Sunday, September 28, 2008

I'm glad some people get it.

I just noticed this list of economists against the Paulson bailout posted at Greg Mankiw's blog, with an explanation.
As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.
    I was impressed with the big names on the list (3 Nobelists, Sam Peltzman), and the large number of Columbia professors on it. At the last meeting, we were discussing the distinction between being a libertarian and being free-market friendly. While most economists may be the latter and not the former, I still tend to think of them (there are exceptions of course) as people with genuine common sense who recognize the reality of unintended consequences.

    Discuss this and more at our meeting!

    Monday, September 29 @ 9:00 PM
    315 Hamilton

    Monday, September 22, 2008

    Well done, sir!

    Check out Masood's excellent piece in today's Columbia Spectator.
    When one bases his judgment to go to war on so many disparate criteria, chances are that one of them will fit the bill some time or another. The lack of a single consistent principle for opposing a war allows politicians to pick and choose their wars based on the reason du jour. The fundamental problem is that even though politicians often accuse one another of supporting unnecessary and ill-conceived wars, rarely do they articulate a firm moral and philosophical foundation for how and when to use military force against others in general.
    Want to meet the man himself? Come to tonight's meeting!

    Is anyone else tired of politicians?

    At EconLog, Bryan Caplan writes,
    Googling "bail-out rich" basically kicks back a bunch of libertarians. Where are the left-wing demagogues denouncing the bail-outs as "welfare for the rich"? Where are the right-wing demagogues denouncing the bail-outs as "foreign aid for the rich"?
    In an earlier post titled "Why Only Bush Could Bring Socialism to America," he seems to answer his own question.
    If a Democratic president were backing a $700B bail-out, I have to think that Republicans would be crying "Socialism!" But if a Republican president does the same, the bail-out's natural enemies keep silent out of loyalty or ingroup bias. It's a lot like the contemporary Republican reaction to Nixon's price controls - if our boy is doing it, how bad can it be?
    How can anyone stand to vote for these hypocrites?

    Gary Becker on the financial crisis

    Nobel Prize-winning economist Gary Becker blogs about the recent financial turmoil.
    Is this the final "Crisis of Global Capitalism"- to borrow the title of a book by George Soros written shortly after the Asian financial crisis of 1997-98? The crisis that kills capitalism has been said to happen during every major recession and financial crisis ever since Karl Marx prophesized the collapse of capitalism in the middle of the 19th century. Although I admit to having greatly underestimated the severity of this financial crisis, I am confident that sizable world economic growth will resume under a mainly capitalist world economy. Consider, for example, that in the decade after Soros' and others predictions of the collapse of global capitalism following the Asian crisis in the 1990s, both world GDP and world trade experienced unprecedented growth. The South Korean economy, for example, was pummeled during that crisis, but has had significant economic growth ever since. I expect robust world economic growth to resume once we are over the current severe financial difficulties.
    Finally, the magnitude of this crisis must be placed in perspective. Although it is the most severe financial crisis since the Great Depression of the 1930s, it is a far far smaller crisis, especially in terms of the effects on output and employment. The United States had about 25 percent unemployment during most of the decade from 1931 until 1941, and sharp falls in GDP. Other countries experienced economic difficulties of a similar magnitude. American GDP so far during this crisis has essentially not yet fallen, and unemployment has reached only about 61/2 percent. Both figures are likely to get considerably worse, but they will nowhere approach those of the 1930s.
    I stop agreeing with him when he says this:
    Was the extent of the Treasury's and Fed's involvement in financial markets during the past several weeks justified? Certainly there was a widespread belief during this week among both government officials and participants in financial markets that short-term capital markets completely broke down. Not only Lehman, but also Goldman Sachs, Stanley Morgan, and other banks were also in serious trouble. Despite my deep concerns about having so much greater government control over financial transactions, I have reluctantly concluded that substantial intervention was justified to avoid a major short-term collapse of the financial system that could push the world economy into a major depression.
    Still, the brilliant economist he is, Becker recognizes the potential trouble posed by government intervention.

    Still, we have to consider potential risks of these governmental actions. Taxpayers may be stuck with hundreds of billions, and perhaps more than a trillion, dollars of losses from the various insurance and other government commitments.


