to trade, because some portion of the benefit is confiscated. Under the burden of increased taxes, a person who earns over $2,000,000 per year will forgo some trading opportunities with people who earn less than $2,000,000 per year, and thus benefit neither.
Since one party does not want to trade because of his increased tax burden, the exchange will not take place. Both parties will have to then take their next best option, and therefore, both rich and poor will suffer when the tax burden on the rich is increased.
Muirgeo loves politicians so much he wants to make them rich.
Many of them already are rich.
Good ol' Senate. Looks like it's time to e-mail my representative – bets on whether or not she'll listen?
Mind you, no refunds if you lose.
Plan and simple massive accumulations of wealth and corporate power do not improve market efficiencies or personal liberties.
Because money is only given value by the rules society makes concerning it and because a progressive income tax is the only way to properly fund the functions of a government needed to set up a society where people can get filthy rich we just have to all agree that…. from day one when we are born we all have an equal chance of becoming rich and we must agree that if our individual path leads us to great wealth we will have to put back in dis-proportionately to the system that allowed us to be so successful. If we don't the system will not sustain itself.
That's not socialist thinking. It's real world thinking of how to design a system that maximizes the economy and capitalistic competitive markets. I actually believe in those. I'm just capable of realizing the "free market" fallacy and understanding that market efficiency is maximized under good and minimalist regulation.
I honestly think I'm more for maximizing liberty, freedom and the economy then most Libertarians.
I really want the same thing as you all. I'm just convinced paradoxically enough that your system is indeed the Road to Serfdom while mine admits to imperfections and works best to optimize real world results.
Your system must result in massive accumulations of wealth and power. I don't see how it could not. Once some one is rich how would they ever lose their money with out great folly? Basically, a privileged class would result. One that by none of their own doing was filthy rich even though they personally had nothing to add to society.
I do understand the concern for my system to lead towards socialism but I think we've not seen any of the modern developed nations fall that way since the great war.
Byron Dorgan predicting a disaster if the bailout goes through but first predicting the current disaster 9 years ago as Glass Steagall was effectively killed off.
You say "real world" a lot, as though your particular image of the world is unquestionable, & that stating it as such constitutes evidence.You'd go a long way if you stopped simply repeating the phrase "real world" & instead answered some of our objections to your arguments. We're not that dumb.
If one of us points out what we see as a fallacy or contradiction in your statements, you could try addressing that point of contention rather than just tell us we don't live in the "real world." State your argument well enough & maybe, if you're right, we'll see your way, or at least we can come to a deeper understanding of your position. Merely asserting that we live in a fantasy land will persuade no one. It's just another emotional reaction. Please show me you're capable of more than that.
To muirgeo's liking, this was majority rule. It was democratic socialism
Austrian Economists had predicted the collapse of communism in the 1920s. Paul Samuelson ( that coveted Swedish state prize winner ), as late as 1989, pointed to soviet union as a successful command and control economy.
Austrian economists predicted the collapse of Bretton Woods as early as 1945. It did collapse in 1971. Austrians predicted Brettonwoods II ( floating exchange rate standard based on the dollar ) will collapse as well, we might be getting close.
Austrians predicted the collapse of Fannie & Freddie and they did collapse. Austrians are on record predicting the collapse of medicare. It will happen as well.
I meant, as early as the 1920s.
OK now I understand the 10% tax amendment attempted (but failed) by the progressive democrats. It's clear that jackasses worth millions worrying about paying $10,000 or even $100,000 extra in taxes seem pretty insignificant to the harm their"class" caused. I'd make it 20%.
Remember here we're talking about bastards like Paulson with tin cups and sun shades asking for $700,000,000 for his thieving friends. Yeah 10% that makes perfect sense. Well except for 20%.
Seeds of the crisis – an NYTimes article from 1999.
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.
To muirgeo's liking, this was majority rule. It was democratic socialism
Posted by: Oil Shock
Oily… that was leaning a little too far to the right not the left. Can you say Patriot Act, torture, Weapons of mass destruction, terror threat level orange, Firing of Attorney's Generals, administration officials denying to appear for subpoenas, Warrantless wiretaps, ect ect….
