Appeared on Fridays 20/20, a must watch series, reproduced below:[youtube:http://www.youtube.com/watch?v=Phs6CwnutoY] [youtube:http://www.youtube.com/watch?v=e11-_cE63Us] [youtube:http://www.youtube.com/watch?v=vuL8teeuJD8] [youtube:http://www.youtube.com/watch?v=8Pu6cT6ICQQ] [youtube:http://www.youtube.com/watch?v=rTI9r4pUYh4] [youtube:http://www.youtube.com/watch?v=hWVLr8Y18e0]
Archive for the 'Capitalism' Category
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Larry Summers, one of my favorite economists, explains why:
What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were “private companies.” But market discipline was nearly nonexistent given the general perception — now validated — that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe.
I wonder how general the lesson here might be. My fear is fairly general. Inherent in the multiple objectives urged for creative capitalists is a loss of accountability with respect to performance. The sense that the mission is virtuous is always a great club for beating down skeptics. When institutions have special responsibilities it is necessary that they be supported in competition to the detriment of market efficiency.
It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too. (emphasis mine)
In other words, the incentives were never aligned. It’s profit motive conflicted with its altruistic motive and the altruistic motive usually won. Given the fact that the losses were always going to be absorbed by the government, that negative feedback loop that is so essential in the private industry was removed – making the GSE’s a disaster waiting to happen. So we have to align the incentives – make them either a fully private enterprise, capable of going bankrupt, or make them a fully government enterprise with the government taking the losses. Since they are already in serious debt, so serious that we can’t let them go bankrupt, the only option left is nationalizing them.
The full post, which really should be read in full, can be found here.
Cato Institutes David Boaz criticizes the collectivist remarks of our presidential candidates:
On Sunday Barack Obama urged graduates of Connecticut’s Wesleyan University to devote themselves to “collective service.” This is not an unusual theme for a commencement address. But it was interesting how long he went on discussing various kinds of nonprofit activism without ever mentioning the virtues of commerce or of individual achievement.
He also did not cite the military as an example of service to one’s country. This is a surprising omission in a Memorial Day weekend speech to college-age students by a man seeking to be entrusted with the defense of the U.S.
Sen. Obama told the students that “our individual salvation depends on collective salvation.” He disparaged students who want to “take your diploma, walk off this stage, and chase only after the big house and the nice suits and all the other things that our money culture says you should buy.”
The people Mr. Obama is sneering at are the ones who built America – the traders and entrepreneurs and manufacturers who gave us railroads and airplanes, housing and appliances, steam engines, electricity, telephones, computers and Starbucks. Ignored here is the work most Americans do, the work that gives us food, clothing, shelter and increasing comfort. It’s an attitude you would expect from a Democrat.
Or this year’s Republican nominee. John McCain also denounces “self-indulgence” and insists that Americans serve “a national purpose that is greater than our individual interests.” During a Republican debate at the Reagan Library on May 3, 2007, Sen. McCain derided Mitt Romney’s leadership ability, saying, “I led . . . out of patriotism, not for profit.” Challenged on his statement, Mr. McCain elaborated that Mr. Romney “managed companies, and he bought, and he sold, and sometimes people lost their jobs. That’s the nature of that business.” He could have been channeling Barack Obama.
“A greater cause,” “community service” – to many of us, these gauzy phrases sound warm and comforting. But their purpose is to disparage and denigrate our own lives, to belittle our own pursuit of happiness. They’re concepts better suited to a more collectivist country than to one founded in libertarian revolution – a revolution intended to defend our rights to “life, liberty and the pursuit of happiness.”
One gets the sense that Mr. McCain would like to see us all in the armed forces. In a Washington Monthly essay published in October 2001, his vision of national service sounded militaristic. He wrote with enthusiasm for programs whose participants “not only wear uniforms and work in teams . . . but actually live together in barracks on former military bases, and are deployed to service projects far from their home base,” and who would “gather together for daily calisthenics, often in highly public places such as in front of city hall.”
Mr. Obama wouldn’t send us into the military. All he wants is our souls. As his wife Michelle said at UCLA on February 3, two days before the California primary, “Barack Obama will require you to work. He is going to demand that you shed your cynicism. . . . That you push yourselves to be better. And that you engage. Barack will never allow you to go back to your lives as usual, uninvolved, uninformed.”
