New York Times columnist, author and Nobel Prize winner in economics, Paul Krugman, decided not to "mince words" on Sunday, and simply tell it as he sees it. Later, in defending his extreme analysis of ongoing events, repeated in the above title, he wrote in an e-mail: "...if the truth is scary, so be it."
So how scary is the truth? On the overly large bad-news side, we've just been given a glimpse of the minutes of the Federal Reserve's meetings on December 15 and 16, and while there was some disagreement, the predominant view of the assembled economic savants was pure fear - fear of an economic catastrophe. This was the meeting, you may recall, in which the central bank's benchmark rate was lowered to a range of zero to 0.25%.
The anticipated "economic catastrophe" that is creating the fear on the part of the Fed and Paul Krugman is the prospect of a debilitating period of deflation.
The signature symptom of deflation is, of course, falling prices, and while this may seem to be a blessing in the beginning, it eventually becomes the ultimate economic curse.
As the general price structure erodes, a significant shift occurs in the thinking of consumers, who just happen to account for approximately 70% of this nation's gross domestic product. This new "thinking" is called a "deflationary psychology," and what it causes is the tendency for purchasers to postpone buying goods and services in anticipation of lower prices down the road.
This then augments the trend already in effect as a result of increasing economic hardships. The combination of the negative circumstances initiates a spiral wherein manufacturing businesses trim their inventories that are losing value on the shelves, and most businesses of all types increase employee layoffs as the need for their goods and/or services falls which, in turn, causes a further drop in overall demand, which begets more layoffs, and so on, and so on.
The limited history of the deflationary spiral suggests that it is one of the hardest economic trends to reverse. The general consensus is that it took World War II to finally break us out of the Great Depression of the 1930's. And it was a long 25 years before the Dow Jones Industrial Average returned to the level it had reached before the crash of 1929.
More recently, we've seen a somewhat milder but equally stubborn deflation taking place in the Japanese economy. So far it has officially lasted about 10 years but the Nikkei stock index has been falling for well over two decades from a high of about 40000 to its present level of around 9000, a drop of nearly 80%.
In support of Paul Krugman's observation, there are several mitigating factors which, taken together, make this economic turndown particularly unique and dangerous.
First of all, it is global in nature. In addition to the United States, recessions have recently been officially declared in nations from Europe to Asia.
Secondly, it includes the additional feature of a financial crisis spawned by a recent period of unregulated and inappropriate investment activities. The best known of these is the one that created the so-called sub prime mortgage market in which one level of the industry generated high risk loans with profitable up-front fees and then passed them off to other levels who paid for their lack of prudence by absorbing the extremely high levels of default that came to be involved.
These defaults now account for 10% of all mortgages in the country and foreclosures have so far risen to nearly 10,000 every weekday, a figure that translates into more than 700,000 men, women and children losing their homes each month.
However, as significant as this problem is, and its negative effects have indeed cascaded throughout the economies of the United States and Europe, other areas of the financial world indicate a similar lack of restraint and reveal a degree of turmoil, the depth of which is still unknown.
One such recent and ingenious creation is that known as the credit default swap. Here - thanks to the wily genius of the folks at JPMorgan - investments, many of them of high risk, were grouped into bundles which were then held or traded to other financial institutions. Somehow, this negated the pesky need for those prudent reserves that would otherwise have been required and, in the absence of oversight by our elected leaders, this new garden flourished.
At latest count, credit default swaps amounted to somewhere between $40 trillion and $55 trillion and they have figured significantly in the problems of many financial institutions, including Lehman Bros. and AIG.
The derivatives market is another seemingly bottomless pit. Apparently, gambling of all sorts has been rampant in this financial field and the extent of the volume suggests that the participants go far beyond mere humans to include corporate and possibly even national interests.
For example, according to the International Swaps and Derivatives Association, there was an incredible total of $465 trillion in bets outstanding, as of June 30, on which direction interest rates would go. That's 150 times the total budget of the U.S. government and nearly nine times greater than the total cost of all completed goods and services estimated by the World Bank to be produced throughout the entire world over the course of the current year.
The net result of this overall monetary orgy is now a financial crisis that has caused the seizing up of what should be the normal flow of funds through the economies of the world. This is further impacting the operations of businesses and compounding the effects of the downturn.
Furthermore, an offshoot of the financial crisis has been the collapse of the real estate market, as mentioned above, and this has added a significant dimension to the situation. In every one of the ten recessions previously experienced in this country since World War II, the real estate sector has been recharged by the lowering of interest rates and, as a result, it has helped to lead the nation out of the slumps. From today's perspective, however, it appears that this traditional lifeline will not be available for some time to come.
According to an index created by Yale economist Robert J. Shiller, home values in the late 1990's were only 10% higher that the level that existed in 1890, adjusted for inflation. However, as a result of the indiscriminate excesses of the financial sector and the policies of the Fed, this level rose an additional 90% by 2006, thus creating by far the largest bubble in modern history.
Values have subsequently plunged, of course, and since this has caused most of the many loans that have been made recently to now be higher than their underlying propery values, the prospect is that the real estate market, instead of invigorating the lackluster economy, will continue to act as an albatross around its neck.
Thus, purely in terms of the forces at work, one might postulate that the present recession could turn out to be more serious than the Great Depression. That historic slump was not compounded by the type of financial crisis that we are now experiencing and it was even somewhat stimulated by a real estate market that, according to the Shiller Index, actually expanded throughout most of its tenure.
On the other hand, and in the rather small category of good news, we have a pro-active government at work today, taking much quicker and stronger countermeasures than those taken at the onset of the Great Depression.
As of December 1, the L.A. Times tabulated that the U.S. government had committed $8.5 trillion to rescue Wall Street and the crippled financial system and that $3.2 trillion had actually been spent at that time.
Since then, the numbers have risen, particularly with respect to the operations of the Federal reserve, which largely take place under the radar. Furthermore, President-elect Barack Obama will ask Congress to bring in an additional stimulus package of at least $1.3 trillion, once he takes office.
In the shotgun approach that has seemingly been used to distribute this wealth so far, some of it may have no impact but - on the other hand - some may, and that could set the tone for a faster recovery.
However, as we enter the era of trillion dollar annual deficits, the intended cure for the present catastrophe is inevitably sowing the seeds for the next one - so the best advice may be to remain flexible, and be prepared for a lengthy period of economic instability.
Dave McGill, News Correspondent
Dave's column, "The Contrarian," generally published every Friday, to Gather Essential News will sometimes present a contrary view to various aspects of the news, or an alternate take on the conventional wisdom of the day, and will often appear on other days of the week
Dave has been a senior officer of an eastern insurance company, involved in economic projections and investment strategy, president of a Midwestern mortgage banking company, and a financial consultant in Southern California, serving clients in the field of commercial real estate development.
You can find all of Dave's "The Contrarian"columnsat:nhttp://gather.com/thecontrarian...... Keep up with Dave's other postings and Gather activity by joining his Gather network - just click here: http://atadaskew.gather.com........ You'll find Dave and other News Correspondents, plus celebrity content and plenty of other News experts at News.gather.com.
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Comments: 128
Some are using their 401 Ks to save their homes and this past week end the block unit had one of the first rent/mortgage parties to help a favorite couple make a house note. She is now working a part time job while his unemployment has just run out. Though I am aware and understand much of the cause of our present conditions most do not give a damn about the technical causes. They just need more work which pays somewhere near a living wage.