You mean that disgusting "regulation" that all the lefties voted for?
Oily,
What are you doing up so late? I'm going to bed. I'll yell at you tomorrow. Peace!
I like this meme of putting people on left and right of a straight line – no deviations allowed
I know, Nazis were bible thumping, home schooling, anti-statist, anarchist, anti-regulation, pro-Israel, champions of free market capitalism 
George, are you suggesting that every individual who made more than $500,000 a year, & every couple making a combined $1 million a year, did so by causing the alleged crisis?
If so, what is your evidence?
If not, isn't it unjust to punish an entire group of people for the actions of some?
One answer involves the necessity of risky consumption, like my Rocket eBook (failed precursor to the Amazon Kindle). If we tried to tax away all consumption over the median value, we'd eliminate too much of this experimental consumption, and we'd eliminate the experimental production along with it, so entrepreneurial progress would grind to a halt. Entrepreneurs gamble experimentally on attempts to satisfy consumers with novel goods (and laborers with novel work).
People at the median income consume most of their income and mostly consume well established goods. The goods they consume didn't become "well established" magically, and a few wise, state planners didn't design them either. These goods survived a market process similar to evolution by natural selection, and they couldn't have developed otherwise.
But I have no fundamental problem with a marginal tax rate of 100% at some level, possibly the 99th percentile, as long as the tax is fully deferred on investment. In other words, we'd all have tax deferred, individual investment accounts (like IRAs) with unlimited contributions, so higher income tax rates would only limit to our marginal consumption, not the reinvestment of capital yields.
Ideally, this progressive consumption tax replaces many centralized, state planners with limited incomes (but still much higher than the median) with decentralized, market planners with limited entitlement to organize resources for their exclusive use.
Anyone who blames the repeal of Glass-Steagall for the current crisis is unfamiliar with the data. See, for example,
http://cafehayek.com/2008/09/did-gramm-leach.html
I remain unimpressed with Byron Dorgan's economic knowledge and predictions.
How can Brooks be so right in this observation and so incredibly wrong in everything else he says?
"Conservatives" are a lot of nihilists? Hah! What kind of moron believes this stuff? Basically, we've got the socialists on one side of the central committee aisle and the fascists on the other side, and the socialists are calling the fascists "state haters", because the fascists won't go along with the socialists' version of what the state should be doing.
Of course, this formulation is simplistic, because the bailout is not a product of either party exclusively, and Democrats aren't quite socialists and Republicans aren't quite fascists. They're both hopelessly in love with their own statecraft regardless.
I doubt it. When an historically unprecedented proportion of the population expects to consume without producing for an unprecedented duration, their individual efforts to "plan" for this outcome can flood markets with promissory notes of dubious value, regardless of any central planning. Will they encourage statesmen also to feed their delusion? Sure they will. They'll encourage it even more when their own plans vaporize.
Muirgeo,
"That is aweful. I feel their pain."
You assume that just because the taxes are collected from these people that they are the ones who actually pay them. You're right about the fact that these folks won't feel much pain – and the political class that collects the rent certainly won't be feeling any pain at all – but there will be pain, because pain rolls down hill. And that's how taxes are truly paid – in pain.
Muirgeo,
"Your system must result in massive accumulations of wealth and power."
Your system has resulted in massive accumulations of unearned wealth and power – in the hands of the political class.
Seriously, Muirgeo, think about what is happening. Your partners in the political class are about to confiscate $700 billion from the productive class in order to "rescue" their buddies from the logical consequences of their actions. They say, "Hey, we'll probably turn a profit". Yeah, a profit for them. Like they're really going to give it back.
I don't understand how it is that all you smart people have missed the fact that the short term credit markets have stopped working?
Am I the only one who sees that as a serious problem to the entire financial structure of the World economies?
Are you really suggesting that we allow the "Crash of 2008" to cause the next Great Depression?
Do you have any idea what that will mean to the entire population of the World?
"Because money is only given value by the rules society makes concerning it and because a progressive income tax is the only way to properly fund the functions of a government needed to set up a society where people can get filthy rich we just have to all agree that…. from day one when we are born we all have an equal chance of becoming rich and we must agree that if our individual path leads us to great wealth we will have to put back in dis-proportionately to the system that allowed us to be so successful. If we don't the system will not sustain itself." – Muirgeo
There is so much wrong with that it is stunning. I will just focus on two points.
