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Using Zimbabwe as any kind of example of anything other than ruin is just nuts. And, Milena, your example of “owning the property” doesn’t cut it. As far as I’m concerned, we do own the property when it comes to the water we all share in common, the air we breath in common, and even the sights we see in common. The air on my acre is not independent from that next door. The water table, poisoned by whomever, is the commons, not the private dump. And private ownership rights will not bring back a dead child.

You libertarians get all up in the head and self-righteous and backpedal and dance skittish little moves trying to get out of being a part of a larger community when you think your precious rights are being infringed upon. You want us to go around suing one another to maintain our little fiefdoms. You imagine the deck to be fairly shuffled and that the rights of one individual are going to be equal to the rights of a large corporation under the eyes of the law. You seem to think that rights can be maintained in fair fights. I think you’re dangerously wrong, and that the examples I’ve seen of individuals going up against corporations that have infringed upon their rights have all pulled the individual down into a rat hole of hellish proportions. It’s too easy for the big guys to just bury the little guys in your libertarian world. And they do it and will continue to do it.

Using Zimbabwe as any kind of example of anything other than ruin is just nuts. And, Milena, your example of “owning the property” doesn’t cut it. As far as I’m concerned, we do own the property when it comes to the water we all share in common, the air we breath in common, and even the sights we see in common. The air on my acre is not independent from that next door. The water table, poisoned by whomever, is the commons, not the private dump. And private ownership rights will not bring back a dead child.

You libertarians get all up in the head and self-righteous and backpedal and dance skittish little moves trying to get out of being a part of a larger community when you think your precious rights are being infringed upon. You want us to go around suing one another to maintain our little fiefdoms. You imagine the deck to be fairly shuffled and that the rights of one individual are going to be equal to the rights of a large corporation under the eyes of the law. You seem to think that rights can be maintained in fair fights. I think you’re dangerously wrong, and that the examples I’ve seen of individuals going up against corporations that have infringed upon their rights have all pulled the individual down into a rat hole of hellish proportions. It’s too easy for the big guys to just bury the little guys in your libertarian world. And they do it and will continue to do it.

I know I’m kind of jumping on the Milena-bashing bandwagon here, but I find it impossible to resist pointing out some errors in reasoning.

Milena – In your response to Jesse on what is acceptable in a free market, you seem to be getting confused between the causal and the normative (the difference between ‘will’ and ‘ought’).
Jesse’s point wasn’t that Libertarians such as yourself were automatically in favor of fraud. Of course, like most people, you think it ought not to happen this way. The problem is that you haven’t explained how your free market ideology translates this ‘ought’ into a ‘will’, i.e., you haven’t explained how a more free market system would have actually _caused_ the economic actors to behave differently.

The second point is about the whole CDS issue. True, some government policy might have exacerbated the real estate bubble and faciliated the mortage crisis (personally, I don’t think there was much active responsibility as much as a passive failure to act, but I’ll let you have this). The complex web of CDS’s forming the backbone of what Jon has been calling the Shadow Banking System are entirely free from any kind of government influence. Your position seems to be to accept this, but to lay the blame at the feet of the government for causing the mortgage crisis which ignited the CDS web.
Again, this doesn’t fly. If you fill your house with canisters of gasoline, then you can of cause put some of the blame on the guy who carelessly lights up a cigarette when it goes up in flames, but it wouldn’t do to place all of the blame at his feet. Similarly, the fact that the mortgage crisis sparked off this creditstorm doesn’t mean that all the blame for it lies at the feet of those responsible for it (even assuming that the government could take sole responsibility). Only seriously pro-active financial regulators could have prevented the relatively new CDS instruments spinning out of control in the way they have, and it seems that such pro-active regulation is at odds with your free market philosophy.

I know I’m kind of jumping on the Milena-bashing bandwagon here, but I find it impossible to resist pointing out some errors in reasoning.

Milena – In your response to Jesse on what is acceptable in a free market, you seem to be getting confused between the causal and the normative (the difference between ‘will’ and ‘ought’).
Jesse’s point wasn’t that Libertarians such as yourself were automatically in favor of fraud. Of course, like most people, you think it ought not to happen this way. The problem is that you haven’t explained how your free market ideology translates this ‘ought’ into a ‘will’, i.e., you haven’t explained how a more free market system would have actually _caused_ the economic actors to behave differently.

The second point is about the whole CDS issue. True, some government policy might have exacerbated the real estate bubble and faciliated the mortage crisis (personally, I don’t think there was much active responsibility as much as a passive failure to act, but I’ll let you have this). The complex web of CDS’s forming the backbone of what Jon has been calling the Shadow Banking System are entirely free from any kind of government influence. Your position seems to be to accept this, but to lay the blame at the feet of the government for causing the mortgage crisis which ignited the CDS web.
Again, this doesn’t fly. If you fill your house with canisters of gasoline, then you can of cause put some of the blame on the guy who carelessly lights up a cigarette when it goes up in flames, but it wouldn’t do to place all of the blame at his feet. Similarly, the fact that the mortgage crisis sparked off this creditstorm doesn’t mean that all the blame for it lies at the feet of those responsible for it (even assuming that the government could take sole responsibility). Only seriously pro-active financial regulators could have prevented the relatively new CDS instruments spinning out of control in the way they have, and it seems that such pro-active regulation is at odds with your free market philosophy.

By the way, the Xanax tent is now open. Repeat, the Xanax tent is now open. I’m heading over myself.

By the way, the Xanax tent is now open. Repeat, the Xanax tent is now open. I’m heading over myself.

Free markets work: when mistakes occur the market corrects itself from it’s errors and grow from there. Unfortunately that error can be so grievous as to completely take down an entire system. A new system can then be built up after the collapse of the old one sure, but what about the dead?
It’s nature, right? The strongest will survive, screw the rest.
Many a creature became extinct – without the help of man – because it didn’t “regulate” itself (by eating all of it’s food supply etc) but that is fine because LIFE went on (not the extinct creatures life but LIFE).
Is it for us to protect life and if so ALL life, or just life?
Free markets work but they leave a lot of death and misery in their wake. Is that what we want?
Just wondering.

Free markets work: when mistakes occur the market corrects itself from it’s errors and grow from there. Unfortunately that error can be so grievous as to completely take down an entire system. A new system can then be built up after the collapse of the old one sure, but what about the dead?
It’s nature, right? The strongest will survive, screw the rest.
Many a creature became extinct – without the help of man – because it didn’t “regulate” itself (by eating all of it’s food supply etc) but that is fine because LIFE went on (not the extinct creatures life but LIFE).
Is it for us to protect life and if so ALL life, or just life?
Free markets work but they leave a lot of death and misery in their wake. Is that what we want?
Just wondering.

Free markets work: when mistakes occur the market corrects itself from it’s errors and grow from there. Unfortunately that error can be so grievous as to completely take down an entire system. A new system can then be built up after the collapse of the old one sure, but what about the dead?
It’s nature, right? The strongest will survive, screw the rest.
Many a creature became extinct – without the help of man – because it didn’t “regulate” itself (by eating all of it’s food supply etc) but that is fine because LIFE went on (not the extinct creatures life but LIFE).
Is it for us to protect life and if so ALL life, or just life?
Free markets work but they leave a lot of death and misery in their wake. Is that what we want?
Just wondering.

So, any comments on the Treasury decision late on Friday to start buying ownership in US banks? They snuck yet another major decision in on the weekend. Democracy at work.

And yet another sign that things are unraveling and they’re lurching around in panic mode.

