Here’s a letter that I sent yesterday to the Wall Street Journal:
John Micetich argues that “if we add up the bailouts to all financial firms, we’re well over $1 trillion, at least 10 times more than the Fred/Fan bailout. Therefore, let’s put most of the blame where it belongs: Wall Street investment houses and commercial banks voluntarily taking inordinate risk with shareholder money” (Letters, Nov. 17).
Let’s say that your brother Bob is pastor of a church. You – a successful gangster – make it known to Bob that you stand ready to repay any of the church’s debts if ever Bob finds the church’s cash flow to be inadequate.
Whom would Mr. Micetich blame if Bob then launches ambitious construction projects to expand the size of the church, only later to find that his parishoners’ contributions are too small to allow payment of the church’s debts? Surely he won’t blame brother Bob, for Bob quite rationally relied upon your promise to backstop these debts.
The blame clearly is yours, which would be forgivable if your generosity were made manifest with money you earned honestly. But because you forcibly confiscate money from others, the ultimate losers in this little tragedy are the persons whose wealth you seize – the persons whose seized wealth supports your gaudy lifestyle and your faux-generous promises to brother Bob.
Sincerely,
Donald J. Boudreaux
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But what if Bob’s brother, the gangster, only takes money from “the rich”?
a.k.a the forgotten man
It’s not stealing if the gains are ill-gotten? Right?
aren’t all gains except tax revenue collected by the state and property seized by the state assumed to be ill-gotten?
You should have chosen Hank Rearden instead of Methinks. Was it taken already?
You should have chosen Hank Rearden instead of Methinks. Was it taken already?
LOL. “Hank” is kind of a funny name for a woman, though.
LOL. “Hank” is kind of a funny name for a woman, though.
Bastiat lives!
Surely Mr Micetich’s numbers all add up… well, if not for the $1.2 tn of Fannie/Freddie securities that the Federal Reserve now owns. And growing bigger all the time…
So your analogy is Bob runs up a humungous debt, you are good for the money because you’ll turn around and rob others? Therefore are you not saying that the U.S. taxpayers could theoretically cancel the government’s debt on the view that the government made the debt and not the taxpayers. If the lenders to the U.S. Government complain then could the U.S. taxpayers reply “well that what you get when you deal with gangsters”?
So, you’re saying that it would be fine with you to repudiate future unfunded ‘obligations’, such as social security, medicare, welfare, etc., since that’s what the debt is being used to fund. If the people that are expecting money from those programs complain, then could the U.S. taxpayers reply “well thats what you get when you deal with gangsters”?
That’s what I was asking Don. However the analogy also extends to not repaying lending nations. A similar would be Joe was racking up debts without your knowledge and expecting you to pay. If someone came to you saying “you owe me money because Joe took out a loan and said you were paying for it”, would you feel obligated to pay? Is this not different from someone saying to you “you have to pay heavy taxation to pay for all my S.S., medicare, welfare, etc. that was promised to me by the government?
Except, if you don’t pay the debts the government racks up, you’ll go to jail.
Of course, you could just drop out and produce nothing taxable – but, they’ll eventually find a way to rob you of that too. After the economy completely collapses, of course.
I’m not sure how you get from repudiating debts to paying heavy taxes. Those holding Treasuries will loose their investment, either through a legitimate default, or through inflation. That’s the risk of playing in a monetary system that is a fraud from the start.
Those that feel they are owed some entitlement from the same defaulting government are in the same boat as those owning Tresuries (i.e., holding a worthless ‘credit’ from a debtor who can’t pay). The only people with actual wealth that can pay (to Treasury holders or entitlement parasites) are the working tax payers and they’re about done playing the tax game, either because they have nothing left to tax, or they’re no longer willing to work only to be taxed.
Gangster Capitalism?
Gangster Financing maybe, but capitalism….naw.