A progressive income tax is not the only way to fund a government. Government has been funded many different ways over the eons. Up until around Prohibition the Fed was largely funded by liquor sales tax and tariffs because we didn't have an income tax as such. Add to that the numerous examples of alternate taxation such as the flat tax or national sales tax, and really your assertion just loses what little wind it had.
Secondly, your assumption that everyone becomes rich or not based on dumb luck is just foolish and a bit insulting. I would agree that luck plays a part in it, since getting struck by lightning is rough on your long term earnings etc. However, a great majority of people who get rich become so because of their own hard work and innovation, not because they found a lottery tickey lying in the street. Your implication that people owe their wealth to society simply by living in it is preposterous because it assumes that society is the one handing out such wealth when in fact society often fights those who would innovate and produce wealth at every turn.
Assume for a moment that Society really does hand out rewards arbitrarily, with no reguard to hard work and innovation. Why did the rich get the wealth they did, while the poor didn't? Because Society willed it so! Who are you to request the rich give some of that back, undoing the word of Society? Society's will be done!
Martin: I agreed with your post about consumption up until the last two paragraphs. I do have a fundamental problem with the government telling me what I must do with any given part of my earnings or property. As soon as you grant anyone the right to a portion of what you earned for no reason other than you earned it, it merely becomes a question of how much, and over time how much becomes a very large amount.
How about if they tell you to register your property with them, so they'll know that it's your property and not mine when I claim it and you want them to enforce your claim rather than mine?
No, you don't really mean what you're saying here.
Furthermore, you probably aren't extraordinarily wealthy, so you wouldn't pay a heavy tax in the system I advocate. You wouldn't pay a heavy tax if you were extraordinarily wealthy either, because you'd choose to invest instead.
You'd do this investing instead of transferring the authority to central committeemen in the District of Columbia, but you would not then be entitled to organize the labors of hundreds or thousands of other people for your exclusive consumption.
If you believe you should be entitled so, we just fundamentally disagree.
Define "earned it". Don't cite Locke's "property", because his usage was already archaic when he described it. He knew it was, of course. Irony is lost on most people.
What we commonly call "earning" these days, Locke called "dishonesty". He is the father (or grandfather) of classical liberalism, not you, not Dubya, not Rush Limbaugh, not even the Heritage Foundation or the Cato Institute.
Lenny,
The scare tactics and phrases don't work here. You're talking to people who believe that the Great Depression was caused, not resolved, by political interference. You're talking to people who can't tell you exactly how the market will resolve the current situation, but who know that whatever the resolution, the market, left to its own devices, will return a situation of accurate value.
Since folks often confused the two of us, here again is the crucial distinction between the progressivity I advocate and the progressivity you advocate. The principal point of a progressive consumption tax is not to fund a central government.
It's clear that jackasses worth millions worrying about paying $10,000 or even $100,000 extra in taxes seem pretty insignificant to the harm their"class" caused.
My God you're a hopeless moron. First of all, it's an additional 10%, asshole. Second, high earners won't pay it. Unlike you, they're smart and their income is adjustable. They'll stuff more money into tax shelters and invest less in taxable ventures (which is most job creating activity, reducing their taxable income. Unemployment will rise. In seeking an extra 10% from these people, the government will lose tax revenue and the economy will lose jobs. And you know what that means, oh village idiot? YOUR taxes will have to be raised to make up the difference. Assuming the malpractice suits haven't driven you into bankruptcy yet, that is.
If not, isn't it unjust to punish an entire group of people for the actions of some?
Posted by: Hans Luftner
Hans,
The whole country…. the whole world is being punished by the past actions of a very few who have now retired from their fake money and hedging industries to their 100,000 thousand acre ranches. Did you watch the video…. people's houses are being cleaned out by the hundreds of thousands in large part through trickery and deception… legal though I assume it was.
A person making 1.98 million instead of 2 million is hard to claim they are being punished. I see it as paying back to a society that was set up by past wealthy people and hard working middle class people building and paying into it as well. That's just the way it is and has been for 100 years.