    Future moral hazards created by these actions are certainly worrisome. On the one hand, the equity of stockholders and of management in Fannie and Freddie, Bears Stern, AIG, and Lehman Brothers have been almost completely wiped out, so they were not spared major losses. On the other hand, that makes it difficult to raise additional equity for companies in trouble because suppliers of equity would expect their capital to be wiped out in any future forced governmental assistance program. Furthermore, that bondholders in Bears Stern and these other companies were almost completely protected implies that future financing will be biased toward bonds and away from equities since bondholders will expect protections against governmental responses to future adversities that are not available to equity participants. Although the government was apparently concerned that foreign central banks were major holders of the bonds of the Freddies, I believe it was unwise to give them and other bondholders such full protection.

    Various other mistakes were made in government actions in financial markets during the past several weeks. Banning short sales during this week is an example of a perennial approach to difficulties in financial markets and elsewhere; namely, "shoot the messenger". Short sales did not cause the crisis, but reflect beliefs about how long the slide will continue. Trying to prevent these beliefs from being expressed suppresses useful information, and also creates serious problems for many hedge funds that use short sales to hedge other risks. Their ban can also cause greater panic in other markets.

    Potential political risks of these actions are also looming. The two Freddies should before long be either closed down, or made completely private with no governmental insurance protection of their lending activities. Their heavy involvement in the mortgage backed securities markets were one cause of the excessive financing of home mortgages. I fear, however, that Congress will eventually recreate these companies in more or less their old form, with a mission to continue to artificially expand the market for mortgages.

    New regulations of financial transactions are a certainty, but whether overall they will help rather than hinder the functioning of capital markets is far from clear. For example, Professor Shimizu of Hitotsubashi University has recently shown that the Bank of International Settlement (BIS) regulation on the required minimum ratio of bank capital to their assets was completely misleading in predicting which Japanese banks got into trouble during that country's financial crisis of the 1990s. Other misguided regulations, such as permanent restrictions on short sales, or discouragement of securitization of assets, will both reduce the efficiency of financial markets in the United States, and they will shift even larger amounts of financial transactions to London, Shanghai, Tokyo, Dubai, and other financial centers.

    Becker blogs once weekly along with judge Richard Posner. Their comments are almost always worth reading.

    "Let Our People Stay"

    Richard Cooper, former state chair of the NY Libertarian Party, writes on Columbia's use of eminent domain:

    Eminent domain is a legalized assault on tenants, taxpayers and property-owners Moses said to Pharaoh, "Let my people go." The Libertarian Party says to our modern pharaohs, the politicians and bureaucrats, "Let our people stay." Bollinger cites our beloved Columbia’s educational mission and the infamous Kelo decision. Is it Columbia’s mission to teach that legalized theft is just and constitutional? Is it to teach that the end justifies the means?

    Mark Axinn, a Manhattan real estate attorney and Manhattan LP treasurer, contends "I am particularly appalled that Columbia University, which already has significant real estate and financial resources far in excess of others is desirous of relying on the thuggery of government to force other real estate owners to relinquish their property rather than simply purchasing any land it desires on the open market. Surely an institution with the power and wealth of Columbia could, if it desired, simply buy contiguous property. By seeking to usurp others' legitimate property rights by eminent domain, a University of which I should be proud lowers itself to the level of the street bully simply taking what it wants from those weaker individuals who might also be on the schoolyard."

    Discuss this and more at the meeting tonight!

    Sunday, September 21, 2008

    Meeting Monday @ 9:00 PM!

    Join us for our second meeting of the year tomorrow in 315 Hamilton at 9:00 PM. We will be elaborating on plans for the year and voting on a change to the club's constitution, followed by our regular discussion.

    Which will probably feature these RIDICULOUS bailouts! Masood recently showed me this article from the NY Times. Ugh.

    Anyway, I hope to see you all tomorrow!

    You're all a bunch of hypocrites!

    When I was in high school, I used to attend Junior State of America conventions (basically debate/model congress + speakers and political activists). I remember sitting in the audience during a particular debate about free trade, listing to a debater explain that international trade causes Americans to lose their jobs, and that "buying American" is every citizen's duty.

    During the Q&A part, I asked the speaker where her shoes were made. She took them off, read the label, sheepishly said "Mexico" (yes!), and quickly told the audience, "But I wish they were made in America!"

    I was reminded of the story by this video (admittedly infantile, but true) linked at Cafe Hayek. No one made the speaker buy foreign-made shoes. There are American shoes out there, but foreign ones are a lot cheaper. The entire shoe-wearing world is made better by free trade.