Good article as your norm.
It has been too long since I read through a well detailed list and time line for the causes and events leading up to this crisis. So, thank you.
The mess we are ALL now in will hopefully make the lesson stick; that financial institutions need good and proper oversight lest we ALL suffer.
Spencer T. well brings in the contributing problems in the job sectors and how that is sparking and exacerbating everything.
Here's praying that the new administration will be able to fix, help fix or lead us into the direction of fixing our problems.
Further the loss of funds at the local level is causing the very programs that are most needed now - the social programs - to be cut, thus compounding a situation that is growing worse by the day.
I am curious about one thing. The great Depression started in 1930, and nothing was done for three years. In fact Hoover did the absolutely wrong thing, but cutting spending. This aggravated the downward spiral. The current downturn is only a few months old, and Obama will be trying to get a major stimulus package done fast.
So my question is, will rapid intervention and job creation have a chance to reverse things before they get to the point (like in the 30s) where there was very little that could be done.?
I certainly don't have a crystal ball, but I don't believe the economic downturn is over, and I don't believe that government spending will reverse the downturn, whatever the amount. If government spending is the solution, then the U.S. should have our best economy in history after the spending of the last 16 years.
I'll be watching the price of gold, instead of the false government statistics on inflation/deflation in 2009, and keeping my few assets in Treasury guaranteed securities. There is no substitute for safety when you have no idea of which way the economy is going.
Yep. Trying to cure the disasterous effects of inflation, by more inflation. There are the great "economic savants" who have been empowered to engage in macroeconomic central-planning that profoundly affects all of our lives.
"The anticipated "economic catastrophe" that is creating the fear on the part of the Fed and Paul Krugman is the prospect of a debilitating period of deflation."
If that's true, then it's an indication of how lost in a world of Keynesian sophistry are the central-planners at the Fed, and their PR-agent/enabler Paul Krugman.
The "economic catastrophe" they fear is actually the inevitable consequences of their own actions. Necessary market corrections are in order. The malinvestmnent that is spawned in periods of inflationary interest-rate manipulation, has to be liquidated. This is "deflationary," yes; but only in the sense that it is a process of correcting the ill effects of inflation.
Inflation destroys stable economic relationships. It sabotages the ability of the price system to guide the structure of production along rational lines of allocation among the higher and lower orders of capital goods. It thus creates an inherenrly unsustainable condition. Investors and entrepreneurs are misled into allocating scarce available resources to projects which are not justified given the real conditions of supply and demand on the market, by the distorted vital signal given off by the artificially-manipulated interest rate. These systematic clusters of error are revealed during unpleasant jolts of economic reality. This time, the most glaring effect was an overinvestment in housing and mortgages. But what is unseen is all the concomitant damage that is done by just one primary area of malinvestment. For one thing, all the parallel industries that spring up or expand -- themselves consuming scarce resources which should have been allocated elsewhere, where they would have been put to work in a line of production more sustainable given the real-life spending habits and saving/consumption preferences of the public -- which then discover that they have invested in production which was not justified in reality, and then have to lay off workers and liquidate bad debt and malinvested capital goods. Then there's the fact that all this malinvestment comes at the expense of what would have been proper lines of investment, had the price structure and structure of production not been thrown out of whack by the influx of artificially-expanded credit and the sabotaging of the interest rate that it constitutes.
"The signature symptom of deflation is, of course, falling prices, and while this may seem to be a blessing in the beginning, it eventually becomes the ultimate economic curse."
It does not. You're buying into fear-mongering propaganda. If the correction is allowed to run it's course, without intervention such as propping up unsustainable conditions by bailing out firms that have earned themselves the status of insolvent or bankrupt, and especially by not pumping any more inflationary phony credit into the economy, then the market will naturally correct the interrelationships of prices, wages, and interest rates, and the economy could begin to rebuild on a firm and stable foundation based on conditions of economic reality.
But this is politically unacceptable. The selfish pleading of special interests demands another influx of phony credit, which of course creates another situation which can only be sustained by more and greater influxes of inflationary credit. As soon as it becomes necessary allow the printing presses to cool of for a bit (in order to avoid a runaway boom; hyperinflation and certain monetary (and hence economic) collapse), then the unsustainability of the resulting conditions will reveal itself, and all the artificially-produced bubbles will bust, and another period of market corrections which we call "recession."
Better start moving in with each other now, and pool the resources.
Time to get to know your neighbors.
If able, buy and install a wood burning stove.
Thanks for the great article, and also the great commentary it has produced.
10 for you!
In this case, only the first two statements are true.
I more than willingly believe this, and have for a number of years, esp. the last year.
But I don't want to hear it.
But I am braced.
The dust bowl was what created the perfect storm of the 30's. Let us pray our farmers have learned their lessons better than the financial institutions.
Panic will only make things worse. Be prudent and continue to do life.. that's how I've decided to face this next few years.
P.E. Obama is being handed a mess that took several administrations to make. It is ill advised to see him or anyone else as a savior. There is no one with the kind of experience needed for this world-wide debacle.
Firstly, none of this gambling would be possible without the massive macroeconomic central planning bureaucracy called the Fed. Secondly, justice demands that gamblers be allowed to suffer the consequences of their own decisions themselves. If throw all my money away in a slot machine, then I have no legitimate claim to having the government rob my countrymen so that I can continue to live life as if I hadn't made such foolish decisions.
"purely in terms of the forces at work, one might postulate that the present recession could turn out to be more serious than the Great Depression."
Well, that depends on how "pro-active" the Obama government that you laud decides to be. The pro-activity of Hoover and Roosevelt turned the 1929 stock market correction into the prolonged and exacerbated malaise dubbed the Great Depression. The pro-activity of Bush has already condemned us all to a much longer and much worse perriod of adjustment than we would have otherwise been made to suffer.
Word is that Obama wants to have a "new New Deal." If so, then certainly we can expect a "new Great Depression" as well.
If American's want to avoid another Great Depression, then they better start trying to really understand what caused it, what made it as bad as it was, and how it -- and all other bouts of boom-and-bust cycles of false prosperity and inevitable recession -- could have been prevented.
I also question whether we are in a classic deflationary period. Of course, the mode of deflation really isn't of import to the occurrence. But, I believe it is short sighted to disregard the unwinding of leveraging that has been a large concurrent cause of the fall in commodity prices. Not to ignore the drop in economic activity as well.
He said ''one day you will find yourselves homeless in the land your fathers conquered.''
Get rid of the feds private banking enterprises and let's get back to the gold standard.
Now it is time for bartering services and products. In fact there is a company in Richmond already doing that and connecting others.
Regurgitating fallacious historic mythology doesn't make it any less fallacious.
It seems you're implying that FDR was able to fabricate prosperity from out of thin air. That it is possible to alleviate natural scarcity by government fiat. I assure you, it is not.
All that happened is that the Federal Reserve financed federal government deficit spending via printing press. This stimulated an inflationary "boom" that busted in 1937.
Cutting spending and taxes is helpful, but it was FDR's insistence on imposing interventionist measures which stifled the ability of the markets to adjust to reality, primarily price and wage controls, massive subsidies (such as paying farmers to not grow crops, etc.) that obstructed the process of necessary corrections from taking place.