The gangster in the example here is the state, not the capitalist who is instead a *cough* pastor… The interesting thing is that representing, say, Lloyd Bankfein or Hank Paulson as saintly men of God certainly shines a certain light on the equivalent portrayal of the state as a gangster…
The gangster in the example here is the state, not the capitalist who is instead a *cough* pastor… The interesting thing is that representing, say, Lloyd Bankfein or Hank Paulson as saintly men of God certainly shines a certain light on the equivalent portrayal of the state as a gangster…
Don,
Your frequent analogies are usually illuminating on some level, if often inevitably flawed on others. But with this one I fail to see how it is “clearly” the gangster’s fault if Bob falls into debt. What ever happened to Bob’s personal responsibility?
To make another analogy just because I know that my family (a kinder analogy for the US government) would ultimately bail me out if I got into financial difficulty, I am not absolved of my personal responsibility to avoid stupid financial decisions, nor would it be would it be responsible, or perhaps more importantly, ethical of me to factor into my risk analysis the fact that my family can bail me out. I should act, and calculate, as if my family’s financial means were inaccessible.
Certainly setting up situations where moral hazard is likely to be too tempting to resist is stupid and I agree that the US government has done that, but I don’t think that that in anyway means that those who make poor (or even simply unlucky) financial decisions should not be held responsible for their irresponsible and unethical behavior or even when their seemingly responsible financial gambles go awry. Unfortunately we live in a world where shit happens. Every adult should know this and it should be expected of adults that when it happens to them, they pick up a shovel and clean it up.
Finally it is also not too much to expect of people or companies that they resist temptations. Infantilizing people can be a first step towards subjugating them.
I agree with this. Don – you must be a heck of a parent. Do you blame yourself when your kids do stupid and alarming things, just because you (presumably) stand ready to help? Nobody forced the banks to do anything, and some banks were more prudent than others. How do you explain their behavior?
Some banks were more prudent than others. How do you explain their behavior?
Here’s two reasons:
- some corporate leaders make better decisions than others.
- some boards of directors desire that their employees take more risks than do other boards of directors.
That doesn’t have anything to do with “resisting temptation”. If corporate leaders believed that government guarantees would provide better returns to their shareholders, then those corporate leaders were almost bound by contract and by law to pursue the government guarantees.
The real villain, of course, is the representatives of the people. Congress was not protecting the wealth of voters when it guaranteed mortgage loans. When Congress and some members of the Executive branch directed Fannie Mae and Freddie Mac to accept more risk, they were ignoring the risk to their constituents.
Sometimes, some parents are to blame for protecting their children from consequences.
But government is not a parent. It is a way for people to avoid consequences by socializing them.
I like the idea of personal responsibility, but when the it conflicts with some deadline the boss has set for you, in a tough job market, the responsibility loses priority. Some businesses are not as cut-throat as others, some are large enough to ride through tough times, and some are above underhanded (skirting the ethics) methods of increasing the bottom line. The remaining will most likely be demanding a bailout.
I like the idea of personal responsibility, but when the it conflicts with some deadline the boss has set for you, in a tough job market, the responsibility loses priority. Some businesses are not as cut-throat as others, some are large enough to ride through tough times, and some are above underhanded (skirting the ethics) methods of increasing the bottom line. The remaining will most likely be demanding a bailout.
Your analysis is faulty, Justin. Government and family is not analogous. In fact, in countries where the government has tried to replace family, all that has happened is the destruction of the normal family bonds that you describe.
The ties that bind a family do not exist between strangers. Your mother loves you in a way that Nancy Pelosi never will.
In your analogy, your family is using its own money to bail you out. The government doesn’t have its own money. It can only rob others to bail you out.
Finally, I agree that we are each responsible for ourselves. However the government does one other little thing that your family doesn’t. It forces these banks to make imprudent loans in the name of social justice and it encourages sloppy lending by controlling interest rates. It rigs the game.
Of course my analogy breaks down. As I alluded to when talking about Don’s analogy, it is the nature of all analogies that they are “inevitably flawed.” That doesn’t mean they are always entirely useless. The intention of my analogy was simply to make clearer the flaw of Don’s analogy, i.e. that moral hazard temptations cannot be used as an excuse to absolve people of blame for their bad behavior, although they may go some way towards explaining why such behavior occurs, which is why I agree with you that prudent governments shouldn’t encourage such hazards by, as you call it, “rigging the game.”
