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I'd like to put this in a slightly broader context. Meltdowns such as the credit crunch and the housing crisis are often used by self-styled 'progressives' to

by mhartl 18y ago

I'd like to put this in a slightly broader context. Meltdowns such as the credit crunch and the housing crisis are often used by self-styled 'progressives' to attack capitalism itself. But implicit in Mark's argument is the refutation of this accusation: such meltdowns are only possible because of the moral hazard induced by de facto government (i.e., forced taxpayer) bailouts of the guilty parties. In other words, it's precisely the lack of proper capitalist institutions that enables crises of this type.

nostrademons 18y ago
History doesn't really bear out the "meltdowns are caused by moral hazard" theory, though. They happened like clockwork, every 20 years, during 19th century America, a period where there was no safety net and no significant government intervention in the economy. I'd attribute bubbles and meltdowns to flaws in humanity itself. They happen because people have to make investment decisions in the absence of perfect information, using thought processes that have evolved to take into account peers' opinions as much as hard factual data. Inevitably, some of those decisions will be wrong, and that wrongness appears as a large number of firms going bust at once. The way to avoid financial meltdowns is to make every human a God. However, if we did that, they could just snap their fingers and get what they want, so their wouldn't be much need for an economy at all.
- bokonist 18y ago
  Read some DeSoto and Rothbard ( Money, Credit and Economy - http://mises.org/resources/2745 http://mises.org/resources/2745, America's Great Depression http://mises.org/rothbard/agd.pdf http://mises.org/rothbard/agd.pdf and History of Money and Banking -http://mises.org/books/historyofmoney.pdf http://mises.org/books/historyofmoney.pdf ). They both make a pretty compelling case that government played a major role in the 19th century busts. Pretty much every single bust since 1870 has been the explosion of a credit bubble. Cheap credit is the heroin of democracies. In the short term, it's like free money. It's cheaper to buy stuff, and it doesn't result in higher taxes. Politicians are always for it. The cheap money will endear them with the population in the next election, and they won't be around for the bust ( or no one will remember who's at fault). In the long run, cheap credit leads to too much debt and people can borrow no more. This leads to two choices. Choice one, the borrowing must stop, and with it consumption. This sends the economy into recession or depression ( this is heroin withdrawal, the Volcker strategy in the 1980's). Or two, the government must make credit even cheaper ( higher doses of heroin - the Alan Greenspan strategy in 2001).
  - quasimojo 18y ago
    Cheap credit is the heroin of democracies amen, it will be only too late that people realize that those who print the currency run the show, and thats the Fed...who by the way are not accountable to voters in any meaningful way
    - bokonist 18y ago
      Actually the problem might be that the Fed is too accountable to the voters. Remember, Volcker was fired by Reagan. And Greenspan is a goldbug at heart who had a lot of political pressure to keep the heroin flowing. Voters do not understand economics, but they do like cheap credit. Democracy breeds short term thinking. Read some Herman Hoppe - http://www.lewrockwell.com/hoppe/hoppe4.html http://www.lewrockwell.com/hoppe/hoppe4.html
  - mhartl 18y ago
    I agree, and I should have mentioned that easy credit is an even bigger problem than government bailouts.
- michaelneale 18y ago
  >The way to avoid financial meltdowns is to make every human a God. I am a fan of Iain M Banks - in his "Culture" series novels, thats pretty much what happens to the dominant "Culture" - people can get whatever they want when they want, so they turn to art and fashion and fads to occupy themselves (one such one was voluntarily catching cold/flu just to feel what it is like to get better).

by mhartl 18y ago

nostrademons 18y ago

History doesn't really bear out the "meltdowns are caused by moral hazard" theory, though. They happened like clockwork, every 20 years, during 19th century America, a period where there was no safety net and no significant government intervention in the economy. I'd attribute bubbles and meltdowns to flaws in humanity itself. They happen because people have to make investment decisions in the absence of perfect information, using thought processes that have evolved to take into account peers' opinions as much as hard factual data. Inevitably, some of those decisions will be wrong, and that wrongness appears as a large number of firms going bust at once. The way to avoid financial meltdowns is to make every human a God. However, if we did that, they could just snap their fingers and get what they want, so their wouldn't be much need for an economy at all.

bokonist 18y ago
Read some DeSoto and Rothbard ( Money, Credit and Economy - http://mises.org/resources/2745 http://mises.org/resources/2745, America's Great Depression http://mises.org/rothbard/agd.pdf http://mises.org/rothbard/agd.pdf and History of Money and Banking -http://mises.org/books/historyofmoney.pdf http://mises.org/books/historyofmoney.pdf ). They both make a pretty compelling case that government played a major role in the 19th century busts. Pretty much every single bust since 1870 has been the explosion of a credit bubble. Cheap credit is the heroin of democracies. In the short term, it's like free money. It's cheaper to buy stuff, and it doesn't result in higher taxes. Politicians are always for it. The cheap money will endear them with the population in the next election, and they won't be around for the bust ( or no one will remember who's at fault). In the long run, cheap credit leads to too much debt and people can borrow no more. This leads to two choices. Choice one, the borrowing must stop, and with it consumption. This sends the economy into recession or depression ( this is heroin withdrawal, the Volcker strategy in the 1980's). Or two, the government must make credit even cheaper ( higher doses of heroin - the Alan Greenspan strategy in 2001).
- quasimojo 18y ago
  Cheap credit is the heroin of democracies amen, it will be only too late that people realize that those who print the currency run the show, and thats the Fed...who by the way are not accountable to voters in any meaningful way
  - bokonist 18y ago
    Actually the problem might be that the Fed is too accountable to the voters. Remember, Volcker was fired by Reagan. And Greenspan is a goldbug at heart who had a lot of political pressure to keep the heroin flowing. Voters do not understand economics, but they do like cheap credit. Democracy breeds short term thinking. Read some Herman Hoppe - http://www.lewrockwell.com/hoppe/hoppe4.html http://www.lewrockwell.com/hoppe/hoppe4.html
- mhartl 18y ago
  I agree, and I should have mentioned that easy credit is an even bigger problem than government bailouts.
michaelneale 18y ago
>The way to avoid financial meltdowns is to make every human a God. I am a fan of Iain M Banks - in his "Culture" series novels, thats pretty much what happens to the dominant "Culture" - people can get whatever they want when they want, so they turn to art and fashion and fads to occupy themselves (one such one was voluntarily catching cold/flu just to feel what it is like to get better).