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Me so Clueless

I have tried to follow discussions of the continuing economic/financial crisis, here and elsewhere, for the last few months, to the best of my ability. And little enough good it has done me. For such discussions invariably leave me, as the late, great Anna Russell might have put it, "as befogged as before."

This despite the fact that (as I have pretty good reason to believe) my basic smarts and my grasp of basic economics single me out among somewhere between one thousand and ten thousand average Americans.

From which I can't help drawing a couple of (I think) obvious conclusions:

(1) Such is the complexity of the modern financial system that nine thousand nine hundred and ninety-nine out of ten thousand citizens simply have no real choice, if they wish to keep said system chugging along, but to trust the one remaining "expert" to get them out of the soup - even if he's the very same "expert" who was running the show while we all got into the soup in the first place. (Question that, and you can expect a nasty spanking from Zippy!)

(2) In such a system - i.e., a system where public decisions of tremendous moral import must be left to the judgment of one in ten thousand, lest the heavens fall, old-timey ideals like "self-government" and "freedom" simply count for nothing. Nothing at all.

I've done my best to try to imagine what sort of economic armageddon could possibly be worse than that.

I find that I cannot.

Comments (58)

Ain't that the truth. If I knew how to live like a medieval peasant, I'd say let's blast the whole thing and start over. But I don't. Not that it matters. We're all stuck with whatever our reigning masters provide.

No we're not.

Don't let the bureaucrats and the pseudo-experts from whom they take their orders make you a slave -- or a peasant.

In such a system - i.e., a system where public decisions of tremendous moral import must be left to the judgment of one in ten thousand

1 in ten thousand? The prime originators of this debacle number a handful, and no one exercised as much power as Ayn Rand's famous acolyte;

The Federal Reserve chairman, Alan Greenspan, urged Congress today to encourage the growth of complex financial contracts known as derivatives before the United States share of that market and associated benefits are lost to other countries.
http://query.nytimes.com/gst/fullpage.html?res=990CEED7103EF932A25751C0A9669C8B63

His views were adopted and from 1998 to 2008 the derivative market place grew 826% to 600 billion.

Guys like Buffet sounded the alarm; “Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers,...The troubles of one could quickly infect the others.”

Not to worry;“I believe that the general growth in large institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged.” Allan Greenspan, 2000

The problem with our current system is property and power are concentrated in the hands of too few, or as Chesterton once said;
"Too much capitalism does not mean too many capitalists, but too few capitalists."

Don't let the bureaucrats and the pseudo-experts from whom they take their orders make you a slave -- or a peasant.

OK. What do you suggest I do about it?

Question that, and you can expect a nasty spanking from Zippy!

From me as well! ;o)

In such a system - i.e., a system where public decisions of tremendous moral import must be left to the judgment of one in ten thousand, lest the heavens fall, old-timey ideals like "self-government" and "freedom" simply count for nothing. Nothing at all.

You sound like an Anti-Federalist.

Don't shoot the messenger.

You know, even Rand recognized that an actual emergency is not the time to be asserting libertarian ideals. It cannot be difficult to comprehend why during the midst of a recession, bank run, and deleveraging threatening to overturn most of the global financial system, those who have just a partial understanding of what is going on realize "This ship is sinking fast, maybe it's a good idea not to drown."

Step2:
"This ship is sinking fast, maybe it's a good idea not to drown."


In a time of crisis, the concerns of personal freedom are not inappropriate. Financial freedom is not "drowning." "Drowning" is when you let the same motley crew of arrogant, bureaucratic sots who got you into this colossal mess try even more stupid things to get you out. Three hundred and fifty billion dollars down the rat hole and the system is nowhere near liquid. Another eight hundred billion more and it still won't be.

That's another way of saying that you don't trade freedom for safety. If you're not free, you're not safe. Leftism can make you neither free nor safe. The mad rush to socialist solutions to which our government has turned in recent months will bring upon us an even greater disaster than letting foolish banks and foolish automakers fail.

Most people don't hate and fear government intervention nearly enough.

In a time of crisis, the concerns of personal freedom are not inappropriate.

If it is a crisis of a severe scale and not mere hyperventilation, those concerns are inappropriate. According to Rand herself (hardly a slouch at defending individual liberty), that abandonment of freedom must be contemporaneous to the specific crisis.

That's another way of saying that you don't trade freedom for safety.

If you recognize that it is a trade off, you make the trade to the extent it remains practical. As one common example, we have traffic signs for reasons of public safety although they obviously impede freedom. If there is a highway emergency, authorities may stop all traffic or redirect it along another route, neither of which is controversial or sinister in any way.