So, any comments on the Treasury decision late on Friday to start buying ownership in US banks? They snuck yet another major decision in on the weekend. Democracy at work.

And yet another sign that things are unraveling and they’re lurching around in panic mode.

Seth, I agree. The best regulations (or laws period) are those that are simple and easy to understand. The US tax code is perfect example. I doubt there is a single person who actually understands how it all works. How is that beneficial to society? There are so many exemptions, exceptions, credits, loopholes, and deductions (plus all the rules change for federal vs. state and state vs. state) that I strongly suspect that everyone messes up on their taxes at least once in their life and never realizes it.

Milena,

Okay, on mortgages. The lack of restrictions I was referring to was on the government side. We just saw what happened when we leave the decisions about who to lend to up to the market, it ends in disaster. The lure of profits lead mortgage companies to make terrible decisions which has now lead to the complete collapse of the lending market.

What is a AAA rating? Is that something the government should be setting or something that is up to the individual companies? If the rating companies are defining what a AAA bond is, then there isn’t necessarily any fraud in rating something AAA. Obviously you might not trust one company’s AAA vs. another’s, but that is what the free market is about. Fraud only really exists when there are regulations prohibiting certain types of behavior.

“Furthermore, all regulation is not created equal. Some regulation is good, other kinds are bad. Yes, that does require ferreting out which is which, in particular which kinds can work with the free market, and which can work against it, or distort it and even encourage fraud!”

Again, you completely fail to qualify what constitutes good or bad regulation. You admit that there is such a thing as good regulation, but you then go on to say later that you oppose almost all regulation. You’re essentially trying to having it both ways. I think at some level you recognize that a lack of regulation is a problem, but you’re so committed to your ideology you can’t bring yourself to accept that.

I read the article you linked. About what I’d expect from someone from CATO. One of the more useless think-tanks around. I’m not going to waste time taking apart the entire thing, but a couple key points.

“Mark to Market” wasn’t the problem. The problem was that lots of these so-called good assets were basically worthless. Lehmans just unwound for less than 10 cents on the dollar. Sure, Lehman could have kept them on their books at full value Level 3 assets if we didn’t have mark to market, but that wouldn’t have made them any more financially solvent. I find it laughable than anyone who claims to believe in markets thinks that “Mark to Market” accounting is bad. The only value an asset has is what someone will pay for it or what someone will lend you against those assets. If no one will buy your assets or lend you money, then your assets are worthless. That is basic market dynamics. To argue we should suspend them basically means you don’t think markets are good at valuing assets and that companies should be allowed to make up their own values for their assets.

On the leverage issue.The only investment banks that failed were the ones allowed to suspend the restrictions on leveraging. It is not that they lacked a commercial banking base, it was that they were leveraged 50:1 on their assets. If they had been a commercial bank AND been that leveraged, they still would have failed and would have just brought down the FDIC with them as well. The only reason the commercial banks are solvent enough to acquire them is BECAUSE they were not allowed to leverage themselves. So your precious author is disingenuously trying to have it both ways. But the truth remains that the only banks still standing, are the ones whose leverage-levels were regulated by the government.

I think private property is the worst possible decision for commons. At that point, they cease to be commons. I don’t want my right to breath clean air to be subject to corporate bidding. Communal goods are about moral responsibilities, and corporations are not moral organizations. They are profit-generating organizations and there is nothing wrong with them. But putting profit-generating organizations in charge of moral goods and the results will be dismal.

I completely miss the point of your car examples. I’m not really sure what amazing future car development plans are being stifled. There are almost no requirements on new cars being built in this country, except the ridiculous CAFE standards. Car makers have been able to build whatever sorts of cars they want and so, witness the glut of SUV’s from the American car makers. I don’t think legislators should tell automakers what sort of cars they should make. I think they should provide significant financial benefits to companies who make more efficient cars (be they ethanol, diesel, flexfuel, battery-powered, hydrogen, etc.) and penalize consumers who buy inefficient cars. And make the company benefits competitive. The company with the highest sale volumes of efficient cars gets the biggest tax breaks (or maybe the companies who sell the highest percentage of efficient cars, but that is easier to game). So it is up to the companies to make cars that consumers want to buy. And consumers are encouraged to not buy inefficient cars (or they pay a ridiculous premium to get them). It is not a command economy, but rather a market with externalities factored in. The government is setting a global price (in terms of tax incentives) on how much people are willing to pay to lower emission and fight global warming.

Dan,

I think this is actually a really positive development. The US is following the lead of Great Britain in this, and this is what a lot of the smart people were recommending from the beginning. Equity stakes are good and help to recapitalize the banks as well. Which I do not trust Paulson completely, I feel he is taking something of an FDR approach to this. Throw a lot of of stuff at the wall and see what sticks. Considering how hard it is to figure out how to fix massive financial problems, we need to be flexible in our approaches. While you could look at it as an example of cluelessness, I think it is just a symptom of the situation being too complex to figure out quickly. With that said, I do think Paulson should have tried this from the beginning. I am not sold on him guiding us through this crisis.

Seth, I agree. The best regulations (or laws period) are those that are simple and easy to understand. The US tax code is perfect example. I doubt there is a single person who actually understands how it all works. How is that beneficial to society? There are so many exemptions, exceptions, credits, loopholes, and deductions (plus all the rules change for federal vs. state and state vs. state) that I strongly suspect that everyone messes up on their taxes at least once in their life and never realizes it.

Milena,

Okay, on mortgages. The lack of restrictions I was referring to was on the government side. We just saw what happened when we leave the decisions about who to lend to up to the market, it ends in disaster. The lure of profits lead mortgage companies to make terrible decisions which has now lead to the complete collapse of the lending market.

What is a AAA rating? Is that something the government should be setting or something that is up to the individual companies? If the rating companies are defining what a AAA bond is, then there isn’t necessarily any fraud in rating something AAA. Obviously you might not trust one company’s AAA vs. another’s, but that is what the free market is about. Fraud only really exists when there are regulations prohibiting certain types of behavior.

“Furthermore, all regulation is not created equal. Some regulation is good, other kinds are bad. Yes, that does require ferreting out which is which, in particular which kinds can work with the free market, and which can work against it, or distort it and even encourage fraud!”

Again, you completely fail to qualify what constitutes good or bad regulation. You admit that there is such a thing as good regulation, but you then go on to say later that you oppose almost all regulation. You’re essentially trying to having it both ways. I think at some level you recognize that a lack of regulation is a problem, but you’re so committed to your ideology you can’t bring yourself to accept that.

I read the article you linked. About what I’d expect from someone from CATO. One of the more useless think-tanks around. I’m not going to waste time taking apart the entire thing, but a couple key points.

“Mark to Market” wasn’t the problem. The problem was that lots of these so-called good assets were basically worthless. Lehmans just unwound for less than 10 cents on the dollar. Sure, Lehman could have kept them on their books at full value Level 3 assets if we didn’t have mark to market, but that wouldn’t have made them any more financially solvent. I find it laughable than anyone who claims to believe in markets thinks that “Mark to Market” accounting is bad. The only value an asset has is what someone will pay for it or what someone will lend you against those assets. If no one will buy your assets or lend you money, then your assets are worthless. That is basic market dynamics. To argue we should suspend them basically means you don’t think markets are good at valuing assets and that companies should be allowed to make up their own values for their assets.

On the leverage issue.The only investment banks that failed were the ones allowed to suspend the restrictions on leveraging. It is not that they lacked a commercial banking base, it was that they were leveraged 50:1 on their assets. If they had been a commercial bank AND been that leveraged, they still would have failed and would have just brought down the FDIC with them as well. The only reason the commercial banks are solvent enough to acquire them is BECAUSE they were not allowed to leverage themselves. So your precious author is disingenuously trying to have it both ways. But the truth remains that the only banks still standing, are the ones whose leverage-levels were regulated by the government.