"It is somewhat a fallacy or misconception that a recovery was not taking hold until the effects of the war took hold."
It's a supreme fallacy to assert that a recovery had been spawned by FDR's insistence on using government force to preclude necessary market corrections; or to assert that government could ever possibly "create jobs." Government cannot create jobs -- it can only misdirect investment to the areas of the economy that politicians and bureaucrats feel are expedient or politically-convenient, at the expense of jobs in other areas of the economy that would have grown had people been allowed to keep their own money and spend it on the things that they wanted to buy instead.
"One of the major factors missing in this instance are massive failures within the banking system which Hoover's complacency brought about."
Ahh, the old "laissez faire Hoover" canard. Amazing how one president could "bring about" such "massive failures within the banking system." If it sounds like utter nonsense rolling off the tongue, then that's probably because it is.
"Hence you saw the first salvos this time go to strengthening the capital foundations of the banking system and then into other entities that are now as important to the functioning of adjunct financial systems such as insurance and most importantly the credit markets."
Man, someone ought to be paying you to peddle this stuff.
Has it ever crossed your mind to wonder, if it is necessary to take money from the public in order to give money to banks, so the banks can then have money to loan back to the public at interest, how any of this could be even remotely construed as being beneficial to anyone other than the bankers themselves?
If you don't have any money to loan me, then how does it benefit me to give you the money to loan back to me at interest? Especially if the reason you don't have any money to loan in the first place, is because you just threw away all the savings that people had entrusted to you, on a horse race?
(Just as an aside; do you think maybe it's the long-standing implicit promise of the government, that they will bail out any large Wall St. firm that gets into trouble, if the losses become uncontrollable, that incentivizes the sort of behavior that leads the banks to put themselves in such a precarious predicament in the first place?)
"Amazingly there is still a debate over what really happened."
Yeah, amazing ain't it? Some of us are just too insistent on dealing in reality. Some of us have the audacity to actually learn about economic principles, and refuse to swallow the spoonfed sophistry of the political class and their lapdog media. What nerve!
"Interestingly it tends to run along political ideology lines similar to the same debates that took place during that period."
Not quite. It tends more to run along the lines of those who insist on dealing in reality vs. the economically-illiterate (and their Keynesian fantasy-world enablers in academia and media, e.g. Paul Krugman).
Doesn't it seem insane to any of you that the only reason we don't just get to work and produce these things we want is because of something that is all in the mind? Why do we use a money which can prevent us from doing things we know we need to do and that we want to do?
There is a better way which would end these problems forever and greatly improve out lives.
www.nopom.info
I wish Dave would read it and give you a report on this solution. But we are too busy worrying and too frightened of the future to learn how to protect ourselves. :-(
While spending in the first depression made a difference there is such an "trickle up" effect these days that anything that goes out of the government is going to get sucked right up the billionaires and quick and there is not way unless we start to tax the heck out of the rich to make that money work for Americans.
We have to transform our society - but the people in charge will find all kinds of excuses not to do that - and most of the reasons have dollar signs in front of them. Just the chatter of mentioning any of those reasons causes waste of time arguments that can be counted on to extend the power of the status quo until we really have a huge breakdown. Still all someone has to do is to mention socialism and any possible solution ends right there.
Since the US has not confronted many of our problems we have very hard we have all problems impacting simultaneously, with lots of different interest groups demanding their own special treatment. This "wedging" combined with simultaneous crises that we have brought on ourselves makes a big explosion very likely, and a hardline response likely too.
Since money can be made by the hardline response we will go for the brief stability of force, the police state, and once there how do we go back. It will take 50-100 years minimum, at least worst case.
What we ought to do is to change. We need health care, we need jobs, we need education, and we need a way to keep productive positive people protected and rewarded, while identifying and removing real criminals and minimizing their cost to those of who want to be productive.
And how would you suggest that this stolen money should be "made to work for Americans"? Are you implying that rich people aren't "Americans"?
Aside from using coercive force to violate the person or property of others, there is only one way for anyone to attain and sustain wealth: to continually serve the masses of consumers, by allocating scarce resources to satisfying the most urgent needs and demands of the public, in voluntary mutual exchange.
Nobody desires money for it's own sake. Rich people, like anyone else, do one of two things with their money: Either purchase consumers goods, or invest in capital goods. Both are beneficial to society at large. The former provides a market for the product of wage-labor of the lower and middle-class. The latter also provides a market for manual or skilled labor, but much more than that, it increases the productivity of labor as well, which is the basis of all increases in real wages. Capital accumulation and investment is the indispensible component of increasing standards of living.
Punish those who save and invest, and punish those who take the risks of putting those savings to work in lines of production (none of which are guaranteed a profitable return), and you will get alot less saving, alot less investment, and hence a much smaller market for those who make a living by selling their services in exchange for wages, not to mention fewer goods and services available, which is reflected by higher prices of those that are; i.e., a recipe for artificially-induced hardship being imposed on the poor and middle-class, due to a foolish policy of plundering the rich for the sake of so-called "fairness."
"Still all someone has to do is to mention socialism and any possible solution ends right there."
And yet, we continue our century-long march toward socialism.
Ideas being socialistic does not stop the political class from implementing them. If only it did, then we wouldn't be in the situation we are in right now.
I've thought this for a while now - and when it all comes down, it will come down hard and worse than the last Big Depression - back then, folks were used to dealing with less and making the most out of it...new breed of folks now - yes, stay flexible and learn to tread softly and carry a big stick and grow lots of potatoes. Salud
And excellent article and analysis! I've read that credit default swaps are somewhere in the fifty trillion dollar range. And there is absolutely nothing to guarantee their value even though that was the reason for them.
The great depression was gradually coming out of it before WW II but no doubt that the war was the principal stimulus. This makes one wonder, are we heading for another war? I believe that the fed has been too diligent in their efforts to curb inflation and never thought the deflation was possible!
I do think that Krugman may have been overly pessimistic but what he says is certainly possible and very scary! I hope that Obama is able to get the necessary legislation through congress, to take what step he can to stop the downward slide and turn things around.
I have no doubt that we are in for a long period of unfavorable economic events, and that they will be harmful to virtually all of us. Let's hope for the best and try to prepare for whatever we may get!
Then defend his comment, and illustrate why I am wrong, if you're so "disturbed."
"It is unfortunate that individuals with views best characterized as being on the "fringe" so often feel it is necessary to beliittle the statements of those whose knowledge and understanding undermines their own certainty of their doctrinaire positions."
Do you really think your ham-handed characterization of my views as "fringe" has anything to do with whether or not they are vaild?
As for "doctrinaire," what is it that makes my understanding of economic principles "doctrinaire," whereas yours' or ML S's blind faith in the miraculous ability of government to fabricate wealth and prosperity from out of thin air, apparently is not "doctrinaire"?
I don't "need to belittle" anyone; and nothing that ML S. has written here could "undermine my certainty of my position."
My certaintly is derived from my own understanding, which I've acquired through studying economic principles and the science of praxeology.
I'll give you -- or ML S -- the same offer I give everyone who resorts to unbacked generalizations and emotionally-charged rhetoric when attacking my posts here regarding the subject of economics:
If you want to debate me on economic principles, if you want to prove to me or anyone else why I'm wrong and you're right, then I will happily oblige you.