Calling a theory about the actual effects of government intervention "an ideal" seems to be the default shortcut to dismissing it without refuting it these days. You know, like when Bush said he had abandoned some of his "free market principles," as though these were strictly ideal notions concerning abstract words like liberty, rather than being highly consequential elucidations of the way the world is as a matter of fact. Things like the law of supply and demand aren't Ideals or Principles, they are annunciations about the way scarcity constrains and conditions the range of possible activities among people engaged in commerce, that is, the market.

"There's no free lunch" and "you can't print your way to wealth" are not pie-in-the-sky ideals, they're statements about the way things work out in practice. It is those who insist that there just has to be some state-centric solution to things, because the alternative is unthinkable, who are expressing abstract ideals at odds with practical reality.

"There's no free lunch" and "you can't print your way to wealth" are not pie-in-the-sky ideals, they're statements about the way things work out in practice.

Thank you, Sage. It makes me feel better to hear someone else say this.

How much genuine freedom was being exercised in our system prior to this collapse? Does anyone believe most Americans outside Wall Street had even a superficial understanding, much less an active say in the events leading to this debacle?

A transformation occurring over decades turned our economy from one based on the production of real tangible goods and wide dispersal of wealth to one based on speculation. Trading on trade itself as the main source for wealth creation was preordained to crash. Outside of the financiers, who lost control of the obscure instruments they created in order to free up their own balance sheets, most American were passive, voiceless bystanders.

The false dichotomy of the Market vs the State, should forever be laid to rest as both are when left unchecked, equally tyrannical.

Well said, Kevin.

The globalized high finance economy which came grinding to a halt last year was a very far cry from a true free enterprise system. As I've said many times, I have a very hard time seeing where, for instance, the synthetic collateralized debt obligation fits in any ideological scheme of political economy. Nor, for that matter, is it at all clear to me that the vast, sprawling global behemoths we call banks could ever really be regarded as institutions of free enterprise. Intervening to save this structure does not appear to me to be so drastic and horrible a departure from capitalist ideals, in so far as "capitalism" signifies what our economy has been.

But it is very clear, at least to me, that our economy, as currently constituted, cannot survive without a banking sector. So I don't think the liquidationist position can, as a matter of prudence, be embraced.

Yes, yes, but does anyone else (except me, Sage, Steve Burton) get the creepy-crawlies at the story of the bank execs being sat down after the bailout was passed and told, "Sign this," where "this" was evidently an agreement to the government's controlling such-and-such percentage of their banks? I mean, what if they'd said no?

You can say all you like about the ruinous deficit spending and national for entitlements prior to this, and I will join you loudly, but this particular thing did have a very definite air of major coercion about it, as well as the very real _fact_ of concentrating power over large sums of money directly in the hands of one person with minimal oversight. That this should bother lovers of freedom as a new problem above and beyond the problems we already had should go without saying.

And that is not even to mention the precedent-setting aspect of it. I appeal to all intelligent men to admit that Barack Obama will be all the more able to borrow huge sums of money and simply burn it on bridges to nowhere, FDR-style, pure Keynesian "stimulus" junk because of the precedent set in the fall. You can say that they aren't the same. Okay, so they aren't the same. But Congress and the American people are softened up for the one by the other, and will be given the same Armegeddon arguments for the one as for the other (and by some of the same people), and I for one would like to hear more yelling and screaming from y'all who supported the TARP about what's in the works now, if that distinction is really supposed to be _all that_ important, and especially if it's supposed to be, maybe, just possibly, a difference of principle.

I got the creepy-crawlies too, Lydia, from that episode. But let's note that the one guy who resisted the most, who later said he signed in the interest of the public, was none other than Ken Lewis of Bank of America. That would the bank that the government had to bail out again last week.

A transformation occurring over decades turned our economy from one based on the production of real tangible goods and wide dispersal of wealth to one based on speculation.

But this was a classic financial bubble that had its roots in the very tangible product of housing. Sure, modern finance methods aided its rise, but I really don't see how it differs all that much from other great bubbles in past like the Tulip bubble (1637) or South China Sea bubble (1720).

Kevin: So far as I can determine (and so far as my interest extends), the few remaining Ayn Rand groupies have been hating on Alan Greenspan for years, now. So blaming her for him seems a bit of a stretch. But I have no personal investment in the matter.

"The Federal Reserve chairman, Alan Greenspan, urged Congress today to encourage the growth of complex financial contracts known as derivatives before the United States share of that market and associated benefits are lost to other countries."

Goodness. So "other countries" were also in on the game? Were they, also, controlled by acolytes of Ayn Rand?