I think private property is the worst possible decision for commons. At that point, they cease to be commons. I don’t want my right to breath clean air to be subject to corporate bidding. Communal goods are about moral responsibilities, and corporations are not moral organizations. They are profit-generating organizations and there is nothing wrong with them. But putting profit-generating organizations in charge of moral goods and the results will be dismal.

I completely miss the point of your car examples. I’m not really sure what amazing future car development plans are being stifled. There are almost no requirements on new cars being built in this country, except the ridiculous CAFE standards. Car makers have been able to build whatever sorts of cars they want and so, witness the glut of SUV’s from the American car makers. I don’t think legislators should tell automakers what sort of cars they should make. I think they should provide significant financial benefits to companies who make more efficient cars (be they ethanol, diesel, flexfuel, battery-powered, hydrogen, etc.) and penalize consumers who buy inefficient cars. And make the company benefits competitive. The company with the highest sale volumes of efficient cars gets the biggest tax breaks (or maybe the companies who sell the highest percentage of efficient cars, but that is easier to game). So it is up to the companies to make cars that consumers want to buy. And consumers are encouraged to not buy inefficient cars (or they pay a ridiculous premium to get them). It is not a command economy, but rather a market with externalities factored in. The government is setting a global price (in terms of tax incentives) on how much people are willing to pay to lower emission and fight global warming.

Dan,

I think this is actually a really positive development. The US is following the lead of Great Britain in this, and this is what a lot of the smart people were recommending from the beginning. Equity stakes are good and help to recapitalize the banks as well. Which I do not trust Paulson completely, I feel he is taking something of an FDR approach to this. Throw a lot of of stuff at the wall and see what sticks. Considering how hard it is to figure out how to fix massive financial problems, we need to be flexible in our approaches. While you could look at it as an example of cluelessness, I think it is just a symptom of the situation being too complex to figure out quickly. With that said, I do think Paulson should have tried this from the beginning. I am not sold on him guiding us through this crisis.

There is also lying, cheating, fraud, error, best-intentions, etc. happening in every system and at every level. Whatever theory or model we come up with has to continue to deal with those very real, practical inputs. Any model that doesn’t protect the crack-baby and the investment banker, equally?, is just unworkable theory.

It’s all a series of chaotic systems bumping into each other keeping each other honest.

There is also lying, cheating, fraud, error, best-intentions, etc. happening in every system and at every level. Whatever theory or model we come up with has to continue to deal with those very real, practical inputs. Any model that doesn’t protect the crack-baby and the investment banker, equally?, is just unworkable theory.

It’s all a series of chaotic systems bumping into each other keeping each other honest.

Not chaotic in the sense of stochastic. They are noisy systems therefore tunable and filterable. It’s second order controls with faulty third order filters. Not really hard to understand this.

If by bump you mean, hidden couplers, yes, there are likely business rules in conflict, but it seems the problem is much simpler if you take out the political BS.

You can’t fix greed unless you apply behavioral sciene, and you can get that affect without going after individuals. You can tune it out of the system by filtering the value of the transaction. That’s done at the system or organizational level. You have no choice there but to pursue legislative reform.

Then it is a matter of verification. If you want transparency, you define a set of open interfaces and message transactions for the banking systems designed to expose outward facing exchanges of value-laden instruments (XML messages. See EBXML).

Then you apply business rules for bounds or constraint-tests. See Schematron.

If you want a solution, step away and look at the rules and authorities over the transactions, the business instruments.

Explicitly, if you put the politics aside and examine it coldly, overvalued assets were used as collateral. That transactions are well-formed but invalid because the feed back into the coupled values. It is as if you fed an organic system pure sugar.

You might say, our economic systems have full blown adult onset type II diabetes.

A computer scientist will yawn at this discourse, wait until the shouting stops, and then ask questions that reveal the business rules.

The last challenge is authority. Who has the right to inspect and change the business rules and the constraints of the value ranges?

That puts you back at the conflicts among the hierarchical political systems from individual, local, state and federal organizations.

Cast that back into Jon’s New Federalism Model. Frankly I think it’s a crock because it will cause the economic manifold to become lumpy creating local gaps in coverage annealed at the federal level. Tuning here is critical.

Unless Federal standards pre-empt State standards for these transactions, you will have a weak confederation of states. I’m resisting historical comparisons here because they color the perception of the model with emotional baggage unnecessary for predicting the results.

Not chaotic in the sense of stochastic. They are noisy systems therefore tunable and filterable. It’s second order controls with faulty third order filters. Not really hard to understand this.

If by bump you mean, hidden couplers, yes, there are likely business rules in conflict, but it seems the problem is much simpler if you take out the political BS.

You can’t fix greed unless you apply behavioral sciene, and you can get that affect without going after individuals. You can tune it out of the system by filtering the value of the transaction. That’s done at the system or organizational level. You have no choice there but to pursue legislative reform.

Then it is a matter of verification. If you want transparency, you define a set of open interfaces and message transactions for the banking systems designed to expose outward facing exchanges of value-laden instruments (XML messages. See EBXML).

Then you apply business rules for bounds or constraint-tests. See Schematron.

If you want a solution, step away and look at the rules and authorities over the transactions, the business instruments.

Explicitly, if you put the politics aside and examine it coldly, overvalued assets were used as collateral. That transactions are well-formed but invalid because the feed back into the coupled values. It is as if you fed an organic system pure sugar.

You might say, our economic systems have full blown adult onset type II diabetes.

A computer scientist will yawn at this discourse, wait until the shouting stops, and then ask questions that reveal the business rules.

The last challenge is authority. Who has the right to inspect and change the business rules and the constraints of the value ranges?

That puts you back at the conflicts among the hierarchical political systems from individual, local, state and federal organizations.

Cast that back into Jon’s New Federalism Model. Frankly I think it’s a crock because it will cause the economic manifold to become lumpy creating local gaps in coverage annealed at the federal level. Tuning here is critical.

Unless Federal standards pre-empt State standards for these transactions, you will have a weak confederation of states. I’m resisting historical comparisons here because they color the perception of the model with emotional baggage unnecessary for predicting the results.

JT.

I agree with you 100% . The other factor is that you cant sell freedom at gun point … there is something really wrong with this… B

JT.

I agree with you 100% . The other factor is that you cant sell freedom at gun point … there is something really wrong with this… B

JT.

I agree with you 100% . The other factor is that you cant sell freedom at gun point … there is something really wrong with this… B

We have the Mercedes plant, but I agree, that the model is not one specifically of weakening the Federal power but creating a self-adjusting dynamic system. California’s market power is also a reason it needs tougher emission laws because it has more cars. If one left out the local environmental factors, it would be a simple formula where more cars create more emissions. California is defending its own consumption by demanding higher restrictions.

Alabama has Mercedes, Toyota, etc. manufacturing here. If you wanted a tighter loop, you’d route your emissions to our restrictions on local product manufacturing. Realistically, the Federal government is the place to do that, but structures aside, the model that I think could make a dramatic difference would be one that coupled the values measured to the controls in a way that the system became self-adjusting.

We have the technology to modify the behaviors. We need a model that we can trust.

The taxation problem is different. In the New Bear Flag paper, you suggest that more taxes be kept under local control. It’s a popular position but it does expose one weakness of States rights approaches. In Alabama, exactly four cities make up the largest part of the tax base. If we didn’t use a distribution formula that pushes some of that back to the lower income base counties, the local education systems among others would collapse in a single budget cycle.