Let me know, and we'll agree on a day and time, and I or you or anyone can start a thread so we have a place.
You're baseless assertions that my views are "fringe," you're insinuations that my understanding is flawed or invalid, are just that: baseless and insinuations.
Until you back it up with some sort of rational argument, it would be a waste of my time trying to argue logical principles against your emotional assertions.
" I have seen this phenomenon from both the left and the right, but most recently from those who naively believe in the miraculous powers of utterly free markets, and in the inherent evil of governments."
What; you think I don't see plenty of the phenomenon that you're demonstrating; of those who believe in the miraculous power of government to alleviate natural scarcity and spawn prosperity from out of thin air; or who naively believe that empowering a group of humans to impose arbitrary compulsions and restrictions on the rest of society will ever produce anything but social injustice and massive economic dislocations?
I don't believe in anything "miraculous." I understand how markets work. I understand that freedom is the best policy for prosperity, and that arbitrary government intervention can only hinder and obstruct the ability of human actors to channel the allocation of scarce resources to maximum possible satisfaction of the most urgent needs and demands of society.
These are findings derived from the study of economic science; they are not "ideological" assertions -- at least not any more than an observation that the earth revolves around the sun, and is not the center of the Universe, could be said to be "ideological."
This is like we have a big disaster somewhere and some leader comes out and makes an appearance, like the tsunami in Southeast Asia, and makes all kinds of promises, but no one really follows up on them it is all for show and those feel-good moments to keep people humming along.
It is my contention that in most ways, whatever you call it, our system and most others do not work, that it is unfair, inefficient, and leads to tyrannical centralization that is inefficient, private or government sectors. I am sure that is a fringe opinion, but continuing the status quo and puffing our chest out because we feel certain that our slogans or mojo or kung-fu is better than someone else's while the whole world is stuck in the mud seems like a huge waste of time. By reasonable metrics there is no one who has it right, no one is making leaps and bounds over anyone else, except the really disgustingly corrupt places that do not even bother trying. So no one has the right to brag here.
Maybe no one can until there is some kind of global standard. After all when the American economy can be sucked away into irrelevence by 3 billion desperate to work Chinese and Indians and no one even broaches the subject, maybe the fringe is the place to be,.
All you've ever done is just assert that you are right, and I am wrong. You've never once attempted to provide a rational basis for your assertions.
If you have gone on any "wild goose chase," then it must not have turned up anything to validate any point you made, or else you would have provided something other than just invective and ad hominem attacks to demonstrate the flaws of my arguments, right?
Tell me why I'm wrong, Bruce. Demonstrate why anything I've written here is incorrect or invalid. (And I mean provide a logical argument that refutes the logic I have provided to back my own points; don't just throw around insults and assume that its sufficient to prove me wrong and yourself right.)
For example, his last comment overly long he finally after bragging and making a big fuss says this:
> I understand how markets work. I understand that freedom is
> the best policy for prosperity, and that arbitrary government
> intervention can only hinder and obstruct the ability of human
> actors to channel the allocation of scarce resources to maximum
> possible satisfaction of the most urgent needs and demands
> of society.
A big so what ... you could have said that 1, 2 or 10 years ago
or next year ... but it has no SPECIFIC relevance to anything
that is in the news now, or any particular policy or point.
muck of conversing with you - that's why.
The way I see it is that someone make a point and you come in
with a claimed expertise in economics and make statements
the gist of which are quoted in my last comment.
You do not add anything if you do have expertise you do not
explain it, model it, or add anything, or even express an opinion
other than how great you are.
Why waste my time? I can disagree with lots of people, and
really strongly too, but I know when not to waste my time.
busy being defensive and offensive:
>I don't believe in anything "miraculous."
Miraculous is exactly how radical free-market believers
approach economics. It is from a theoretical world
which is populated by "homo economicus" a being
that does not exist on this planet, and it is mediated
by "perfect" and efficient markets that also do not
exist.
So, basing one's economic beliefs on fantasies that do
not exist, but that are complex enough to drown people
in doubletalk is what has been going on so long people
can see through it, are tired of it, and want to have
a little proof that so-called experts know what they
are talking about.
Having read quite a bit of Krugman and others, I
think these guys are like witch-doctors, adding very
little value or illumination to activities that go on at
the level of Ben Bernanke, Alan Greenspan, Bush,
Poulson or whoever ... and at least Greenspan and
candid enough to state clearly that he had no idea
what he was doing ... and we all know that if Greenspan
does not want to say something clearly, he is well
and able ...
that is all, finito, Bachman. Don't waste anymore of
my time.
> Luckily we are not about to repeat the disastrous experiment
> of Hoover, despite the raging of the simplistic purists.
I'm afraid that your prediction is wrong. One thing people do
is to always look at the last thing they can associate with a
given dilemma, so we talk depression, we look at 1929, and
we look at what Roosevelt did, we disagree and yell, until
some powerful personality gets a concensus, and if it works
we do it the next time we have the same problem ... or
something that looks like that.
The problem we have now is different that in 1929, and the
economy is completely different. We talk about spending
our way out of this, we prime the pump by giving a broader
populate more cash, since we already have been giving the
rich relatively lots of cash for 30 years and it is has not worked.
Given cash to middle America alone does not create an
investment. it will go to the pockets of the big companies,
and what can they do with it?
Create jobs if there is not demand?
If there is not faith or positivity in the society, how does
that help?
It is our system that has been raided, and fixed, and what has
been done and who has done it has been hidden and lied about
for a long time.
It is apparent to me that the recent activities in the financial sector, for which the innocents will suffer, were akin to an unattended schoolroom full of the rowdiest of kids. If nothing else has been learned from this historic debacle, it is that there is an urgent need for ongoing oversight and regulation.
The last figure I heard from the Obama camp was $1.3 trillion, Bruce, but you sure asked a great question...to wit:
"...where are all these numbers coming from?"
Where indeed, Bruce. My guess would be from the gates of hell :(
BTW, I posted a link back to this post from my Money Correspondent article today: The Bottom Line: The online holiday retail breakdown -- Where's your silver lining?. Thanks for the fodder!
What I think is going on here is that we are realizing, or some people are realizing that this is all a monopoly game, and carefully looking around to see what other people know, and what they will talk about and what they are going to do about it.
We can see if the Wall St. gang can get away with just punching the accelerator and revving back up they will do it and they will ignore any new regulations the same as they ignore the old ones, or different new ways.
Meanwhile everyone else wants to know what is really going on, and no one is talking because everyone thinks they can make money of another version of the unfair system Rev2.0.
So, we have a Mexican standoff.
I'd wish Americans have the guts to go on strike. To demand health care,
education, minimum and maximum wages, government transparency,
fair trade, an energy policy, an immigration policy and a environmental
policy - at least a start.
Dave, when you get to the gates of hell will you be able to afford, the Toll?
... your numbers say the higher earners are not in a recession of depression ...
Annual Household Income Spending Rate
$0-$49,990 down 13 percent
$50,000-$99,999 down 8 percent
$100,000+ up 7 percent
Your comment is that it is not the rich getting richer, but
instead the rich doing their part to help everyone else by
spending in the down economy?
Are you serious?
"The signature symptom of deflation is, of course, falling prices, and while this may seem to be a blessing in the beginning, it eventually becomes the ultimate economic curse."