Justin, I’m sorry, but I do not think that familial relationships are at all analogous to the relationship between a people and its government. Thus, I think such an analogy is useless.
I understand your intent, but the situation we find ourselves in today is one where the gangster always wins. Government continues to strengthen the incentive to act imprudently while laying all the blame for imprudence at the feet of the people it’s encouraging. When we join government in screaming at the imprudent actors instead of screaming at government to remove the incentive, we do ourselves a disservice.
I don’t think we need to choose between “screaming” at government or the private sector.
I am particularly talented in this regard and can scream at both simultaneously.
I’m also very good at walking and chewing gum.
I don’t think we need to choose between “screaming” at government or the private sector.
I am particularly talented in this regard and can scream at both simultaneously.
I’m also very good at walking and chewing gum.
Anyway, good comment m’lady. You hit all the pertinent points to educate Justin (if he will only pay attention).
Vid, I registered with Disqus and “Methinks” was already taken.
Vid, I registered with Disqus and “Methinks” was already taken.
Anyway, good comment m’lady. You hit all the pertinent points to educate Justin (if he will only pay attention).
Justin,
I believe that this analogy of Don’s is not his best one, but not for the reason you gave.
Religious leaders have long proclaimed that they answer to a higher authority. Reliance on others’ coercion to fund their dreams, and turning a blind eye to illegal activities are not things that would meet with the approval of their “higher authority”.
CEO’s and other corporate leaders, on the other hand, answer to their shareholders. If their shareholders desire that corporat leaders take more risk in order to earn higher returns, those corporate leaders are correct in pursuing such higher returns. If government is willing to reduce the risk to shareholders, and reducing that risk in in the best interest of the shareholders, those corporate leaders are bound by contract and by law to act in the best interest of the shareholders.
The difference between CEO’s actions and Pastor Bob’s actions is that the former are acceptable to the higher authority to which they answer: shareholders, as represented by the board of directors. Accepting gangster money is not likely acceptable to the higher authority to whom Pastor Bob answers.
The family analogy is a little flawed in that it is unethical for me to factor in my family’s kindness in my risk-benefit analysis (as you said), but if I was told that the entire city would put money in a small bank account which can be used to save my business (when it rots due to my bad decisions), I will take that into consideration in my analysis. It is not the ethics here at play, but the consideration one is likely to give his family, but not others who he cannot see.
First I don’t see a compelling reason to have looser ethics with another person’s or group’s(the city) money than with my family’s (the “consideration” you speak of is an ethical matter). Certainly I love my family more than I love the city but that doesn’t mean that I have license to act more irresponsibly with the city than with my family.
Second it is simply not true that the city, or the US government (or my family) was/is saving money, in a bank account or anywhere else, in case I have a financial catastrophe. There was/is no explicit plan, only an implicit understanding, which I believe no one, including banks, should feel open to factor into their risk analysis.
My family would have to take extraordinary measures to bail me out, as the Federal government did to bail out the banks, and that is a terrible position that no one should ever contemplate putting another person, or entity, in.
First I don’t see a compelling reason to have looser ethics with another person’s or group’s(the city) money than with my family’s (the “consideration” you speak of is an ethical matter). Certainly I love my family more than I love the city but that doesn’t mean that I have license to act more irresponsibly with the city than with my family.
Second it is simply not true that the city, or the US government (or my family) was/is saving money, in a bank account or anywhere else, in case I have a financial catastrophe. There was/is no explicit plan, only an implicit understanding, which I believe no one, including banks, should feel open to factor into their risk analysis.
My family would have to take extraordinary measures to bail me out, as the Federal government did to bail out the banks, and that is a terrible position that no one should ever contemplate putting another person, or entity, in.
The family analogy is a little flawed in that it is unethical for me to factor in my family’s kindness in my risk-benefit analysis (as you said), but if I was told that the entire city would put money in a small bank account which can be used to save my business (when it rots due to my bad decisions), I will take that into consideration in my analysis. It is not the ethics here at play, but the consideration one is likely to give his family, but not others who he cannot see.