At this time we have to recognize the problems of the rust belt states and others dependent on manufacturing who are the losers in the digital economy and work out the revitalization efforts. Further, we need a way to do that which doesn’t recreate the same problems of the revitalization efforts in housing that led to the subprimes. The problem was once set, the CRA had no means to dynamically tune it back to balance. This is why I come again to the third order controls.

Our models should be self-regulating dynamic models. How to do that? I understand these abstractly but my knowledge stops there. I’m not an economist.

We have the Mercedes plant, but I agree, that the model is not one specifically of weakening the Federal power but creating a self-adjusting dynamic system. California’s market power is also a reason it needs tougher emission laws because it has more cars. If one left out the local environmental factors, it would be a simple formula where more cars create more emissions. California is defending its own consumption by demanding higher restrictions.

Alabama has Mercedes, Toyota, etc. manufacturing here. If you wanted a tighter loop, you’d route your emissions to our restrictions on local product manufacturing. Realistically, the Federal government is the place to do that, but structures aside, the model that I think could make a dramatic difference would be one that coupled the values measured to the controls in a way that the system became self-adjusting.

We have the technology to modify the behaviors. We need a model that we can trust.

The taxation problem is different. In the New Bear Flag paper, you suggest that more taxes be kept under local control. It’s a popular position but it does expose one weakness of States rights approaches. In Alabama, exactly four cities make up the largest part of the tax base. If we didn’t use a distribution formula that pushes some of that back to the lower income base counties, the local education systems among others would collapse in a single budget cycle.

At this time we have to recognize the problems of the rust belt states and others dependent on manufacturing who are the losers in the digital economy and work out the revitalization efforts. Further, we need a way to do that which doesn’t recreate the same problems of the revitalization efforts in housing that led to the subprimes. The problem was once set, the CRA had no means to dynamically tune it back to balance. This is why I come again to the third order controls.

Our models should be self-regulating dynamic models. How to do that? I understand these abstractly but my knowledge stops there. I’m not an economist.

@Jon – I’m not raising straw men. Re: Lehman – show evidence of fraud and then try those who are guilty, that is how courts work. I have no objections.

The only aspect you mention that I agree with is raising the gas tax to curb consumption. (@Jesse – here’s an example of the good vs. bad regulation. While I philosophically oppose regulation, I realistically accept it’s here to stay, and attempt to discern the types of regulation that are going to be most effective, efficient, and least costly to administrate.) The reality is, the mileage standards don’t work, the technology doesn’t actually reduce consumption overall, even if on a per car output they do. Since the CAFE standards were introduced, consumption of oil has increased overall. The best thing to effectively discourage consumption (for those who think it’s necessary) is a gas tax.

@Dan – I disagree with you up until this, “Especially if you get to rate the value of the CDOs that implies that you’re insuring a pool of only young, healthy 20 year olds when in fact you’re insuring a whole bunch of people in their 80’s.” The ratings and the under-lying assets were the problem, not the vehicles themselves.

@Rick – You say, “Using Zimbabwe as any kind of example of anything other than ruin is just nuts.” No it’s not. Ignoring a statistic because it occurred in Zimbabwe is irrational. My original point stands: private property, in this case (doesn’t matter the country, I had to mention it because that’s where elephants happen to live), led to an increase in the number of an endangered species over time, indicating that when someone is a steward to their land, they care more about its condition.

I’m saddened anyone concerned about the environment wants to ignore this.

“As far as I’m concerned, we do own the property when it comes to the water we all share in common, the air we breathe in common, and even the sights we see in common. The air on my acre is not independent from that next door. The water table, poisoned by whomever, is the commons, not the private dump. And private ownership rights will not bring back a dead child.” Being concerned, as far as you are, doesn’t lead to people taking care of property. In fact, you highlight the sad tragedy of the commons perfectly. When people own something in common, it is far less likely to be kept up. Without protection of property rights, it is difficult to prevent someone from dumping. If you owned the river that a plant was located off of, you would be able to keep them from dumping.

You say, “You imagine the deck to be fairly shuffled and that the rights of one individual are going to be equal to the rights of a large corporation under the eyes of the law.” Never said that and don’t believe that. I don’t imagine the deck is fairly shuffled. I accept that it’s not. But everyone gets a fair shot at playing their cards, no matter what the outcome.

Listen, I’m a woman scraping by like most of the people in this country, so I’m not speaking from privilege. Life is terribly unfair, some people lose. Some people die. But at least give everyone equal opportunity. Far more people die under socialism than capitalism. Free men are not equal, equal men are not free. If you show me a place where all men are equal and “cannot take advantage of each other,” all that means is that the group in charge is far more powerful and there is a chasm in classes.

Just look at Cambodia under Khmer Rouge. 2 million dead in 4 years. But hey, at least everyone was treated equally, right?

@Pete Wolf – I’m not confused.

@Jon – I’m not raising straw men. Re: Lehman – show evidence of fraud and then try those who are guilty, that is how courts work. I have no objections.

The only aspect you mention that I agree with is raising the gas tax to curb consumption. (@Jesse – here’s an example of the good vs. bad regulation. While I philosophically oppose regulation, I realistically accept it’s here to stay, and attempt to discern the types of regulation that are going to be most effective, efficient, and least costly to administrate.) The reality is, the mileage standards don’t work, the technology doesn’t actually reduce consumption overall, even if on a per car output they do. Since the CAFE standards were introduced, consumption of oil has increased overall. The best thing to effectively discourage consumption (for those who think it’s necessary) is a gas tax.

@Dan – I disagree with you up until this, “Especially if you get to rate the value of the CDOs that implies that you’re insuring a pool of only young, healthy 20 year olds when in fact you’re insuring a whole bunch of people in their 80’s.” The ratings and the under-lying assets were the problem, not the vehicles themselves.

@Rick – You say, “Using Zimbabwe as any kind of example of anything other than ruin is just nuts.” No it’s not. Ignoring a statistic because it occurred in Zimbabwe is irrational. My original point stands: private property, in this case (doesn’t matter the country, I had to mention it because that’s where elephants happen to live), led to an increase in the number of an endangered species over time, indicating that when someone is a steward to their land, they care more about its condition.

I’m saddened anyone concerned about the environment wants to ignore this.

“As far as I’m concerned, we do own the property when it comes to the water we all share in common, the air we breathe in common, and even the sights we see in common. The air on my acre is not independent from that next door. The water table, poisoned by whomever, is the commons, not the private dump. And private ownership rights will not bring back a dead child.” Being concerned, as far as you are, doesn’t lead to people taking care of property. In fact, you highlight the sad tragedy of the commons perfectly. When people own something in common, it is far less likely to be kept up. Without protection of property rights, it is difficult to prevent someone from dumping. If you owned the river that a plant was located off of, you would be able to keep them from dumping.

You say, “You imagine the deck to be fairly shuffled and that the rights of one individual are going to be equal to the rights of a large corporation under the eyes of the law.” Never said that and don’t believe that. I don’t imagine the deck is fairly shuffled. I accept that it’s not. But everyone gets a fair shot at playing their cards, no matter what the outcome.

Listen, I’m a woman scraping by like most of the people in this country, so I’m not speaking from privilege. Life is terribly unfair, some people lose. Some people die. But at least give everyone equal opportunity. Far more people die under socialism than capitalism. Free men are not equal, equal men are not free. If you show me a place where all men are equal and “cannot take advantage of each other,” all that means is that the group in charge is far more powerful and there is a chasm in classes.