Steve's reply was....
"It does not. You're buying into fear-mongering propaganda."
Oh really Steve? Copy and paste the url below.
http://www.elliottwave.com/deflation/
The psychological aspect of deflation and depression cannot be overstated. When the social mood trend changes from optimism to pessimism, creditors, debtors, producers and consumers change their primary orientation from expansion to conservation. As creditors become more conservative, they slow their lending. As debtors and potential debtors become more conservative, they borrow less or not at all. As producers become more conservative, they reduce expansion plans. As consumers become more conservative, they save more and spend less. These behaviors reduce the "velocity" of money, i.e., the speed with which it circulates to make purchases, thus putting downside pressure on prices. These forces reverse the former trend.
The structural aspect of deflation and depression is also crucial. The ability of the financial system to sustain increasing levels of credit rests upon a vibrant economy. At some point, a rising debt level requires so much energy to sustain - in terms of meeting interest payments, monitoring credit ratings, chasing delinquent borrowers and writing off bad loans - that it slows overall economic performance. A high-debt situation becomes unsustainable when the rate of economic growth falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit.
When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward "spiral" begins, feeding on pessimism just as the previous boom fed on optimism. The resulting cascade of debt liquidation is a deflationary crash. Debts are retired by paying them off, "restructuring" or default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.
Why Deflationary Crashes and Depressions Go Together
A deflationary crash is characterized in part by a persistent, sustained, deep, general decline in people's desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. Since a decline in production reduces debtors' means to repay and service debt, a depression supports deflation. Since a decline in credit reduces new investment in economic activity, deflation supports depression. Because both credit and production support prices for investment assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production. This mix of forces is self-reinforcing.
The U.S. has experienced two major deflationary depressions, which lasted from 1835 to 1842 and from 1929 to 1932 respectively. Each one followed a period of substantial credit expansion. Credit expansion schemes have always ended in bust. The credit expansion scheme fostered by worldwide central banking (see Chapter 10) is the greatest ever. The bust, however long it takes, will be commensurate. If my outlook is correct, the deflationary crash that lies ahead will be even bigger than the two largest such episodes of the past 200 years.
> If my outlook is correct, the deflationary crash that lies ahead will
> be even bigger than the two largest such episodes of the past 200 years.
Bigger in terms of what? Time? Amount of "value" lost? Stock
market recovery?
Call me a socialist but I think these all too human speculatory
bubbles which suck everyone else into them should be limited
to a capitalist part of the economy, while at a "base" level a
sustainable infrastructure needs to be engineered that can
keep on humming through whatever happens to impact the
high flyers.
The world is too complex, interdependent and closely
balanced to risk complete breakdown by not keeping the
basic autonomic functions of the economy productive.
Meanwhile Steve, you make one of many good points: "Trying to cure the disastrous effects of inflation, by more inflation." A drop in interest rates is one of many factors that play into inflation. I was chagrined to see the Treasury take this most recent drop. Now that move is one that, in my view, is an example of the Treasury enabling the rich to get richer.
Granted, some have been able to refinance from higher or adjustable rates to this lower fixed one. However, credit restrictions are so tight right now that only the ones that have the disposable cash to not have credit report dings -- like the late payments that plague so many balancing tight budgets -- are eligible.
Just my two cents.
market recovery?"
From what I have been reading, possibly all of those unless Obama can pull a majic rabbit out of his hat within his first 6 months in office.
I am not an economist and defer to your knowledge of the field. My question is how do you define a free market? Are unions part of the free market? What about government regulations demanded by the majority (like anti polluting laws)? How about anti discrimination laws? I am curious as to where you draw the line between a free market and socialistic interference.
Carter economic numbers that Reagan inherited:
interest rates-21%
inflation-14%
unemployment-10%
hostages held in Iran
Military decimated
Gas lines and on and on.
Obama is about to do what Carter did by 100 times.Take create a trillion dollars plus,a trillion we do not have it is debt our kids are going to be stuck with. Obama is going to put this money in the hands of the incompetent politicians{government} and these corrupt politicians are going to make it "rain"dollars on their favorite lobbyist who keep them in office by bribing them. Obama tells us we have to give this money over to these crooks immediately,no time to waste,what a bunch of bull-crap.
One trillion more of our hard earned money to be put in the hands of government liars and cheats,and the best is when we ask where the money went or who got the money these idiots tell us well,its not your business stop asking.
It took Reagan two years to bring the economy back.Obama unfortunately is moving to Carter type big government spending to bring back the economy it was a disaster when Carter practiced it-Obama is about to try it again it will not work. Obama is about to throw trillions of inflationary dollars into a government which is bankrupt for doing the exact same thing. Cater= malaise, Obama=depression?-Depression they will blame Bush for.
I am not a business or economics major, but even I knew that all the housing prices in my town were falsely inflated in 2004-2006, and that what goes up must go down. I refused to take out equity on my house when I refinanced to a fixed mortgage in 2005 because I knew the price of my house (like all the other houses) would go down, and I didn't want to be upside down. I guess what I'm saying is that I have no formal business education or experience, but even I saw that, when the stock market hit 10,000, it would have to come back down again.
So I guess my question is--why didn't more of the financial wizards see all this coming (or at least some of it) and if they did see it coming, why didn't they say anything? I remember being able to count on one hand the pundits on cable news that were at all negative about the economic hubris of 2004-2006.
The thing that is funny to me is when our economy went sour, the world economy also began to crumble. Do we actually have that much power as a nation? Our economic status has an affect on the entire world economic system?
Aside from all the analysis and reasoning, I hope things do not continue down this path. I see a dark future for us as a people and the Second Great Depression may actually be a reality. It is real and we all need to prepare for things to get much worse.
As long as people argue about words, they are split, and powerless as you say. But as in the Katrina disaster, when people realize the system is not working and put their feet down to demand a change, without caring to argue about what it is called, then something will happen.
A lot of the conversation here on Gather, or in the media for that matter, serves to distract people from the realities and keep them from being able to model, analyze, agree and improve on the status quo.
I think we need a metric driven society and economy, that measures whether the job is getting done. Some countries have even instituted a "happiness" index to measure that. It seems trite, but isn't that what life is supposed to be about ... and fairness, justice and contribution all measure into this idea.
Currently we just care about how much money someone has, how much capital, not where they got that money, or what they do with it, or what they buy with it, or produce for sale with it.
The thing I disgree with Mickey on is that we were in a worse situation when we were under Carter. Things were bad because of the imported oil, and the debt from the Viet Nam war, but we have a thriving manufacturing economy and middle class, and options ... today we have run the system into the red zone and I think problems are much worse.
"Miraculous is exactly how radical free-market believers
approach economics."
It is not. But that is a typical objection from people who don't find it necessary to learn anything about that which they are objecting to, though.
"It is from a theoretical world
which is populated by "homo economicus" a being
that does not exist on this planet, and it is mediated
by "perfect" and efficient markets that also do not
exist."
I won't speak to any school of thought other than the one which I study and am partial to. Praxeology doesn't postulate any "perfect economic man." It studies human action as such. It studies only those implications of human action which can be established a priori.