Great analogy, especially considering that the only difference between the government and organized crime is that the government has more guns.
Gangsters can be prosecuted for their illegal actions. Unfortunately, the clowns in Congress have the approval of the electorate and, for the most part, their actions enjoy the legitimacy gained through Supreme Court “interpretation” of the Constitution. Congress cannot be prosecuted for wasting our wealth, raising our taxes, increasing our financial obligations.
>>Gangsters can be prosecuted for their illegal actions.
Only because the ones prosecuting them have more guns. Government has the monopoly on violence, and keeps that monopoly by killing and caging the competition.
Individually, a citizen has little power against the government. But collectively we have enormous power. There are no guns in the voting booth. The government in Washington today is the one which citizens collectively elected.Of course, some do not vote as some form of protest. IMO, those who do not participate get the government they deserve.My experiences over my 58 years of life have led me to this conclusion:those we entrust with guns to enforce our laws and defend our borders are, for the most part, much more concerned with individual liberty than are the typical citizens they protect.
Of course, some do not vote as some form of protest. IMO, those who do not participate get the government they deserve.
Those who do participate also get the government they deserve, by your logic. A logic I don’t entirely disagree with.
Although, I wonder why you think elected officials are more concerned with individual liberty than the citizens. The overwhelming majority seem to be far more concerned with monetizing their power than with my liberty.
There are no guns in the voting booth. I agree with you on that. The voting system is a socialist system in that every man gets one vote regardless of his contribution to the economy, his level of knowledge of the government, or his understanding of subjects like economics or international relations. Some, of course, get their voting instructions from their priests.
The answer to this problem is information.
Just because a particular person is voted in by an overwhelming majority, it does not mean that the same electorate, in the hypothetical situation of being equally highly knowledgeable, would have voted in the same people.
Education is the final answer to this problem. Not knowing is not chastised much as it should be. I like what Jefferson said, “Ridicule is the only weapon against unintelligible propositions.”
There are no guns in the voting booth. I agree with you on that. The voting system is a socialist system in that every man gets one vote regardless of his contribution to the economy, his level of knowledge of the government, or his understanding of subjects like economics or international relations. Some, of course, get their voting instructions from their priests.
The answer to this problem is information.
Just because a particular person is voted in by an overwhelming majority, it does not mean that the same electorate, in the hypothetical situation of being equally highly knowledgeable, would have voted in the same people.
Education is the final answer to this problem. Not knowing is not chastised much as it should be. I like what Jefferson said, “Ridicule is the only weapon against unintelligible propositions.”
The success of Mexican Drug Lords versus the Mexican Government suggests otherwise.
The success of Mexican Drug Lords versus the Mexican Government suggests otherwise.
To me that situation suggests that the drug lords are as armed if not better armed than the government. The future in that country will be interesting.
To me that situation suggests that the drug lords are as armed if not better armed than the government. The future in that country will be interesting.
The Purpose of Government
Is government at any level, invented, designed or fashioned for the purpose of providing justice or preventing injustice? For those who look to government as our nation’s highest authority, the dispensing of justice its highest duty, instead of a nation based on freedom principles, where the people are the highest authority and government’s highest duty is to prevent injustice, yours is a happy lot under the modern Democrat. There is a major difference between justice given and injustice prevented, just like equality and inequality. Justice and equality inspire admiration, but preventing injustice and encouraging inequality made America the great nation it became. It is easy to decide which is best when comparing America’s prosperity to almost 200 other nations in the world where most starve, are whipped, beaten and murdered by their prosperous elite rulers. Claysamerica.com
They are both crooks, both Bob and the gangster.
Similarly, the big banks (especially Goldman Sachs) are among the crooks we should blame — especially since they’ve effectively captured Treasury.
Government Sachs is both Bob and the gangster.
I thought JohnDewey meant the armed forces when he said ‘those we entrust with guns”!
I thought JohnDewey meant the armed forces when he said ‘those we entrust with guns”!
hmmm….I may have gotten confused given the talk of voting booths and enforcing laws.
hmmm….I may have gotten confused given the talk of voting booths and enforcing laws.