There is a whiff of hypocrisy here. Mr. Obama, who made $4.2 million last year and lives in a $1.65 million house bought with the help of the indicted Tony Rezko – and whose “elegant suits” and “impeccable ties” made him one of Esquire’s Best-Dressed Men in the World – disdains college students who might want to “chase after the big house and the nice suits.” Mr. McCain, who with his wife earned more than $6 million last year and who owns at least seven homes, ridicules Mr. Romney for having built businesses.
But hypocrisy is not the biggest issue. The real issue is that Messrs. Obama and McCain are telling us Americans that our normal lives are not good enough, that pursuing our own happiness is “self-indulgence,” that building a business is “chasing after our money culture,” that working to provide a better life for our families is a “narrow concern.”
They’re wrong. Every human life counts. Your life counts. You have a right to live it as you choose, to follow your bliss. You have a right to seek satisfaction in accomplishment. And if you chase after the almighty dollar, you just might find that you are led, as if by an invisible hand, to do things that improve the lives of others.
The full article can be found here.
Do you want to know what a Libertarian really believes in? Listen to the father of modern day Libertarianism, Milton Friedman define it without all the distortions and misrepresentations from those who claim to know what libertarianism is.[youtube:http://www.youtube.com/watch?v=0PaN9M4WwHw]
From an old speech but just as relevant today as it was then.
“Europe continues, slowly and reluctantly, to deregulate its economies. In this it is following the US example. The American economy has some problems at the moment, but the EU’s governments are ever mindful of, and oppressed by, the long-term success of the American model. What is interesting is that the United States has been moving the other way. If the Democrats control both the White House and Congress next year, which seems very likely, America’s hitherto-gentle drift in Europe’s general direction will accelerate. One day, might the lines actually cross?” —Clive Crook, blogging in The Atlantic
“Krugman and Bartels think the problem is the influence rich people have on public opinion and the policy process….They also keep banging straight into the problem that if government is empowered to heavily affect people’s fortunes, then people with the biggest fortunes will have the most at stake when it comes to influencing government. The idea that the government should do much much less is completely unacceptable, so they are left chasing their tail — trying to get money out of politics without simply increasing the incentive for money to get into politics — with mounting indignation.” — Will Wilkinson
Harvard economist Andrei Shleifer has a new paper on The Age Of Milton Friedman that begins with:
The last quarter century has witnessed remarkable progress of mankind. The world’s per capita inflation-adjusted income rose from $5400 in 1980 to $8500 in 2005.Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just asfast. Compared to 1980, many more countries in the world are democratic today.
The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes. Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States, and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman.
“The number of poor people who can’t afford food for their children is a lot smaller than it used to be — thanks to capitalism. Capitalism didn’t create malnutrition, it reduced it. The globalization of capitalism from 1950 to the present has increased annual average income in the world to $7,000 from $2,000. Contrary to popular legend, poor countries grew at about the same rate as the rich ones. This growth gave us the greatest mass exit from poverty in world history. The parts of the world that are still poor are suffering from too little capitalism.” — Bill Easterly, professor of economics at New York University
“I am impressed that the strong majority of the world’s richest individuals (about 30 out of the 39 richest Americans) made their money rather than inherited it. The wealthiest individuals are mainly self-made because inherited wealth gets dissipated over a couple of generations through bad investments, or is given to various charities, or gets broken up and divided among many grandchildren, cousins, and divorced members. For this reason, no descendants of John Rockefeller, Andrew Carnegie, or other titans of the beginning of the century are among the very wealthiest”. — Gary Becker, Nobel Laureate in economics on The Proliferation of Billionaires
“The idea that an American could, under any circumstance of naturalization, become a governor of an Indian province, or be elected to high office in Austria seems remote. Yet we take the inverse for granted here. On Sunday night I spoke to a Jewish group in Fresno in support of Israel; on Wednesday I debated at a local mosque. The two venues were not more than 5 miles distant in the same city. Both were peaceful, both conducted to an accepted American sense of lecture, questions and answers. For all the talk of lack of diversity and rampant exploitation and prejudice, this is about the only country in the world in which a myriad of races, religions, and tribes get up each morning, work side by side, and are more likely to marry than kill each other.” — Victor Davis Hanson
“However, if poverty is defined in the relative sense, the lowest fifth of income-earners, “poverty” will always be with us. No matter how poverty is defined, if I were an unborn spirit, condemned to a life of poverty, but God allowed me to choose which nation I wanted to be poor in, I’d choose the United States. Our poor must be the envy of the world’s poor”. — Walter Williams, professor of economics at George Mason University, commenting on the dramatic increase in standard of living the ‘poor’ in the United States have experienced, especially compared to the rest of the world
Explained by my favorite economic blogger, Megan McArdle blogging at The Atlantic:
One thing that strikes me about the arguments I’ve been having with voucher opponents is just how little they seem to understand how markets work. Markets don’t work because they get it right the first time; they succeed because if at first they don’t succeed, they try, try again.