When praxeology says that humans use reason to achieve desired ends by the application of chosen means, it is not postulating any subjective value judgment whatsoever; it is strictly a normative statement. It is referring strictly to the human faculty called "reason." It it fully recognized that often times people will act in such a way that most others would consider to be "unreasonable"; but this does not change the immutable fact that the acting individual used the faculty called "reason" when discerning which source of felt uneasiness they want most urgently to alleviate, what conditions of their environment could be altered -- and which could not -- to render their own condition more satisfactory, how to apply chosen means to the achieving of the desired end, and then embarking upon the action.
This is the a priori mode of human action; it is an ultimate given. The task of praxeological economics is to deduce all the possible implications which can be derived from this one unassailable premise (generally speaking, a large portion of the corpus of praxeological economic analysis can be derived from the "law of marginal utility," which in turn is derived entirely from the axiom of human action).
As long as each link in the chain of logical deduction is sound, then each premise arived at will be just as axiomatic as the original axiom of action from which it was derived.
In this way, the whole edifice of the Austrian school of economics is built.
The conclusions of economic science, when properly deduced, are just as valid as the finding of any of the physical or social sciences. And as far as I can see, the entire corpus of the Austrian school's findings have already been amply validated.
"Having read quite a bit of Krugman and others, I
think these guys are like witch-doctors, adding very
little value or illumination to activities that go on at
the level of Ben Bernanke, Alan Greenspan, Bush,
Poulson or whoever ... and at least Greenspan and
candid enough to state clearly that he had no idea
what he was doing ... and we all know that if Greenspan
does not want to say something clearly, he is well
and able ..."
I agree that each of the people you just mentioned are witch-doctors. Greenspan used to espouse sound economic theory; but apparently he sold his soul went to work for the Fed.
I apologize if you view anything I write here as "double-talk" or ambiguous jargon. I try to make my points clearly and so that anyone with common sense can understand them.
If there is anything I've written that is unclear to you, or that appears to you to be purposely ambiguous doublespeak, then please let me know, and I will try to clarify it.
Lastly, to be honest, I'm glad I piss you off. It is my sincerest hope, that you and everyone else here that hates my guts, will get so angry with me that out of sheer frustration, you will go off and try to learn as much as you can about economics, just so you can have some ammunition to prove me wrong and shut me up once and for all.
The more people that are informed and educated about sound economic principles, the harder it will be in the future for politicians to get away with destroying the lives of so many people. So please, by all means, hold me in as much contempt as you can possibly muster. Just as long as it drives you to want to learn as much as you can so you can try to prove me wrong -- or thank me for trying to share the truth.
"My question is how do you define a free market?"
A free market is just what you have when people are free.
If the system of laws in a given society is designed strictly to defend against coercive force, then people will be free, and markets will be free.
I am not a utilitarian; I do not advocate free markets solely on grounds of efficiency. I have an ethical basis, in that I believe coercive force is only ever justified in defense of life, liberty, and property. If the social apparatus of coercion and compulsion -- i.e. "government" -- is strictly limited to equally defending the person and property of each and every individual from force or fraud, then the result is a free society, and a "free market" is a correlative aspect of that.
"Are unions part of the free market?"
Absolutely! Why wouldn't they be? A free market would include any kind of organization, so long as it is voluntary. As long as coercion is not used or threatened against anyone, then any organization would be considered valid.
The only requirements, for the market to be considered "free," is that all interpersonal relationships be 100% voluntary, that all contracts be voluntary and mutual, and that the force of law be used only to defend against initiatory coercion (in the form of force or fraud) against person and property, including the enforcement of all valid and obligatory contracts (a contract is binding and obligatory so long as it is not intrinsically invalid; e.g., a contract to pay someone in Dodo birds, for example, cannot be held to be valid and is thus not enforcible).
Unions would not be permitted to use violence to prevent non-union workers from entering a job site, and the force of law would not be used to impose compulsory wage requirements at the request of unions or of anyone else.
One difference in a truly free market, is that the law would not recognize fictional corporate entities. Things called "corporations" would still exist, but it would just be a voluntary contractual agreement among owners of a business firm, either a means of sharing liability or dividing assets, or some such thing. But the individuals who compose the parties to the contract would still be held individually liable for any legal judgments against the corporation.
"What about government regulations demanded by the majority (like anti polluting laws)?"
In a free society, the laws protect property rights. Polluters would be held legally and fincancially responsible for any damage that is incurred by persons or properties on account of the polluter.
Pollution is just garbage. In a free society, if a person dumps toxic garbage onto their neighbors lawn, then that person would be made to pay just restitution to the neighbor relative to the damage done to their property as well as their physical health. The same would be true for any industrial business. If a business pumps their gaseous or liquid garbage into the air or into the water or the land, then they would be held accountable for all the damage they did to those people and their property.
There would be no such thing as "public property" in a free society. All land or resources that are property, would be the property of certain definite individuals; either one individual or a contractual group of individuals.
Polluters would carry the full responsibility of being liable to those whose property they damage with their garbage.
Modern forensic science can pinpoint a murderer or a rapist by the DNA derived from just a speck of blood. I'm rather certain the forensic technology exists, whereby investigators could pinpoint a polluter, by samples derived from residue, air samples, or soil samples, taken from the site of pollution as well as from the sites of the potential suspected polluters.
" How about anti discrimination laws?"
Aince all interpersonal relationships would be voluntary in a free society, and since the law would be applied to defending against initiatory aggression only, there would be no laws mandating compulsory association. Anyone would be free to hire or not hire, to do business with or not do business with, anyone they choose, for whatever reason they choose. All that anyone would not be allowed to do, is use coercive force against the person or property of anyone else.
However, it should be noted, that the market levies its own penalties against bigots. If a business owner refuses to hire a superior worker on account of their skin color or sex or lifestyle, etc., then they are penalized the difference in productivity that they would have received. The superior worker will then go to one of the bigots competitors, and the competitor will benefit from the superior productivity of the worker that the bigot turned away. And this is aside from the business that a person is likely to lose if it is publicly revealed that they are bigoted in their hiring practices.
The same holds true for any business owner that would refuse to serve people of a certain ethnicity or culture or background, etc. Not only would they be turning away potential business, but the fact that they do so is likely to repel the business of even those whom they are willing to serve, just on account of the indignation that those people would feel towards the business in question. And then the likelihood of competitors in the area who would take in all the business thus turned away.
But even aside from the utilitarian defense of the market, there is still the fact that it is not justified to use the coercive force of the law to impose compulsory mandates of association.
It is not criminal to be a bigot. It is stupid, small-minded, and even primitive in my view -- but it is not criminal, and hence the state has no justification for intervening.
It is only when one person uses coercive force against others -- for any reason at all -- that they have commited a criminal act, and there is recourse to the apparatus of the law.
Being a bigot, in and of itself, does not warrant the intervention of the coercive force of law.
A free society quickly becomes an enlightened society, as history has shown. And thus a free market would quickly levy such penalties against bigots, that they would be forced to change their practices, or else fall by the wayside of those who give equal opportunity to all.
Racism is a disease of the heart; the force of the law cannot change what is in peoples' hearts, and it has no business trying to, either.
The proper scope of the law can only punish those who act upon their senseless hatred of others by initiating aggression against the person or property of others.
" I am curious as to where you draw the line between a free market and socialistic interference."
Socialistic interference is when arbitrary compulsions and restrictions are imposed by one group upon all others.