Just look at Cambodia under Khmer Rouge. 2 million dead in 4 years. But hey, at least everyone was treated equally, right?

@Pete Wolf – I’m not confused.

@Jesse –

Re: AAA ratings. Does government backing deserve a AAA?

You say, “Again, you completely fail to qualify what constitutes good or bad regulation.” I never intended to, so I didn’t fail to do so. If you are asking me to, I’m happy to offer my thoughts.

You say, “You’re essentially trying to having it both ways.” Nope. I’m not trying to have it both ways, but I do depart from some libertarians because I do believe in things like collecting a flat tax, for example. That is an example of “good regulation” because it doesn’t single out a group for a harsher tax, everyone is treated equally. (Though I think anyone making under $40K should have zero tax, and the entry levels should have a graded introduction, so those making $40,001 aren’t blindsided the year they make a dollar too much. Something like 5%, then maybe 10% at $50,K, and 15% for $60K and over across the board. Furthermore, I’m not an idiot. I realize that most people call for regulation, which I accept, and therefore have the ability to discern between a variety of regulations, some are better than others.

You also say, “I think at some level you recognize that a lack of regulation is a problem, but you’re so committed to your ideology you can’t bring yourself to accept that.” I think it’s funny that people who do not know me, nor have they had more than a brief encounter on a blog will psycho-analyze me. But I can see how you came to that conclusion. The word “regulation” needs some clear definition if we are going to understand each other. Do I believe in Rule of Law based on equal rights and protections of them? Yes. Do I believe in government regulations that favor certain groups over others, redistribute wealth, etc.? No. I think you could call the former “regulation” as well, and in that regard, I support that kind of “regulation” or Rule of Law. Furthermore, that poses no internal conflict. One is holistic, the other atomistic.

Re: Mark-to-Market. Fair enough. Worthless assets were the problem.

Re: leverage. I think the point is that if they had a base, they wouldn’t have been that leveraged. But what grabbed me about your comment was: there were I-banks that didn’t fail?? What’s their ticker? : )

You say, “I think private property is the worst possible decision for commons. At that point, they cease to be commons. I don’t want my right to breath clean air to be subject to corporate bidding. Communal goods are about moral responsibilities, and corporations are not moral organizations.” They do cease to be commons, which is the point. Otherwise people are free to ruin and exploit it. There is so much evidence to show that private property rights protect endangered land, animals, lead to reduced pollution, and better stewardship I shouldn’t have to spell it out. Do you trash the things you own? Probably not. You care for them.

You say, “But putting profit-generating organizations in charge of moral goods and the results will be dismal.” Try pitching your thesis to these successful companies: Patagonia. REI. Domini Funds. Whole Foods. Gaiam. American Apparel. And those are just the ones I can think of off the top of my head. Google “social investing” “green companies” “climate change strategies” etc. And you will see companies jumping on the green bandwagon. The effect of supply and demand (free market works, who knew!) creates incentives for companies to supply what consumers demand. Consumers want enviro-friendly products…they are getting them increasingly.

Re: auto industry. Do you work for an auto-maker? If you do, perhaps you know more than me. At least we agree the CAFE standards haven’t helped. But there are considerable “amazing developments” (that you mention) that cannot be fully developed. For example, let’s say a way to run cars on hydrogen looked promising, but the government says, “Develop corn-based fuels and systems.” Do you think much R&D is going to go into the new technology when they will be fined, jailed, or shut down for not pursuing the government-mandated technology standards?

You say, “I think they should provide significant financial benefits to companies who make more efficient cars (be they ethanol, diesel, flexfuel, battery-powered, hydrogen, etc.) and penalize consumers who buy inefficient cars.” Consumers will reward those who make the best cars by buying them, the government doesn’t have to. But your next plan is even better, penalize people like me who can’t afford a Prius or Volt by government mandate. Anyways, I’m going to do better: getting rid of my car altogether.

@Jesse –

Re: AAA ratings. Does government backing deserve a AAA?

You say, “Again, you completely fail to qualify what constitutes good or bad regulation.” I never intended to, so I didn’t fail to do so. If you are asking me to, I’m happy to offer my thoughts.

You say, “You’re essentially trying to having it both ways.” Nope. I’m not trying to have it both ways, but I do depart from some libertarians because I do believe in things like collecting a flat tax, for example. That is an example of “good regulation” because it doesn’t single out a group for a harsher tax, everyone is treated equally. (Though I think anyone making under $40K should have zero tax, and the entry levels should have a graded introduction, so those making $40,001 aren’t blindsided the year they make a dollar too much. Something like 5%, then maybe 10% at $50,K, and 15% for $60K and over across the board. Furthermore, I’m not an idiot. I realize that most people call for regulation, which I accept, and therefore have the ability to discern between a variety of regulations, some are better than others.

You also say, “I think at some level you recognize that a lack of regulation is a problem, but you’re so committed to your ideology you can’t bring yourself to accept that.” I think it’s funny that people who do not know me, nor have they had more than a brief encounter on a blog will psycho-analyze me. But I can see how you came to that conclusion. The word “regulation” needs some clear definition if we are going to understand each other. Do I believe in Rule of Law based on equal rights and protections of them? Yes. Do I believe in government regulations that favor certain groups over others, redistribute wealth, etc.? No. I think you could call the former “regulation” as well, and in that regard, I support that kind of “regulation” or Rule of Law. Furthermore, that poses no internal conflict. One is holistic, the other atomistic.

Re: Mark-to-Market. Fair enough. Worthless assets were the problem.

Re: leverage. I think the point is that if they had a base, they wouldn’t have been that leveraged. But what grabbed me about your comment was: there were I-banks that didn’t fail?? What’s their ticker? : )

You say, “I think private property is the worst possible decision for commons. At that point, they cease to be commons. I don’t want my right to breath clean air to be subject to corporate bidding. Communal goods are about moral responsibilities, and corporations are not moral organizations.” They do cease to be commons, which is the point. Otherwise people are free to ruin and exploit it. There is so much evidence to show that private property rights protect endangered land, animals, lead to reduced pollution, and better stewardship I shouldn’t have to spell it out. Do you trash the things you own? Probably not. You care for them.

You say, “But putting profit-generating organizations in charge of moral goods and the results will be dismal.” Try pitching your thesis to these successful companies: Patagonia. REI. Domini Funds. Whole Foods. Gaiam. American Apparel. And those are just the ones I can think of off the top of my head. Google “social investing” “green companies” “climate change strategies” etc. And you will see companies jumping on the green bandwagon. The effect of supply and demand (free market works, who knew!) creates incentives for companies to supply what consumers demand. Consumers want enviro-friendly products…they are getting them increasingly.

Re: auto industry. Do you work for an auto-maker? If you do, perhaps you know more than me. At least we agree the CAFE standards haven’t helped. But there are considerable “amazing developments” (that you mention) that cannot be fully developed. For example, let’s say a way to run cars on hydrogen looked promising, but the government says, “Develop corn-based fuels and systems.” Do you think much R&D is going to go into the new technology when they will be fined, jailed, or shut down for not pursuing the government-mandated technology standards?

You say, “I think they should provide significant financial benefits to companies who make more efficient cars (be they ethanol, diesel, flexfuel, battery-powered, hydrogen, etc.) and penalize consumers who buy inefficient cars.” Consumers will reward those who make the best cars by buying them, the government doesn’t have to. But your next plan is even better, penalize people like me who can’t afford a Prius or Volt by government mandate. Anyways, I’m going to do better: getting rid of my car altogether.