A public school, by and large, cannot fail. If it screws up, no matter how badly, we will continue pouring money into it. This is particularly true because most of the employees of most systems can’t fail either. They can be atrocious at their jobs, but provided that they are not actually molesting the students, it’s nearly impossible to get rid of them.
Failure, to put it bluntly, works. Failure is nature’s way of telling you “Hey, that doesn’t work!” The American economy is vastly strengthened by the fact that companies are allowed to fail–and also by the fact that our crazy culture encourages us to try things that don’t work.
In the first few iterations, this often looks inferior to a centralized system. Look, the critics say, they sat down and planned it all! Compare that to our messy, fragmented market where half the stuff doesn’t work!
It can take a decade or more before the cracks in the planning appear. The planners, it turns out, didn’t foresee that the world would change, and now the giant, planned system can’t cope.
But the way public schools are set up, they can’t really fail–and so they don’t succeed at the hardest task we’ve given them. The schools are not set up to learn; they’re set up to follow the rules, and to serve their customer base, who are not in the case of poor schools the parents, but the various people who work for the system…
The full post, which I recommend be read in full, can be found here.
Forbes recently released its list of the 400 richest people. John Tamney writing in Real Clear Politics gives us the lessons from the findings:
Of the charter members of the first Forbes 400 in 1982, only 32 remain today. Far from a country where only the rich get richer, the wealthy in the US are very much a moving target. While there are 74 Forbes 400 members who inherited their entire fortune, 270 members are entirely self-made. Though many attended Harvard, Yale and Princeton, there are countless stories within of high school and college dropouts, not to mention others who grew up extremely poor. Politicians who regularly engage in class warfare would do well to keep the Forbes 400 out of the hands of their constituents, because it makes a mockery of the kind “Two Americas” rhetoric suggesting the existence of a glass ceiling that keeps hard workers at the bottom of the economic ladder. To read the Forbes 400 is to know with surety that the U.S. is still very much the land of opportunity.
To read many business journalists today, one might assume that the U.S. economy is stratified, offers little room for advancement, and that those at the top are impervious to market forces while enjoying market power that enables them to fleece the less fortunate. Thanks to the lessons offered up yearly in the Forbes 400, we know the opposite is true. Successful people are that way because they make our lives exponentially better, while yearly dropouts from the Forbes list frequently offer evidence showing that consumers punish those who falter. For that, we should be glad that the Forbes 400 goes against the conventional grain and celebrates successful American enterprise.
Contrast this dynamic economy to the stagnant economy of Europe.
One that is sure to work and not to difficult to follow, given by an old Catallarchy post I am now catching up on:
As inspiring as Howard Gardner’s, Oprah Winfrey’s, and Michael Jordan’s stories are, I don’t think that they’re necessarily good role models. The high-risk strategies for success they adopted paid off for them, but the kind of success they’ve achieved requires extraordinary talent and more than a bit of luck. For every person who succeeds with these strategies, there are dozens, probably hundreds, who fail, often miserably. But we don’t see these people. We just see the tiny minority who succeed, and that hides the shortcomings of these strategies.
Most people, particularly those who have very little in the way of a family safety net to rely on, would be much better served by a more conservative strategy. If you’re fortunate enough to be born in the US today, it’s not hard to make it into the middle class. If you can make it to the age of 25 without having children, getting arrested, or developing drug or alcohol problems, and having graduated from high school and community college or trade school, you’re set. It doesn’t matter who your parents are or how much money they have. It doesn’t matter what color your skin is. If you can do these things, and then show up on time to work every day thereafter, you’ll do all right. If you live below your means and save up some money, you might even become moderately wealthy someday.
This strategy probably won’t make you spectacularly rich, but there’s no surefire way to get spectacularly rich. I’m glad that there are people who take big risks and succeed, but it’s not a strategy I’d recommend to a young person of average ability, and it’s arguably not an optimal strategy even for the gifted. The disproportionate emphasis on superstars keeps kids in the ghetto from seeing the role models they really need to see—the ones who achieve moderate success through a conservative, low-risk strategy.
The full post can be found here.