    This is the problem with entire industries demanding protective tariffs. I guarantee that if you approached a random unionized auto-worker at some protest decrying the evils of free trade, his clothes would be foreign-made. If you followed him home, his appliances would probably be foreign made. Even if his car were made by GM, the parts used to make it come from many different countries. People will shout stupid things at protests, but when it comes to living their lives, they have no choice but to acknowledge the vast benefits free trade has brought everyone.

    I believe good ol' Milt said it best in this video. (except for the sentence about commissars)

    Saturday, September 20, 2008

    I <3 Creative Destruction

    At Marginal Revolution:

    ...the total liabilities of Deutsche Bank (leverage ratio over 50!) amount to around 2,000 billion euro, (more than Fannie Mai) or over 80 % of the GDP of Germany. This is simply too much for the Bundesbank or even the German state to contemplate, given that the German budget is bound by the rules of the Stability pact and the German government cannot order (unlike the US Treasury) its central bank to issue more currency. The total liabilities of Barclays of around 1,300 billion pounds (leverage ratio over 60!) surpasses Britain’s GDP. Fortis bank, which has been in the news recently, has a leverage ratio of "only" 33, but its liabilities are several times larger than the GDP of its home country (Belgium).

    The Fed has possibly been bailing them out too (not necessarily by intention), as it is likely that some of these institutions had heavy exposure to the weaker U.S. institutions. Here is the link. Those failures should also put the U.S. regulatory failures in perspective. And what would happen if a big U.K. bank were on the verge of failing? Would the Fed have to step in there too? Contagion is contagion, as Aristotle once said...

    These leverage ratios are INSANE! People thought LTCM had extremely high leverage, and yet these guys are almost double that! Why should any citizen have to suffer (by paying taxes for bailouts) because of some rich guys' ridiculously reckless behavior?

    Please, Mr. Bernanke, let these companies (I'm referring to the American counterparts) die like they deserve to!

    Wednesday, September 17, 2008

    "Wall Street Socialism"

    I don't have any other name to call it but that.

    Since the credit crunch has been flushing the multitude of misallocated (misallocated is a word from Austrian jargon) resources, with the nasty side effects of a barrage economic woes & maladies, the government has rushed with its bag of idiocy to worsen everything.

    "...The increased emphasis on the faltering economy came on a day when stocks resumed their downward plunge following Tuesday night's government takeover of American International Group Inc. with an $85 billion two-year loan from the Federal Reserve in return for a majority stake in the company....The turnabout came a day after McCain strongly opposed additional government relief and praised the government's decision not to rescue Lehman Brothers after it had intervened to help investment bank Bear Stearns and mortgage giants Fannie Mae and Freddie Mac..." (Yahoo!)

    It's ridiculous to hear that American International Group Inc. is now owned by the Federal Reserve. Not to make it seem like I am in favor of the Fed, but that isn't even in its mandate from Congress! It just continues to grow, like an autonomous biomechanical organism from Planet X. Its ridiculous, its only prolonging the inevitable cataclysmic implosion. It will be of quite an unimaginable magnitude. We're already in a state of depression. It's just covered with a veil of borrowed assets and imagined piles of currency, feeble constructs of the human mind.

    Fannie Mae and Freddy Mac have been retaken under full government control, and the Fed has bailed out several other banks, namely, the former Bear Sterns. The Republicans, and the Democrats, now believe in socialism, for banks.

    Statists are pigs, and I like bacon in my angus burger.

    Monday, September 15, 2008

    "A New Hope"

    Here's a barrage of useful links that pertain to Liberalism (not socialism)/Libertarianism:




    I emphasize the first two.

    On other news, there's hope. Approximately 20 individuals, as diverse a bunch ranging from Columbia College to SIPA, showed up to tonight's Libertarian meeting, or as I like to call it, gathering of at-heart anarchists.

    Murray N. Rothbard would've been proud. Let's get this semester rolling.

    Speak for Yourself!

    Whenever I debate liberals about welfare policy, and argue that private, voluntary charity is a better alternative than government bureaucracy, I always get a response along the lines of, "But people don't give enough to charity! Poor people need the government."

    Correction: You don't give enough to charity. According to an article at via Greg Mankiw's Blog,
    conservatives who practice religion, live in traditional nuclear families and reject the notion that the government should engage in income redistribution are the most generous Americans, by any measure.