@douglas – in your earlier post you said:

…today was the bottom or close to it–anyone with the courage to buy now will see out sized returns in the next month…

Here’s a quote from “MCR” on the rgemonitor blog:

There is no bottom until there is CAPITULATION. Today’s volatility was anything but CAPITULATION. It looks to me like the violent, last-gasp throes before death which I have seen before in real life.

Capitulation is when the market hits a bottom and just stays there…for days and weeks. When there are no signs of struggle or life. No heartbeat. No thrashing.

Personally, I have no idea, but what do you think about this idea of capitulation… not valid or have we just seen it?

@douglas – in your earlier post you said:

…today was the bottom or close to it–anyone with the courage to buy now will see out sized returns in the next month…

Here’s a quote from “MCR” on the rgemonitor blog:

There is no bottom until there is CAPITULATION. Today’s volatility was anything but CAPITULATION. It looks to me like the violent, last-gasp throes before death which I have seen before in real life.

Capitulation is when the market hits a bottom and just stays there…for days and weeks. When there are no signs of struggle or life. No heartbeat. No thrashing.

Personally, I have no idea, but what do you think about this idea of capitulation… not valid or have we just seen it?

@m:

“Free men are not equal, equal men are not free. ”

Polarities are not resolved; they are managed.

Scalars. (interpolators are good here).

And thanks for being the one who provides algorithms for her rules instead of only competing classes. More math; less Spy vs Spy.

Imagine a free online game that matched a model of our economies (many). Instead of argument in English, a dynamic model where you can enter the values you think work best, and see if it evolves.

An economy is not unlike Spore.

If the models are faithful, what works in the game is likely to work in meatspace.

@m:

“Free men are not equal, equal men are not free. ”

Polarities are not resolved; they are managed.

Scalars. (interpolators are good here).

And thanks for being the one who provides algorithms for her rules instead of only competing classes. More math; less Spy vs Spy.

Imagine a free online game that matched a model of our economies (many). Instead of argument in English, a dynamic model where you can enter the values you think work best, and see if it evolves.

An economy is not unlike Spore.

If the models are faithful, what works in the game is likely to work in meatspace.

Jon,

Long time no post–I was shooting on location in beautiful New Mexico and didn’t have the time. Thank you for your wonderful blog though–when I only had a few minutes a day to keep up with the news this site came in handy.

This doesn’t have too much to do with the conversation at hand in the comments, but moreso the original post. I saw a very disturbing graphic supposedly from Credit Suisse while reading http://www.creditslips.org/creditslips/2007/12/is-this-just-a.html

It seems that while we’re almost through the subprime debacle, we’re heading into another pile of toxicity over the next few years. So called Alt-A mortgages and Option ARMs are valued about the same as the subprime markets, and will really just begin to kick in mid-2009.

From what I understand, Alt-A mortgages allows for negative amortization–people can pay less than the interest accrued and increase the principle each month. The option ARMs (adjustible rate mortgages) have low rates for a term, and then jump to much higher rates later on. Also, the option ARMs were given to people with credit rating just surpassing that of subprime. Neither of these can be assumed to be very reliable–they were murky loans in the first place, and with the economy tanking, they are more likely to default.

Do you think these banks can survive another ~$700 billion in writedowns? Can the US taxpayers afford another $700 billion? I find this all very disturbing…

Thoughts?

Jon,

Long time no post–I was shooting on location in beautiful New Mexico and didn’t have the time. Thank you for your wonderful blog though–when I only had a few minutes a day to keep up with the news this site came in handy.

This doesn’t have too much to do with the conversation at hand in the comments, but moreso the original post. I saw a very disturbing graphic supposedly from Credit Suisse while reading http://www.creditslips.org/creditslips/2007/12/is-this-just-a.html

It seems that while we’re almost through the subprime debacle, we’re heading into another pile of toxicity over the next few years. So called Alt-A mortgages and Option ARMs are valued about the same as the subprime markets, and will really just begin to kick in mid-2009.

From what I understand, Alt-A mortgages allows for negative amortization–people can pay less than the interest accrued and increase the principle each month. The option ARMs (adjustible rate mortgages) have low rates for a term, and then jump to much higher rates later on. Also, the option ARMs were given to people with credit rating just surpassing that of subprime. Neither of these can be assumed to be very reliable–they were murky loans in the first place, and with the economy tanking, they are more likely to default.

Do you think these banks can survive another ~$700 billion in writedowns? Can the US taxpayers afford another $700 billion? I find this all very disturbing…

Thoughts?

Jon,

Long time no post–I was shooting on location in beautiful New Mexico and didn’t have the time. Thank you for your wonderful blog though–when I only had a few minutes a day to keep up with the news this site came in handy.

This doesn’t have too much to do with the conversation at hand in the comments, but moreso the original post. I saw a very disturbing graphic supposedly from Credit Suisse while reading http://www.creditslips.org/creditslips/2007/12/is-this-just-a.html

It seems that while we’re almost through the subprime debacle, we’re heading into another pile of toxicity over the next few years. So called Alt-A mortgages and Option ARMs are valued about the same as the subprime markets, and will really just begin to kick in mid-2009.

From what I understand, Alt-A mortgages allows for negative amortization–people can pay less than the interest accrued and increase the principle each month. The option ARMs (adjustible rate mortgages) have low rates for a term, and then jump to much higher rates later on. Also, the option ARMs were given to people with credit rating just surpassing that of subprime. Neither of these can be assumed to be very reliable–they were murky loans in the first place, and with the economy tanking, they are more likely to default.

Do you think these banks can survive another ~$700 billion in writedowns? Can the US taxpayers afford another $700 billion? I find this all very disturbing…

Thoughts?

Len,

If you haven’t already, it is worth checking out “Origins of Wealth” by Eric D. Beinhocker. It is a great survey of current research into building better models. Models that learn from the behavioral and game sciences, and also from biological systems. I highly recommend it.

Milena,

Sorry about the delay. My weekend was eaten building render racks.

I’m not a fan of regressive taxes like the flat tax. You probably already figured that out. I’m being gradually won over to the idea of a global consumption tax. Basically, the more you spend, the more you pay in taxes, with the first x,000 a year being exempt (a floating target, designed to prevent people on the low end of the income scale from being hurt). Plus an income tax on people earning over half-a-million or so.

I like the fact that it rewards the virtuous (people who actually save and invest) while discouraging excess consumption. However, it would be quite difficult to collect. It would require all transactions to be wired into a nationwide network (which essentially they are already with credit cards) that would be used to determine how much people had spent. You’d have to be really careful to preserve privacy and the like.

But given that something like that doesn’t appear to be in the offering, I have no real quarrels with a graduated income tax. And I have no problems raising the tax rates on the higher brackets rather significantly. But I do think we should do away with stuff like the AMT and a lot of the other complexity. And the marriage penalty, which hasn’t made sense in decades.

In regards to the concept of ‘regulation’, you say that you are in favor of things that guarantee equal rights but nothing that favors one group over another. So I am curious how you feel about things like education. Education is a major determiner in how successful people are in their lives, both in quality of jobs that are attainable, but also in prestige and networking. Obviously going to better secondary schools makes it much easier to get into a good college, which can have profound impacts on earning. But which secondary schools you can go to is in many ways determined before you’re born by your parents income level. While there are occasionally people who can rise from the bottom to the top, it doesn’t happen often (and is happening a lot less in the US these days). To me, that isn’t fair. I’m more than happy supporting increased taxes on the wealthy to provide comprehensive education for everyone. That is more fair than taxing everyone the same.