In the Founding Fathers day, votes were only given to men of significant net worth, i.e. those who would most prone to keep the system capitalistic (or disallow those who would almost always vote socialistic if given half the chance).
In the Founding Fathers day, votes were only given to men of significant net worth, i.e. those who would most prone to keep the system capitalistic (or disallow those who would almost always vote socialistic if given half the chance).
I just think it’s pointless to accuse people who were merely responding to government incentives and then taking government handouts that were, in some cases, forced upon them. It’s a waste of energy. The fact is, the banks all had to get sloppy or shrivel and die. You couldn’t refuse to participate on principle because your shareholders would have thrown you out. Admonishing them is useless. If government rigs the game, they will do the same thing next time.
As a private firms in the financial industry, hedge funds didn’t have to take the risk and didn’t have government guarantees. So, they still had the fear of losses and either behaved prudently or ceased to exist. Hedge funds blew up left and right and didn’t roil the financial system as much as highly regulated banks. We didn’t need to admonish the risk lovers – nature took its course.
I think Hank Rearden and John Galt would be on Don’s side in this argument. I don’t remember Hank taking the subsidies he was offered.
You’re on the side of Mowen, James Taggart and Oren Boyle on this one…
I think Hank Rearden and John Galt would be on Don’s side in this argument. I don’t remember Hank taking the subsidies he was offered.
You’re on the side of Mowen, James Taggart and Oren Boyle on this one…
Oh, and by the way, who lobbies Washington decision-makers for the policies they pass?
Here’s the Boyle/Mowen crowd again…
Oh, and by the way, who lobbies Washington decision-makers for the policies they pass?
Here’s the Boyle/Mowen crowd again…
vfwh, I never slogged through Atlas Shrugged. I left it at “Fountainhead” and “We the Living”. So, I’m not familiar with all of the characters in Atlas Shrugged and the reference is lost on me.
I’m also on Don’s side of the argument. I think he’s saying (and I agree) that Bob (the gangster) should be held accountable for his faux generousity at the expense of the people he extorts.
vfwh, I never slogged through Atlas Shrugged. I left it at “Fountainhead” and “We the Living”. So, I’m not familiar with all of the characters in Atlas Shrugged and the reference is lost on me.
I’m also on Don’s side of the argument. I think he’s saying (and I agree) that Bob (the gangster) should be held accountable for his faux generousity at the expense of the people he extorts.
Right. If government creates rents, they will be sought.
If fact, I don’t know what Hank Rearden’s circumstances were, but if you’re a CEO of a company and Washington is handing out money like Halloween candy, it’s pretty much your responsibility to grab as much for your shareholders as you can. If you’re running a private firm with no outside capital, you have the option to refuse and you will do that only if you think the help you receive from the subsidy is greater than the strangling you’ll get from the government strings. Otherwise, you disadvantage yourself relative to your competitors.
I think Ayn Rand had some very important things to say and I generally consider myself a fan. However, her books tended to be very one dimensional in some respects.
Right. If government creates rents, they will be sought.
If fact, I don’t know what Hank Rearden’s circumstances were, but if you’re a CEO of a company and Washington is handing out money like Halloween candy, it’s pretty much your responsibility to grab as much for your shareholders as you can. If you’re running a private firm with no outside capital, you have the option to refuse and you will do that only if you think the help you receive from the subsidy is greater than the strangling you’ll get from the government strings. Otherwise, you disadvantage yourself relative to your competitors.
I think Ayn Rand had some very important things to say and I generally consider myself a fan. However, her books tended to be very one dimensional in some respects.
Oops, my bad, I meant Justin’s side of the argument… kind of stole my own thunder here.
Oops, my bad, I meant Justin’s side of the argument… kind of stole my own thunder here.
Ah, indeed… wouldn’t work. But then you could have taken Dagny.
Ah, indeed… wouldn’t work. But then you could have taken Dagny.
Yah….but except for the gender bit, I’m more like Hank (or at least from what I read in the wiki page about the character). My peeps don’t strike either