Or do I hear the sounds of axes grinding?

Perseus: Anti-Federalism is the least of it. With each passing day, I am more tempted by the Stuart-restorationism of "Mencius Moldbug":

http://unqualified-reservations.blogspot.com/

I mean, if we must be colorless cogs, why not attach ourselves to a colorful wheel?

Zippy: not shooting you, at all - or even taking aim at you.

My point of departure, here, is the assumption that pretty much everything you've had to say about the crisis has been right.

Steve,

Goodness. So "other countries" were also in on the game? Were they, also, controlled by acolytes of Ayn Rand?

Euro-Randians? Doubtful, but small bands of oligarchs determine the fate of other Western nations too. Since we're at the hub of a global structure of trade, capital and investment, it should be no surprise that other countries participated in the scheme. Or that one, single, solitary virus would coarse through and poison the entire transnational system. One can discern God's will by studying nature. From what I can see, a diverse, complex ecology is safer than a flat, monoculture. Plant and protect your garden accordingly.

Or do I hear the sounds of axes grinding?

No, just an ideology-free, honest exploration of the facts.

Intervening to save this structure does not appear to me to be so drastic and horrible a departure from capitalist ideals, in so far as "capitalism" signifies what our economy has been.

I see nothing incompatible with simultaneously holding Paul's position, while sharing Lydia's revulsion over Paulson's thuggish appropriation of power and management of TARP. In fact it seems the only consistent and sane approach to all of this.

Lovers of liberty should be in anguish over the choices before us, so let's learn from this debacle. When building upon the ruins of our current economic settlement, let's apply the principles of localism, subsidiarity and decentralization to a new system and be ever vigilant against abstractions and distant, concentrated aggregations of wealth.

Time to rekindle the fireplace with some Thomas Friedman tomes.

by the Stuart-restorationism of "Mencius Moldbug"

The Georges were already in charge in England by the time of the American Revolution. And the Georges had fixed themselves in power by trouncing the Stuart supporters in Scotland most thoroughly. But maybe Moldbug shows his Stuart leanings somewhere else?

I mean, if we must be colorless cogs, why not attach ourselves to a colorful wheel?

The state-issued gray jumpsuit you're about to don, was prepared for you only after years of wearing the dull pastels imposed by the market. Cultural homogenization, economic standardization and mass conformity are all the results of a marketplace that levels distinctions, local boundaries and genuine diversity in the pursuit of efficiencies. Accent-free radio announcers make it impossible to tell if one is in New York, Nashville or New Orleans, and the same franchises promising every day low prices that blight our national, were starting to scar the rest of the world. At least prior to the credit bubble popped.

Successfully resisting the looming dystopia will require subjecting the modes of thought, institutions and practices we uncritically accepted as inevitable, to greater scrutiny. In the meantime, find a local thrift shop with an inventory of Edwardian attire and rage against the machine. In full polychromatic style.

Paul:

I have a very hard time seeing where, for instance, the synthetic collateralized debt obligation fits in any ideological scheme of political economy.
There may be something of a paradox here though. When I look at hedge funds, private equity, and options contracts including CDO's, etc., I see the free-est of the free market economy at work, at least in a sense. These things after all are largely unregulated contracts between private parties. Government involvement before this crisis has been mostly limited to the role of contract enforcement in a very libertarian sense: if these parties entered into these contracts freely, the government is there to enforce them but plays little other role. IOW, CDO's are a rational outcome of what many in an economic sense take to be "limited government". An economy in which certain kinds of contracts are not permitted to be entered into, bought, and sold would in a very real sense be a less free economy than the libertarian ideal. I think people understand this to some extent, which is why the more free-market oriented really, really want to take a "let it burn" approach. Because if we don't let it burn, we have in fact conceded that the free market, permitting people to enter into the kinds of contracts they choose to enter into in the pursuit of their own gain, has fundamental limits beyond which it simply cannot be permitted to destroy the common good.

At the end of the day, substantive moral judgments cannot be avoided; and the fact that as a political matter they are and indeed must be made, oft as not, by the very people who got us into trouble in the first place, also cannot be avoided. Every wheel is a colorful wheel; it is just that sometimes we suffer from color blindness.

Lydia:

[D]oes anyone else (except me, Sage, Steve Burton) get the creepy-crawlies at the story of the bank execs being sat down after the bailout was passed and told, "Sign this," where "this" was evidently an agreement to the government's controlling such-and-such percentage of their banks? I mean, what if they'd said no?
If they'd said no, Treasury probably would have refused to talk to those particular individuals again, and told shareholders to send in a new CEO if they wanted to talk to Treasury again. I know that is what I would have done if I'd wanted them to sign: I'd have said "Ken Lewis, you can sign this right now or, the next time BofA wants to talk to me, you'd better send in a new CEO." Of course chances are I wouldn't even have to say that; but I would if I had to.