On leveraging. That is missing the point. The big-5 were capitalized, even without a deposit base. But they were leveraged at 50:1. If BoA or JPM had been leveraged at 50:1, the deposit base would not have saved them. It was not the actually dollar amounts of capitalization that brought down the big-5, but the ratio. And there are lots of I-Banks left: http://en.wikipedia.org/wiki/List_of_investment_banks

Lets talk about Whole Foods. I live 4 blocks from one and shop there. Whole Foods isn’t about saving the environment. They’re about selling a lifestyle in an attempt to make a profit. They are a publicly traded company: their first responsibility is earning that profit. The fact that they are selling a lifestyle that appeals to a certain group of the upper-crust enables them to be more environmentally responsible. And to a certain extent, they need to spend more on good causes than other grocery stores because some part of their customer base will vanish if people don’t think they are pure enough. But if you think that Whole Foods is doing more than the minimum amount of extra stuff to keep their revenues up, you’re just deluding themselves. They are a public company, they want to make money. Being ‘green’ is a great way for them to keep revenues up, but they are only just green enough to keep ahead of other stores. I do not ascribe any sorts of moral values to them and neither should you. Corporations are not moral entities. There is balance between profits and doing good. And corporations always fall on the profits side. In fact, corporations are legally required to fall on that side or they are liable to shareholder lawsuits.

The effects of supply and demand have also led to lots of green-washing from companies. Companies which package goods which are not environmentally friendly in ways that make consumers think they are environmentally friendly. Having consumers think you’re ‘green’ is worth ‘green’, but if it is cheaper to essentially lie about it then companies will do that. Companies will always for the least they possibly can and still make money. That is not the spirit that I want governing the commons.

CAFE. Cafe worked great when it was actually raising the requirements. Up till about 88 or 90. After that the required Fuel Economy essentially flat-lined (thanks to lobbying from Detriot) and its effectiveness plunged. Also the fact that trucks and SUVs were essentially exempt from the parts of the regulations that had teeth made them essentially worthless in the last decade. I never said that the government should tell car-companies what sort of cars to require. I think they should say something like, “we’ll forgive the entire America tax liability of the company that sells the most vehicles getting more than 40mpg.” Obviously not quite that simplistic, but something along those lines. Don’t tell them HOW to do it, but provide the incentive for them to do it.

Consumers have all sorts of reasons for buying cars. What is the definition of the ‘best car?’ For many it might a flashy status symbol or a fuck-off sized SUV. For others it might be cost or safety. Fuel-efficiency and the prevention of climate change facts into some peoples decisions, but it is not the core deciding factor for many people. My point is if the government makes it the concern of car companies, then it stops being a concern for individuals. If your choice is between a 40MGP SUV and a 55MGP sedan, rather than a 12MGP SUV and a 25MGP sedan, it isn’t an issue any more.

Here is the problem with the market-only approach. If people were truly rationale, as in traditional models of markets, then they could factor in the long-term effects of buying a fuel-efficient car from now until the end of their life and also into their descendants lives, assuming they assign monetary value to their children’s survival. But no one thinks like that and even if they did, those calculations are impossible to make. So the market is massively imperfect and will often significantly deviate from its predicted results. Most importantly, any market transaction which involves humans will bias the short-term to the detriment of the long-term.

To address your complaint about the cost of cars. Prius’s are a bit expensive. But a majority of the fuel efficient cars sold in this country aren’t hybrids or anything fancy. They are the smaller, lighter economy and compact cars, which are the cheapest cars on the market. No one makes a big deal out of them because they aren’t sexy, but there is no correlation between higher MPG and higher car costs, unless you’re aiming for a status symbol Prius. And the goal is not to punish people for buying what the market provides. But if you’re choosing to buy a 8mpg Hummer or Ferrari, then you should pay for the external costs that that purchase imposes on everyone else.

Len,

If you haven’t already, it is worth checking out “Origins of Wealth” by Eric D. Beinhocker. It is a great survey of current research into building better models. Models that learn from the behavioral and game sciences, and also from biological systems. I highly recommend it.

Milena,

Sorry about the delay. My weekend was eaten building render racks.

I’m not a fan of regressive taxes like the flat tax. You probably already figured that out. I’m being gradually won over to the idea of a global consumption tax. Basically, the more you spend, the more you pay in taxes, with the first x,000 a year being exempt (a floating target, designed to prevent people on the low end of the income scale from being hurt). Plus an income tax on people earning over half-a-million or so.

I like the fact that it rewards the virtuous (people who actually save and invest) while discouraging excess consumption. However, it would be quite difficult to collect. It would require all transactions to be wired into a nationwide network (which essentially they are already with credit cards) that would be used to determine how much people had spent. You’d have to be really careful to preserve privacy and the like.

But given that something like that doesn’t appear to be in the offering, I have no real quarrels with a graduated income tax. And I have no problems raising the tax rates on the higher brackets rather significantly. But I do think we should do away with stuff like the AMT and a lot of the other complexity. And the marriage penalty, which hasn’t made sense in decades.

In regards to the concept of ‘regulation’, you say that you are in favor of things that guarantee equal rights but nothing that favors one group over another. So I am curious how you feel about things like education. Education is a major determiner in how successful people are in their lives, both in quality of jobs that are attainable, but also in prestige and networking. Obviously going to better secondary schools makes it much easier to get into a good college, which can have profound impacts on earning. But which secondary schools you can go to is in many ways determined before you’re born by your parents income level. While there are occasionally people who can rise from the bottom to the top, it doesn’t happen often (and is happening a lot less in the US these days). To me, that isn’t fair. I’m more than happy supporting increased taxes on the wealthy to provide comprehensive education for everyone. That is more fair than taxing everyone the same.

On leveraging. That is missing the point. The big-5 were capitalized, even without a deposit base. But they were leveraged at 50:1. If BoA or JPM had been leveraged at 50:1, the deposit base would not have saved them. It was not the actually dollar amounts of capitalization that brought down the big-5, but the ratio. And there are lots of I-Banks left: http://en.wikipedia.org/wiki/List_of_investment_banks

Lets talk about Whole Foods. I live 4 blocks from one and shop there. Whole Foods isn’t about saving the environment. They’re about selling a lifestyle in an attempt to make a profit. They are a publicly traded company: their first responsibility is earning that profit. The fact that they are selling a lifestyle that appeals to a certain group of the upper-crust enables them to be more environmentally responsible. And to a certain extent, they need to spend more on good causes than other grocery stores because some part of their customer base will vanish if people don’t think they are pure enough. But if you think that Whole Foods is doing more than the minimum amount of extra stuff to keep their revenues up, you’re just deluding themselves. They are a public company, they want to make money. Being ‘green’ is a great way for them to keep revenues up, but they are only just green enough to keep ahead of other stores. I do not ascribe any sorts of moral values to them and neither should you. Corporations are not moral entities. There is balance between profits and doing good. And corporations always fall on the profits side. In fact, corporations are legally required to fall on that side or they are liable to shareholder lawsuits.

The effects of supply and demand have also led to lots of green-washing from companies. Companies which package goods which are not environmentally friendly in ways that make consumers think they are environmentally friendly. Having consumers think you’re ‘green’ is worth ‘green’, but if it is cheaper to essentially lie about it then companies will do that. Companies will always for the least they possibly can and still make money. That is not the spirit that I want governing the commons.

