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I think it's just as likely that the markets will simply stop performing any sort of useful price discovery function, leading to huge misallocations of producti

I think it's just as likely that the markets will simply stop performing any sort of useful price discovery function, leading to huge misallocations of productive resources -- resources we desperately need right now.

resters 7y ago
This is actually the goal, to prevent price discovery and to make it less likely that the political system would require firms to use adequately cautious levels of underwriting capital. The perverse incentive for firms is that the more accurately they structure their financials to be highly vulnerable to systemic risk, the more likely it will be that the decision to do so will be rewarded by policymakers. Simply put, capitalism isn't capitalism without firm failure and an very clear winners and losers when unexpected events occur. The US economy, which people think is capitalism, is nearly as nationalized and intertwined with government capital as China's economy. In my view, if we're not going to have capitalism, then we should have a system that is significantly more fair and generous to those in need. If average peoples' life savings are at risk, so too should be banker and executive bonuses (and even jobs). One can only imagine how much stronger the US economy would be today if the 2008 crisis had led to the smart decision makers being rewarded and the stupid ones being bankrupt. Instead, we had the opposite situation, where the stupid investors got bailed out and the smart ones had their well deserve gains slashed by government policy.
- andrekandre 7y ago
  i don’t disagree with your points at all, but just want to point out something i think a lot of people may not be thinking about in these scenarios: maybe govts are looking at their economies not just as systems of production but literally matters of national security, i.e if an economy looses its largest producers of certain products and industries, it looses a huge amount of economic leverage and hegemony... by bailing out companies temporarily they can be saved, and at least in theory recover faster without becoming vulnerable in the short term letting companies that are over leveraged or inefficient die may be more “capitalist” (and lead to stronger economy long term) but practically speaking it would most likely be unacceptable damage to a sovereign nation like the u.s just imagine the u.s without general motors or chrysler or ford for example... (just to note, i’m not qualified to opine on whether this is good policy, just stating my understanding)
  - resters 7y ago
    I'll admit that I think national security justifications used by politicians are often quite lacking in substance. From an economic perspective, we need to think about what our economy is "good at". Generally speaking, when there is demand for something, the economy successfully figures out how to supply it. With bailouts, there is very little demand for the expertise needed to package and re-sell parts of failed companies to the highest bidder. If Ford had been allowed to fail, perhaps Tesla could have purchased crucial IP or hired entire teams. The legacy of Henry Ford's entrepreneurship is not the Ford name, it's in the firm's unique business acumen and many years of experience creating excellence. If the larger business (effectively a holding company) called "Ford" fails, the sub-units still have significant value, and the world is better off if that value can be utilized by more capable managers in other firms. The bailout of Ford effectively punished Tesla, punished consumers, and even punished employees, since their lot is largely a function of the wisdom of those formulating the strategy, something that Ford did poorly enough that it deserved to fail.
    - andrekandre 7y ago
      > The bailout of Ford effectively punished Tesla that’s a good point, and well taken i guess the other side of it is, if it’s easy for people to find another job, and/or there is a sufficient safety net, then it’s also probably easier to “just let the companies die”... but i think our system is basically run by those with the money to direct resources in the other direction unfortunately....
gaogao 7y ago
That honestly happened a while back with the shift to longer periods of VC funding.
- edanm 7y ago
  Whether true or false, VCs make up a tiny, tiny fraction of the market, so their influence is minuscule when we're talking on such a global scale.
rtpg 7y ago
I mean it’s just digits in a database. Price discovery sounds useful until you realize that the important thing is to just make enough food and meds for everyone, and the rest are mostly details.
- edanm 7y ago
  That is asbolutely wrong. Price discovery is the thing that tells people to make food. It is the thing that tells people to make meds. It's also the thing that tells people to continue making and doing things that people need and aren't meds and food - like keep cleaning the streets, keep up basic sanitation, continue making the electricity run, etc.
  - perl4ever 7y ago
    I agree generally with what you say, but I think that the fed is not threatening price discovery but addressing a huge danger to it, which is an abnormal demand for credit. At all times there needs to be a certain amount of credit for people and business to function and in a crisis, demand suddenly spikes.