Hell we saw what the Bush tax cuts have done. This whole fiasco is in good part related to them. You have to support the basic infrastructure of your country and of the markets or even the rich people will pay (should pay).
I don't really have to make an argument. The headlines everyday for the last year and probably for years to come will speak to the truth.
And I'll go on record here saying that if Obama gets in an is able to make institute his reforms you will see a stable and strong market for years to come.
The only concerns that would invalidate his attempts would be things outside of his control in particular peak oil, massive wars or terrorist attacks.
Whoever takes office is going to have their work cut out for them.
You guys have an excuse for everything but the economy boomed after Clinton raised taxes to a reasonable rate. And it boomed after FDR was in office for 12 years.
The evidence supports my position as much as a progressive tax seems unfair.
If there was a more fair way to collect revenues I'd be all for it but I can tell you the fact that we don't have a simplified tax code is IMO the doing of the wealthy who benefit from incredible ways to shelter and write off their incomes.
Your system has resulted in massive accumulations of unearned wealth and power – in the hands of the political class.
Posted by: Randy
No my system when it was reasonably instituted through the 40's, 50's and 60's was very equitable and efficient. And Bill Clintons 8 years was a mini-return to the same.
I have the facts on my side Randy. The current last 25 years of Reaganomics may not be YOUR system but it's certainly not mine. You system requires bold massive never before seen changes. Mine requires simple tweaks… things we've already tried and proved that they work.
I'm not the radicle… I'm the pragmatist… the rationalist… thew realist.
" Unemployment will rise. In seeking an extra 10% from these people, the government will lose tax revenue and the economy will lose jobs. And you know what that means, oh village idiot? YOUR taxes will have to be raised to make up the difference. Assuming the malpractice suits haven't driven you into bankruptcy yet, that is."
Posted by: Methinks
Oh I see. So like when Clinton raised taxes the economy and your stock market were seriously harmed. Unemplloyment soared. And then when Bush cut them the stock markets and the current economy did GREAAAAATT!! And of course it couldn't have done this well with out those great financial products that you support and everyone is just all wild about. It's probably because I don't understand these things about the economy that I'm the moron in your eyes and you're the genius. Hey … see that person in the mirror over there… can you ask her if she takes herself seriously?
It's probably because I don't understand these things about the economy that I'm the moron in your eyes and you're the genius.
A moron is a genius next to you, asshole. Trying to teach you anything is like smashing your head against a brick wall studded with metal spikes.
Some general summaries.
Yep I wouldn't stand by the progressive income tax as the best thing. Likely there might be something better. But under the current system I think we'd do better with just a little more progressively.
No I don;'t think wealthy people get that way out of luck. Mostly it's because they are very smart and want to be wealthy. I don't in any way think wealth is proportionate to productivity and value. A researcher working for the CDC their whole life or even a private university may directly or indirectly contribute far more to society then many wealthy bankers or Wall Street Tycoons. Indeed many who are wealthy are born into it… and that becomes the problem. But no I don't think a slightly more progressive tax is going to deter them from being entrepreneurs. Do you really think that after the first billion its anything but a game to them.
So two more questions;
Do you support a society mostly run by inherited wealth?
How would a "free market" system NOT have that happen?
I'm far less a socialist then you all are plutocrats. Your system does not result in competitive markets or greater innovation. It results in stagnation and corporate rule and monopolies.
I don't want to be living in such a repressive world as that. People want ing work their way up the corporate ladder are no different then people who actually want to live under socialism.
Anyone who blames the repeal of Glass-Steagall for the current crisis is unfamiliar with the data. See, for example,
Posted by: Don Boudreaux
Senator Dorgan 9 years ago predicts disaster from the repeal. Now here we are, with a disaster he predicted and you're standing your ground?
Some one explain to me how the sub-prime mess occurs without securitization of mortgagees, especially using toxic financial products. There is NO way it would have happened with out releasing the loan originator from his initial responsibility. And the argument goes the same if you're gonna take the position that Freddie and Fannie initiated securitization. They shouldn't have been able to or at least only with in very strict guidelines.