CAFE. Cafe worked great when it was actually raising the requirements. Up till about 88 or 90. After that the required Fuel Economy essentially flat-lined (thanks to lobbying from Detriot) and its effectiveness plunged. Also the fact that trucks and SUVs were essentially exempt from the parts of the regulations that had teeth made them essentially worthless in the last decade. I never said that the government should tell car-companies what sort of cars to require. I think they should say something like, “we’ll forgive the entire America tax liability of the company that sells the most vehicles getting more than 40mpg.” Obviously not quite that simplistic, but something along those lines. Don’t tell them HOW to do it, but provide the incentive for them to do it.

Consumers have all sorts of reasons for buying cars. What is the definition of the ‘best car?’ For many it might a flashy status symbol or a fuck-off sized SUV. For others it might be cost or safety. Fuel-efficiency and the prevention of climate change facts into some peoples decisions, but it is not the core deciding factor for many people. My point is if the government makes it the concern of car companies, then it stops being a concern for individuals. If your choice is between a 40MGP SUV and a 55MGP sedan, rather than a 12MGP SUV and a 25MGP sedan, it isn’t an issue any more.

Here is the problem with the market-only approach. If people were truly rationale, as in traditional models of markets, then they could factor in the long-term effects of buying a fuel-efficient car from now until the end of their life and also into their descendants lives, assuming they assign monetary value to their children’s survival. But no one thinks like that and even if they did, those calculations are impossible to make. So the market is massively imperfect and will often significantly deviate from its predicted results. Most importantly, any market transaction which involves humans will bias the short-term to the detriment of the long-term.

To address your complaint about the cost of cars. Prius’s are a bit expensive. But a majority of the fuel efficient cars sold in this country aren’t hybrids or anything fancy. They are the smaller, lighter economy and compact cars, which are the cheapest cars on the market. No one makes a big deal out of them because they aren’t sexy, but there is no correlation between higher MPG and higher car costs, unless you’re aiming for a status symbol Prius. And the goal is not to punish people for buying what the market provides. But if you’re choosing to buy a 8mpg Hummer or Ferrari, then you should pay for the external costs that that purchase imposes on everyone else.

Len,

If you haven’t already, it is worth checking out “Origins of Wealth” by Eric D. Beinhocker. It is a great survey of current research into building better models. Models that learn from the behavioral and game sciences, and also from biological systems. I highly recommend it.

Milena,

Sorry about the delay. My weekend was eaten building render racks.

I’m not a fan of regressive taxes like the flat tax. You probably already figured that out. I’m being gradually won over to the idea of a global consumption tax. Basically, the more you spend, the more you pay in taxes, with the first x,000 a year being exempt (a floating target, designed to prevent people on the low end of the income scale from being hurt). Plus an income tax on people earning over half-a-million or so.

I like the fact that it rewards the virtuous (people who actually save and invest) while discouraging excess consumption. However, it would be quite difficult to collect. It would require all transactions to be wired into a nationwide network (which essentially they are already with credit cards) that would be used to determine how much people had spent. You’d have to be really careful to preserve privacy and the like.

But given that something like that doesn’t appear to be in the offering, I have no real quarrels with a graduated income tax. And I have no problems raising the tax rates on the higher brackets rather significantly. But I do think we should do away with stuff like the AMT and a lot of the other complexity. And the marriage penalty, which hasn’t made sense in decades.

In regards to the concept of ‘regulation’, you say that you are in favor of things that guarantee equal rights but nothing that favors one group over another. So I am curious how you feel about things like education. Education is a major determiner in how successful people are in their lives, both in quality of jobs that are attainable, but also in prestige and networking. Obviously going to better secondary schools makes it much easier to get into a good college, which can have profound impacts on earning. But which secondary schools you can go to is in many ways determined before you’re born by your parents income level. While there are occasionally people who can rise from the bottom to the top, it doesn’t happen often (and is happening a lot less in the US these days). To me, that isn’t fair. I’m more than happy supporting increased taxes on the wealthy to provide comprehensive education for everyone. That is more fair than taxing everyone the same.

On leveraging. That is missing the point. The big-5 were capitalized, even without a deposit base. But they were leveraged at 50:1. If BoA or JPM had been leveraged at 50:1, the deposit base would not have saved them. It was not the actually dollar amounts of capitalization that brought down the big-5, but the ratio. And there are lots of I-Banks left: http://en.wikipedia.org/wiki/List_of_investment_banks

Lets talk about Whole Foods. I live 4 blocks from one and shop there. Whole Foods isn’t about saving the environment. They’re about selling a lifestyle in an attempt to make a profit. They are a publicly traded company: their first responsibility is earning that profit. The fact that they are selling a lifestyle that appeals to a certain group of the upper-crust enables them to be more environmentally responsible. And to a certain extent, they need to spend more on good causes than other grocery stores because some part of their customer base will vanish if people don’t think they are pure enough. But if you think that Whole Foods is doing more than the minimum amount of extra stuff to keep their revenues up, you’re just deluding themselves. They are a public company, they want to make money. Being ‘green’ is a great way for them to keep revenues up, but they are only just green enough to keep ahead of other stores. I do not ascribe any sorts of moral values to them and neither should you. Corporations are not moral entities. There is balance between profits and doing good. And corporations always fall on the profits side. In fact, corporations are legally required to fall on that side or they are liable to shareholder lawsuits.

The effects of supply and demand have also led to lots of green-washing from companies. Companies which package goods which are not environmentally friendly in ways that make consumers think they are environmentally friendly. Having consumers think you’re ‘green’ is worth ‘green’, but if it is cheaper to essentially lie about it then companies will do that. Companies will always for the least they possibly can and still make money. That is not the spirit that I want governing the commons.

CAFE. Cafe worked great when it was actually raising the requirements. Up till about 88 or 90. After that the required Fuel Economy essentially flat-lined (thanks to lobbying from Detriot) and its effectiveness plunged. Also the fact that trucks and SUVs were essentially exempt from the parts of the regulations that had teeth made them essentially worthless in the last decade. I never said that the government should tell car-companies what sort of cars to require. I think they should say something like, “we’ll forgive the entire America tax liability of the company that sells the most vehicles getting more than 40mpg.” Obviously not quite that simplistic, but something along those lines. Don’t tell them HOW to do it, but provide the incentive for them to do it.

Consumers have all sorts of reasons for buying cars. What is the definition of the ‘best car?’ For many it might a flashy status symbol or a fuck-off sized SUV. For others it might be cost or safety. Fuel-efficiency and the prevention of climate change facts into some peoples decisions, but it is not the core deciding factor for many people. My point is if the government makes it the concern of car companies, then it stops being a concern for individuals. If your choice is between a 40MGP SUV and a 55MGP sedan, rather than a 12MGP SUV and a 25MGP sedan, it isn’t an issue any more.

Here is the problem with the market-only approach. If people were truly rationale, as in traditional models of markets, then they could factor in the long-term effects of buying a fuel-efficient car from now until the end of their life and also into their descendants lives, assuming they assign monetary value to their children’s survival. But no one thinks like that and even if they did, those calculations are impossible to make. So the market is massively imperfect and will often significantly deviate from its predicted results. Most importantly, any market transaction which involves humans will bias the short-term to the detriment of the long-term.

To address your complaint about the cost of cars. Prius’s are a bit expensive. But a majority of the fuel efficient cars sold in this country aren’t hybrids or anything fancy. They are the smaller, lighter economy and compact cars, which are the cheapest cars on the market. No one makes a big deal out of them because they aren’t sexy, but there is no correlation between higher MPG and higher car costs, unless you’re aiming for a status symbol Prius. And the goal is not to punish people for buying what the market provides. But if you’re choosing to buy a 8mpg Hummer or Ferrari, then you should pay for the external costs that that purchase imposes on everyone else.