When the coercive force of the law is limited to defending equally the person and property of all against force or fraud (and exacting just restitution for violations thereof), then the result is a free society, and hence free markets.
When one group of humans is empowered to use the coercive force of the law to arbitrarily intervene in otherwise voluntary social cooperation, it is socialistic.
All interpersonal relationships should be 100% voluntary; and force is only justified when any person is compelled to act against their will. All humans have equal rights by virtue of their humanity; if force is used arbitrarily against even one person, then it is a violation of their equal human rights, and if the force of law is used to arbitrarily intervene in the voluntary and mutual interpersonal relationships of others, then the law is acting contrary to its only just purpose for existing in the first place.
Thanks for the clear and thorough exposition of your views. Of course they are laudatory as theoretical principles. But in the real world, I wonder how they would work. Lets take two examples. Smoking and ozone.
When it became firmly established in the scientific community that smoking was the leading cause of many forms of cancer, lung cancer in particular, many victims of smoking came forth to sue the tobacco industry that had been responsible for their disease. This would go along with your idea that those who have suffered from the ill effects of another should get redress directly.
The problem is that none of the court cases won, because the legal and scientific definitions of cause are different. The tobacco industry was able to successfully maintain that no individual case of cancer could be proven to be caused by smoking.
The state of Mississippi and the other states were successful, because they were able to prove that smoking had a terrible impact on their health care costs, without having to prove individual causation. And now there are anti smoking laws on the books all over the country, smoking has declined, and the rate of new cases of cancer has gone down for the first time in decades. This was a success of government.
When it was discovered that the chemical in spray cans, CFCs, were harming the ozone layer, it became clear that if CFCs continued to be used, most of the planet would soon become exposed to deadly UV radiation from the sun. The producers of CFCs denied the scientific findings. Who should have sued them for damages? No actual damage had yet occurred. Should we have waited until the ozone layer was irretrievably lost, and then all of the victims of skin cancer joined in a class action suit?
What happened was that the Reagan administration, along with most of the worlds governments, agreed to ban the use of CFCs, thus saving the ozone layer, and a good deal of life on Earth. Again, a victory for government.
I know this is probably a little off subject but here I go. How do you explain corporations here in America making Gigantic Quarterly Profit Margins and their stocks keep going down in price? I am not going to use names of Corps because I have interest in them. But what entity is siphoning the profit that the Stock Holders should be seeing from the profit margins? I believe that if we as a nation dont take a lesson from History we are doomed to fail as all powerful civilizations have failed before us. When to much of a Nations Wealth falls into too few hands that Nation will fail. I believe we are seeing the begining of the end if things dont change soon in this Country. It sucks to start a New Year out with these kinds of beliefs.
You are right though, we, as a nation are so caught up in materialism and consumerism we have forgotten the truly important things in life. If nothing else this current financial crisis SHOULD bring us all closer together. I mean as far as the family structure goes and our value on materialistic items and money. What I fear will happen is the development of two classes of people because of this, the "rich" and the "poor."
Around July, a friend said to me, "You should take all your investments out of the stock market, all of your mutual funds, and put them into gold." I thought they were crazy. I wish I had.
> When to much of a Nations Wealth falls into too few hands that Nation will fail.
You and I do not agree very often, but I agree with this sentiment.
But this is also the reason it will be a very long winter of our
discontent because this comment and many others for example
in support of social security, or health care for everyone incites the
very rich people to cry "socialism"!
The very utterance of the word is supposed to end discussion, and
they have worked very hard to brand that word with that effect.
However realistic of not we have a rather full picture of what the
Democrats want to bring about in this country, but from the
Republicans we have a lot of doubletalk about compassionate
conservatism, and thrifty programs that would stave off the
mention of the word socialism ... but the Republican programs
do not work. In my opinion the Republicans programs are
designed to stall and fail so as to if they ever do get implemented
they will not work anyway or they are so hard to sign up for and
meet the requirements for they leave people behind.
What I want to know is what the Republicans think is going to
happen to people who do not get assistance. To state that
government should assist all the people not just the rich brings
the cry of "nanny state", yet right now more money that ever
is being printed up and sent down a rathole to they do not even
know where to be nanny to General Motors, Banks, people who
signed up for bad loans, and God knows who else.
My point is that we will go through everything and anything before
we settle down to honestly fix this structural problem with the
economy on the basis of income inequality. Any opportunity will
be seized to keep things the way they are and ignore what has
happened and what has just been done.
People have got to demand that they be served by the government
and that this becomes a country again instead of just a bunch of
people who are desperate enough to be taken advantage of.
Of course the flip side to that is if the people abuse the system or
go back to their lazy aloof ways then the system will not work.
I have to say that I hope that the current Obama plan for continued tax cuts but some of them targetted to the middle class is an opening gambit towards evolving something real, because prolonged tax cuts and eternal debt is not a sustainable model for any economic system.
The comments are very interesting to say the least.
I am not trying to stray too far off topic here though. And it definitely looks like we a re in for some hard times.
I don't agree that people who are harmed by smoking can be said to have been harmed by the actions of others.
Purchasing and consuming cigarette smoke is a voluntary act. As long as one is not ceorced into buying and smoking cigarettes, then they are responsible for the effects of their own actions.
The hazardous effects of smoking are well-known today, and more people smoke cigarettes today than ever before. It is done voluntarily by people who choose to smoke; if people one day all of a sudden decided to quit smoking, the tobacco companies would no longer make money selling cigarettes. As it is, they are simply supplying what is demanded by consumers.
Now, if any owner of a business or facility decides that they do not want to allow smoking on their property, then they are perfectly free to make that decision.
If the owners of businesses or faciltities want to allow smoking on their property, then they are perfectly within their rights to allow it. No human being has any rightful authority to tell another that they cannot allow people to smoke on their own property. And if no one human being has that righful authority, then neither does any group of humans have that legitimate authority; whether calling themselves "government" or by any other name.
To say that a group of people can legitimate authority to do that which any individual among them does not, is to ascribe legitimacy to mob rule; "power by numbers." It is to say that two men who mug another man in an alleyway have a legitimate claim to that man's wallet, because they were two and he was one.
A government can only righfully do that which any individual also would be within his or her rights to do.
If the only just government is a government whose powers have been delegated by the people, then clearly the government can only do that which any one among the people would be within their rights to do.
How can we delegate powers to the government which we do not possess ourselves?
And if it is held that we can derive legitimate authority through superior numbers, to do that which any one would not have legitimate authority to do individually, then we are lending legitimacy to the concept of mob rule, which is the foundation of every form of tyranny ever visited upon human society.
Regarding your question about CFC's, it's clear to me that a judicial system in a free society would be within their legitimate scope of authority to ban the the use of CFC's, if it is scientifically proven that their use inevitably creates a condition which is imminently hazardous to the health of others.
This is akin to a debate which has popped up frequently in libertarian and anarchist circles, dealing with the production of nuclear weapons. It is widely held -- and I myself agree -- that the possession of a nuclear weapon by any individual poses such an imminent and even immediate hazard to the health and well-being of others (not to mention to the property of others), that the production and possession of nuclear weapons (by anyone!) would be considered criminal in a free society.
