Heavy Lifting - thoughts and web finds by an economist
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Wednesday, October 01, 2008
The House version of the buy-out was 110 pages long. The Senate version is now 451 pages long. Will the compromise bill be more than 1000 pages long?
I am of mixed opinions about the buy-out, mainly because I don't think we have enough information as private citizens to know whether a) the buy-out is actually necessary or b) who the bailout is intended to benefit. The politicians are quick to blame "corporate greed," whatever that means, and in the process fail to talk about what is really happening and what might happen if a) there is a bailout or b) there is not a bailout.
Administration officials might have gone the route of "give us $700B and don't worry about it" knowing that that was the only way to get Congress out of their pre-election shutdown. However, if the public is pushing against the bailout for the wrong reasons, then it would behove the government to get out in front of a televisoin camera somewhere and tell us what the real scoop is.
For instance, last week there was a short freeze in the Commercial Paper market, which even I as a trained professional economist is not fully aware of or understand. How about the Credit Default Swaps market? How many employees of Walmart are aware of that market? Both markets are huge: the CDS market might be as large as $50 trillion and the commercial paper market is around $1.7 trillion in a healthy market.
Both of these could present considerable problems in the near future, or they could present no problem today or in the future. How are we to know? How do the politicians know? The politicians might not have any more clue about the probability of a market failure in these or any other markets, which suggests that any policy created out of this situation is likely to be misguided even if well intentioned.
With an uninformed public being preached/harrangued by an slightly less-uninformed political class, it is unlikely that sufficient information has been provided and therefore any policy is likely to be bad.
Another disturbing aspect of the buy-out statute is how eerily similar it is to the policies passed in Atlas Shrugged. In the book, as in real life today, politicians continually create more bad policies in response to the failures of previously passed bad policies. Sound familiar?
The long painful process of destroying the system (about 1000 pages in AS) describes incredibly stupid beuracratic decisions that literally kill people, looters who use the government to obtain assets from their superior competitors for pennies on the dollar, people who use pull and blackmail to obtain goods and services ahead of their not-inferior neighbors, a general malaise amongst the "little people" who don't understand why things are breaking down all around them, even as they try to do right by themselves and their family.
Here in the Southeast we have had a general fuel shortage for about two weeks now. People are testy, they don't understand why there isn't any gas (and why should they, really? The division of labor allows me/us to not have to worry about it) and while most people are fairly cool there are fights and a bit of frayed nerves and tempers. Meanwhile, we can see that lawmakers get "sweetheart" mortgages from the very companies they are supposed to be regulating/overseeing, that friends of certain politicians can have golden parachutes but not the friends of other politicians, that certain politicians can steal, lie, and cheat, but that other politicians cannot. Certain classes of individuals are afforded certain rights and priveleges that the rest of us do not enjoy. Many of these individuals are publicly lambasted while privately envied.
There is a solution to all of this, but it calls for less regulation and government intervention where intervention is not warranted. It is not always clear when government intervention is warranted or not, which is the situation we are in today. Nevertheless, there is always an appeal by by some people for "someone to do something." Usually, the "something" that is done leads to more problems, but I don't think the politicians really care. In the end, they will blame the other party and pass another law. How long that can persist is one of the themes of AS (as I read the book) and is ultimately an empirical question. My guess is not for another three or four decades.
I wonder if the politicians even believe what they are doing is worthwhile or are they just playing games in order to convince us that they have staved off disasterand therefore we must re-elect them and Barak Obama or John McCain? Consider the language used in the bill. Here's the first section of the buy-out bill:
The purposes of this Act are—
Who in their right mind, after thinking about these four points for about three seconds, thinks that a) it is possible for any Treasury Secretary to accomplish the goals and b) it is desirable for any Treasury Secretary to accomplish the goals? To promote jobs, the TS could rekindle the Citizen's Conservation Corps or the Works Progress Administration. What is the TS going to do to protect my child's college fund? I hope he doesn't try to protect it by taking it from me and promising to give it back in 18 years.
Moreover, the Treasury secretary is supposed to "maximize overall returns"? How exactly? If the private sector, which definitely has the profit motive (which the left and some on the right have been constantly complaining about in the form of "corporate greed"), cannot maximize overall returns, how exactly is the government going to do it better? Perhaps if the government holds the troubled assets it purchases for 30 years or so it might realize significant gains in the future, but then this would seem to violate the intended short-term arrangement this buy-out is supposed to represent.
In the end, something will pass. I don't see why the government needs to give so much power to the Treasury Secretary with seemingly uncontested powers. The (regulated) market will sort things out over time and with a considerable amount of pain, yet the pain would seem to be primarily focused on those who made poor decisions. On the other hand, if there is going to be a general siezure of the credit market such that individuals cannot get paid, banks literally have no cash to dispense to consumers, after which things would get very tense, very quickly, perhaps a smaller bailout is warranted.
As a side note, I now see why these bills can be more than a thousand pages long. In the section on tax changes, page 428, line 23 is comprised of two words:
"165(h)(3)(C)(ii)), and". With efficient typesetting like that, it's no wonder the bills are so many pages.
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