    Conversely, secular liberals who believe fervently in government entitlement programs give far less to charity. They want everyone's tax dollars to support charitable causes and are reluctant to write checks to those causes, even when governments don't provide them with enough money.
    liberals give less than conservatives in every way imaginable, including volunteer hours and donated blood.
    Real generosity does not equal what you want to do with other people's money. Voting for universal healthcare is not generous. Donating money to a hospital in a world without universal healthcare is.

    But for most affluent liberals/socialists, helping others does not seem to be the top priority. People love politics because they can stick a poster in their window, give up 5 minutes on election day, and feel like they did their part in helping to solve the world's problems. Then they can get back in their BMWs and continue complaining about how people don't do enough to help the poor.

    Sunday, September 14, 2008

    For the Record

    Recently, I've gotten negative responses about much of this blog's content. Many controversial topics have been discussed, and I feel that it is important to clarify the nature of the blog.

    First of all, the only issue the club takes an official stance on is the time and place of meetings. Everything else posted on this blog represents the views of the author, and no one else. Feel free to be offended, but not at the club as a whole. As libertarians, we tend to believe in free speech. The blog is a forum for all of our members to share their beliefs. If you are particularly offended by something said here, by all means respond! Attach a comment, or even write an entire post. If you are a member or an alum and want to post on the blog, send me an email and I'll make you a contributor as soon as I can.

    I personally believe that the slippery slope of censorship is best avoided, and that this blog should remain a free speech zone. Disagree? I await your response in the comments section.

    Or at the meeting! Which is Monday (9/15) at 9:00 PM in 315 Hamilton.

    Saturday, September 13, 2008

    What's in a name?

    Reading F. A. Hayek's essay "Why I Am Not a Conservative" here, I came across this passage:
    In the United States, where it has become almost impossible to use "liberal" in the sense in which I have used it, the term "libertarian" has been used instead. It may be the answer; but for my part I find it singularly unattractive. For my taste it carries too much the flavor of a manufactured term and of a substitute. What I should want is a word which describes the party of life, the party that favors free growth and spontaneous evolution. But I have racked my brain unsuccessfully to find a descriptive term which commends itself.
    It really is unfortunate that the word "liberal" has been taken over by the big-government types, when it was rightly used by so many freedom-lovers such as Toqueville, Bastiat, Hayek, and Friedman. did this happen?! defines "liberalism" as the following:
    a political or social philosophy advocating the freedom of the individual, parliamentary systems of government, nonviolent modification of political, social, or economic institutions to assure unrestricted development in all spheres of human endeavor, and governmental guarantees of individual rights and civil liberties.
    Freedom of the individual is what liberalism is! Not some weird blend of freedom in the "social" realm but government control of the economy. Speaking of which, doesn't anyone else find it odd that so many people who favor civil liberties also support cigarette taxes...or that people who oppose abortion support the death penalty? Perhaps the beliefs aren't completely contradictory, but is there any real reason why they should be paired together so commonly? Political divisions made much more sense in the old days--freedom (real liberalism) vs. authoritarianism--instead of these weird party divisions we have today.

    On another note, come to Monday's meeting! 9:00 PM in 315 Hamilton.

    First Meeting This Monday!

    Join us for our first meeting of the year this Monday (9/15) at 9 PM in 315 Hamilton!

    We will be introducing ourselves, discussing libertarian philosophy and issues, and talking about what the club will be doing this year. 

    So stop by and join us!  

    In Liberty,

    Sunday, September 07, 2008

    It's true!