resters 7y ago

This is actually the goal, to prevent price discovery and to make it less likely that the political system would require firms to use adequately cautious levels of underwriting capital. The perverse incentive for firms is that the more accurately they structure their financials to be highly vulnerable to systemic risk, the more likely it will be that the decision to do so will be rewarded by policymakers. Simply put, capitalism isn't capitalism without firm failure and an very clear winners and losers when unexpected events occur. The US economy, which people think is capitalism, is nearly as nationalized and intertwined with government capital as China's economy. In my view, if we're not going to have capitalism, then we should have a system that is significantly more fair and generous to those in need. If average peoples' life savings are at risk, so too should be banker and executive bonuses (and even jobs). One can only imagine how much stronger the US economy would be today if the 2008 crisis had led to the smart decision makers being rewarded and the stupid ones being bankrupt. Instead, we had the opposite situation, where the stupid investors got bailed out and the smart ones had their well deserve gains slashed by government policy.

andrekandre 7y ago
i don’t disagree with your points at all, but just want to point out something i think a lot of people may not be thinking about in these scenarios: maybe govts are looking at their economies not just as systems of production but literally matters of national security, i.e if an economy looses its largest producers of certain products and industries, it looses a huge amount of economic leverage and hegemony... by bailing out companies temporarily they can be saved, and at least in theory recover faster without becoming vulnerable in the short term letting companies that are over leveraged or inefficient die may be more “capitalist” (and lead to stronger economy long term) but practically speaking it would most likely be unacceptable damage to a sovereign nation like the u.s just imagine the u.s without general motors or chrysler or ford for example... (just to note, i’m not qualified to opine on whether this is good policy, just stating my understanding)
- resters 7y ago
  I'll admit that I think national security justifications used by politicians are often quite lacking in substance. From an economic perspective, we need to think about what our economy is "good at". Generally speaking, when there is demand for something, the economy successfully figures out how to supply it. With bailouts, there is very little demand for the expertise needed to package and re-sell parts of failed companies to the highest bidder. If Ford had been allowed to fail, perhaps Tesla could have purchased crucial IP or hired entire teams. The legacy of Henry Ford's entrepreneurship is not the Ford name, it's in the firm's unique business acumen and many years of experience creating excellence. If the larger business (effectively a holding company) called "Ford" fails, the sub-units still have significant value, and the world is better off if that value can be utilized by more capable managers in other firms. The bailout of Ford effectively punished Tesla, punished consumers, and even punished employees, since their lot is largely a function of the wisdom of those formulating the strategy, something that Ford did poorly enough that it deserved to fail.
  - andrekandre 7y ago
    > The bailout of Ford effectively punished Tesla that’s a good point, and well taken i guess the other side of it is, if it’s easy for people to find another job, and/or there is a sufficient safety net, then it’s also probably easier to “just let the companies die”... but i think our system is basically run by those with the money to direct resources in the other direction unfortunately....

gaogao 7y ago

That honestly happened a while back with the shift to longer periods of VC funding.

edanm 7y ago
Whether true or false, VCs make up a tiny, tiny fraction of the market, so their influence is minuscule when we're talking on such a global scale.

rtpg 7y ago

I mean it’s just digits in a database. Price discovery sounds useful until you realize that the important thing is to just make enough food and meds for everyone, and the rest are mostly details.

edanm 7y ago
That is asbolutely wrong. Price discovery is the thing that tells people to make food. It is the thing that tells people to make meds. It's also the thing that tells people to continue making and doing things that people need and aren't meds and food - like keep cleaning the streets, keep up basic sanitation, continue making the electricity run, etc.
- perl4ever 7y ago
  I agree generally with what you say, but I think that the fed is not threatening price discovery but addressing a huge danger to it, which is an abnormal demand for credit. At all times there needs to be a certain amount of credit for people and business to function and in a crisis, demand suddenly spikes.