There are a few who view the right to bear arms to include the right to possess any kind of weapon whatsoever; and while my own personal take on the right to bear arms certainly carries the implications of that right alot farther than most non-libertarians, I also try to take into account the equal rights of others in that as well as all other issues of personal liberty.
If any action or practice poses a proven, imminent threat to the personal safety or property rights of other individuals, then that action or practice should be considered criminal in a court of justice in a free society.
If the science behind the claim that CFC's pose a proven and imminent thrat to the health of others, then anyone who produces, sells, or uses them should be held accountable under the law.
Some within libertarian circles have claimed that the logic behind this sort of view is inconsistent with libertarian philosophy, but I believe that to be a fallacy.
All libertarians agree that defense against coercion is the only proper scope of the law. And all libertarians also agree that "coercion" includes not only the direct use of force against persons or property, but also the threat thereof.
If someone holds a gun to your head and demands your wallet, even though they haven't actually shot you, they still used coercive force to expropriate property from you against your will. and all libertarians recognize this fact.
So I believe the criminalization of nuclear weapons and production methods involving the use of components which have been proven to be directly responsible for creating hazardous conditions, is logically and philosophically consistent with the principle of non-aggression which libertarians base their whole concept of justice on.
I am happy to see your response to the CFC issue, which of course I agree with. But I am surprised that this follows your statement of the libertarian position against the right of governments to grant themselves extraordinary powers, (beyond those of ordinary citizens). For example in the CFC case, an individual could be said to have the right to own and use a shaving cream spray can containing CFCs on his own property. In fact the use of that particular single spray can, cannot be shown to cause any possible harm to anyone. It is only in the aggregate, when millions of such spray cans are used that a potential for harm exists. Therefore you are in fact admitting that in some circumstances there is a role for extraordinary powers of the body politic, (in the form of a government) to protect the general welfare (as opposed to any individual welfare) from a potential threat. I am happy that you agree with this view in the case of CFCs and also for nuclear weapons (although that is a different principle). What this tells me is that unlike some of the purist libertarians you mention, you are actually willing to make the necessary compromises in order to allow individuals in the real world to flourish and prosper.
Of course, now we are left with the question, that if you admit that in some (I would of course say “many”) situations, like that of CFCs and nuclear weapons, governmental extraordinary powers are permitted, and in fact necessary, where do you draw the line.
I think it is likely that the real difference between our views is exactly that – where the line is drawn. I would not want to see government with anything like the kind of powers that totalitarian governments possessed. I even think that modern Europe has passed over that line in many instances. But I do think that we strongly disagree about where and how the line should be drawn in the current economic crisis. That’s OK. No one agrees with anyone else, on that one.
Observing your exchange with Steve, I see you missing the full context within which his explanations are valid, because there is an implicit flaw in your position. It is an infection absorbed from the culture we all grew up with and once understood it is easier to expunge.
"Of course they are laudatory as theoretical principles. But in the real world, I wonder how they would work."
Seldom did any of us stop to realize that no principle could be labeled as "laudatory" if its application in the real world would not work. A good principle is one that identifies in an abstract formulation what works in any specific instance that fulfills it. And one must carefully define the word "work" in the proper context. It must work not just this week or next year, but for the duration of the long run - for life.
Without the interference of that false dichotomy, you will find that Steve's primary principle is a much more potent base on which to build an explanation of how human beings should interact when living together in a society. To wit:
"I have an ethical basis, in that I believe coercive force is only ever justified in defense of life, liberty, and property. If the social apparatus of coercion and compulsion -- i.e. "government" -- is strictly limited to equally defending the person and property of each and every individual from force or fraud, then the result is a free society"
Note that the principle is offered as (and is, I assure you, defensible as) an ethical principle. It claims as right one of only two possible alternatives: coercion and the absence of coercion aka freedom. Thus the principle declares that first and foremost freedom, and only freedom, is moral.
If this principle is valid (and therefore laudatory), you may not challenge in spite of its morality the practicality of any application of it. The only other option available is coercion to some degree, which is immoral and therefore impractical due to that very fact.
Therefore, the question of how much smoking the government can stop with its regulations is irrelevant. A moral government may not regulate anything but the use of force, and smoking does not qualify as that. Also, under a moral government there would be no public property. Second hand smoke would be regulated by private property owners in accordance with the wishes of the free market they would choose to satisfy.
The CFC dilemma you pose provides yet another lesson in the sanctity of principles. They are not malleable. There are no extraordinary situations warranting a compromise between force and freedom. Compromises are valid only in choices between two particulars both of which satisfy the principle. In the context of nutrition in the service of life, you may compromise in a choice between broccoli and spinach because both are nutritious and meet the requirements of the standard. you may not compromise in a choice between broccoli and arsenic.
If it is possible to demonstrate actual harm by CFCs and to definitively track it back to perpetrators, the government may intervene, not extraordinarily, but by the same principle that authorizes its intervention in any other instance of coercion. But there are countless instances where such scientific knowledge is not fully demonstrable or fully accessible.
In such cases, the free market provides alternate means of control, including boycott, shunning, ostracizing, contractual terms, and the most effective, individual control of the almighty consumer dollar. No company could weather the consequences of producing CFC's in a free market in the face of a widespread belief that they are harmful, whether or not that belief is valid.
The absolutism of the alternative, freedom v. force, is the only base on which one can build impregnable political positions. Requiring every position to first satisfy the prerequisite - freedom reciprocally granted to and by every individual to control one's own thoughts and actions - will focus your thinking and ultimately lead you to viable solutions you would otherwise never entertain.
An interesting comment on absolutism. I happen to agree that freedom is a critical, perhaps the critical value in human life. But I utterly reject absolutism in any form. the problem with aboslutism (even in the defense of freedom) is that it does not take into account the true nature of human society, and in fact the natural universe, which is complex in a scientific sense. Some of the same arguments you made could and have been made by socialists as absolute moral principles. To an absolutist socialist (or as we would call it, a communist) there is an absolute moral right of all humans to live in equality. Not bad as a moral principle. But as we should now by now the application of this lofty principle led to central planning, oppression, loss of freedom, and much worse.
My view is that complex systems require complex ways of thinking. Absolute libertarianism (total freedom come what may) and absolute socialism (equality at all costs) not only cannot work but actually lead to the opposite. Under real communism there was no equality, and I am absolutely (pardon the pun) that under a libertarian type of society, there would end up being very little real freedom.
And nothin aint worth nothin but its free" - Janis Joplin
Freedom is a meaningless "positive" rhetorical term as "big
government" is a meaningless "negative" term. Looking
at the way human beings really behave the meaning of words
shift over time to justify our failings and actions - to enrich
some and enslave others.
Trying to set up a syllogistic logical framework to justify one
person's ideas on these matters is doomed to failure, for the
same reason that our legal code allows corruption, human
nature.
Godel says that any system of formal logic is incomplete. That
incompleteness is all people need to behave corruptly if they
are clever or others aren't. There is just no way around the
pursuit of value by human beings so the best we can do is to
rely on a large group of uninvolved people's compassion for
an abstract individual they do not know and are not economically
tied to.
Sy, I'd disagree with you on central planning, this is hilarious
that central planning is great when it is done by a CEO in a
private enterprise context, but only does not work when it
is done by some form of government. Capitalism, communism,
socialism, whatever-ism, the common factor is the corruptability
of men ... funny how it is mostly men, but that's another
subject.