    As Pete has (correctly) mentioned many times, you'd have to be insane to think that the Republican party is still the party of small government. Perhaps many Republican voters are, but their elected officials have wandered far from the platform. Here's a great post by Bryan Caplan at EconLog explaining (once again) the failings of politics.
    A little while back, Greg Mankiw praised Peggy Noonan for "summarizing a key difference between the political parties." As Noonan puts it:
    Neither party ever gets it quite right, the balance between the taxed and the needy, the suffering of one sort and the suffering of another. You might say that in this both parties are equally cold and equally warm, only to two different classes of citizens.
    In my view, though, Noonan is only successful at summarizing popular misconceptions about the differences between the political parties.
    The first big misconception is the parties' key differences are substantive. They aren't. Reps don't want to get rid of the welfare state. Almost all Reps support spending a big chunk of GDP on America's poor and old. And Dems don't want anything like socialism. Almost all Dems want America to remain a country where markets are the default and people can get rich if they play their cards right.
    So what is the "key difference" between the parties? Rhetoric. When Republicans advocate a small contraction of the welfare state, Democrats claim that Republicans totally oppose the welfare state. And many Republicans oblige them by standing up for "liberty" and "responsibility." Similarly, when Democrats advocate a small expansion in the welfare state, Republican claim that Democrats oppose free markets. And many Democrats oblige them by saying things like "markets only benefit the rich."
    This rhetorical illusion is so powerful that when a Democrat like Clinton adopts many pro-market reforms, Republicans still hate him as a 60s radical. And when Bush II sharply expands the welfare state, Democrats still hate him as a billionaire's lackey.
    The second big misconception is that the parties' rhetoric makes sense on it's own terms. It doesn't. If Dems really cared about poor human beings, they would quit worrying about the American old, most of whom aren't poor. In fact, they would quit worrying about the American "poor," because by world standards, they're doing fine. Instead, Dems would concentrate all their efforts on helping absolutely poor foreigners, presumably through a mixture of permitting massive immigration, and redirecting welfare to the world's bottom billions.
    Similarly, if Reps really cared about "over-burdened" tax-payers, they would try to diminish the burden in the only sustainable way: Big cuts in spending. They would be crusading against the popular programs like Social Security and Medicare that absorb most of our tax dollars. While they're at it, they might want to do a little cost/benefit analysis of the War on Terror.
    I understand, of course, that if either party tried to bring its substance in sync with its rhetoric, it would go down in flames. As the Median Voter Theorem explains, parties that refuse to move to the political center don't survive. What the MVT fails to predict, though, is the disconnect between partisan substance and partisan rhetoric. You'd think that rhetoric would be every bit as moderate as action - but it's not.
    What's going on? My best guess is that the rhetoric is the bone each party throws its idealists - "If you vote for us, we'll pretend to want radical change." But perhaps even moderates enjoy the illusion of a partisan rift - or at least the illusion that they're on the side of principled moderation against rabid extremism.
    Politicians do not care about you! They care about themselves, and they will lie about anything to make sure they get reelected. Neither John McCain nor Barack Obama is a "change" in any substantial way. John McCain's foreign policy and Obama's pandering on NAFTA should be en0ugh to make this abundantly clear.

    No Meeting This Week

    But it is highly likely that meetings will begin next Monday at 9. Hope to see you all there.

    Friday, September 05, 2008

    Politics is Stupid

    From Econlog:
    Tyler Cowen types,

    I also think, though, cynically, that the GOP knows that "delivering" on the abortion issue would spell their doom and thus they won't ever do it.

    I have thought that this holds for the Democrats and universal health care. They are better off having the issue "out there" than passing a bill. Of course, one could argue that the people would be forever grateful for universal health care if it passed. But I think that any health care system is likely to prove disappointing in some respects, so taking responsibility for it has a large down side.

    Incidentally, I see education the same way. Conservatives and Republicans are probably better off having the voucher issue "out there" than having vouchers enacted. I don't think that vouchers can produce an educational miracle. My guess is that what a full-on voucher system could produce, at best, is approximately the same level of educational results at much lower spending.

    Welcome (Back)!

    Masood, Brenden, and I just finished up representing the Libertarians at the Activities Day, and it went well. It looks like this is going to be a great year for the club.

    It's not official yet, but our first meeting of the year might be this Monday night; try to keep your calendars open if you can. For those freedom-lovers just joining us, our weekly meetings are fun, relaxed discussions covering libertarianism and almost everything else. If you haven't already, join the mailing list by following the directions in the top right, and we'll send out an email when our meeting time and place are finalized.

    Monday, September 01, 2008

    Books Smart People Recommend

    Greg Mankiw's blog linked to a Washington Post feature where he and other economists/finance professionals recommend a single book. His choice:


    Robert M. Beren professor of economics, Harvard University

    "Capitalism and Freedom," by Milton Friedman (1962)

    What it's about: The renowned economist argues for the necessity of capitalism in creating free societies in a book hailed by some as one of the 100 most influential of the second half of the 20th century.

    Mankiw says:"I read this book first as a student at Princeton 30 years ago and again more recently when I assigned it for a freshman seminar at Harvard. Friedman's insights into how the economy works and his classically liberal perspective on the role of government are timeless. In this difficult economic time, it is important to keep first principles firmly in mind."

    I wholeheartedly agree. This is the book that converted me to libertarianism from the government-loving "Democrat" I was in high school. Some of the later chapters are pretty technical, but the first few are essential libertarian readings. Read it! You won't regret it.