Most of the power which is exercised in this world is informal power; the government was not exercising formal power here but informal power. When people start invoking formal power it is only because informal power has broken down.

I know of a specific example of a situation where hundreds of millions of dollars in business, generating tens of millions in fees, was left to a verbal agreement only - under the "you'll never work in this town again if you screw me" principle - because of the ramifications of trying fit the proposal into a formal contract. I know of another example of where the CEO of a company "fired" a board member using informal power, by threatening to resign with his whole executive team if that board member did not resign. In my experience the vast majority of exercises of power, at least in the business world, are informal. You only have to draw the gun of formal power when you've already lost, and are trying to limit your losses.

So the "sign this or else" meeting didn't really surprise me. Maybe it should creep me out, but I've known for many years how things really work, over which is layered a candy coating of formal structures to deal with situations where people fail to do what is expected of them.

And even beyond that, it is the erosion and breakdown of informal power, including the authority of traditions, elites, aristocracies, etc., which leads to the contractualification, excruciatingly detailed regulation, and lawyerification of everything. So I'm not sure folks have a clear picture in mind of the different worlds from which they are choosing their favorite.

I think people understand this to some extent, which is why the more free-market oriented really, really want to take a "let it burn" approach. Because if we don't let it burn, we have in fact conceded that the free market, permitting people to enter into the kinds of contracts they choose to enter into in the pursuit of their own gain, has fundamental limits beyond which it simply cannot be permitted to destroy the common good.

There is little question in my mind that of the two Universalizing Economic Metanarratives: the Keynesian and the Randian, that the latter is more universalizing and more meta, and ought therefore to be resisted with at least equal vigor. The trouble is that libertarian prescriptions tend to comport much better with various truths (the nature of man, reality as it actually is, &c.) than the interventionist alternative, even if (as is usually the case) for all the wrong reasons. It seems self-evident that various gov't sponsored Leviathans, not least monetary policy of the fed to essentially create (and then slowly pop) bubble after bubble, have led us to the mess we're in. So my question to the TARP apologists (or resignists), whose case is after all quite strong (if my employer has $2 billion in "cash", but can't get at it at the "bank", how do they "pay" me?), given that the current state of affairs works against public good in the long term, how do we get out of the current state of affairs? Are we truly and permanently trapped with a banking system that is too big to fail i.e., to ever let get small again? Or is there an incremental approach that, however unlikely or unpopular, might lead back to fiscal sanity?

Steve Nicoloso:

Or is there an incremental approach that, however unlikely or unpopular, might lead back to fiscal sanity?
That is a really, really great question. I wish I had an answer, but I don't. My gut tells me that somehow we have to recover the authority of the concepts of usury and responsibility: the former to insure or at least encourage that investments are made for productive purposes not as exploitation, and the latter to insure or at least encourage that when an investment is made, the people who actually decided to make it have their own skin in the game to enough of an extent to cover any total loss scenario. But how do we specifically do that? I don't know. It isn't even possible to talk about it with rational feasibility in the broader culture, so I'm tempted to take the cop out of saying that the culture has to be reformed first. As a conservative, though, I'm against sudden and revolutionary changes, which almost always end up - whatever the intentions of the revolutionaries - with a worse condition than what they overthrow.

when an investment is made, the people who actually decided to make it have their own skin in the game to enough of an extent to cover any total loss scenario.
And I would say that when an investment is accepted, those who are accepting the investment capital should feel a responsibility to make sure it can be paid back. I myself think it's important to get away from a purely amoral view of these things. If I accepted a loan from a friend and knew (though he didn't) that I was going to lose my job soon and not be able to pay it back, that would be wrong. I couldn't just say, "Well, look, I'm going to do what I agreed to. He'll get a certain percentage of the assets of this new business when it goes into bankruptcy," as though all that matters is that the mechanical process will in fact go through if I can't pay back the loan, so somehow I'm not really supposed to be bothered by defaulting.

Quoted the pithy semidetached summary of the wise 1-in-10000 being at the mercy of the expert 1-in-10000 to Rod Dreher's Crunchy Con:

http://blog.beliefnet.com/crunchycon/2009/01/bill-browders-canary-in-the-ne.html

An on-the-face-of-it "suboptimal" subsidiarity of subjective prices makes a lot more sense that an optimized authority of an "efficient" elite, no? I'd rather be in the company of a bunch of wise entrepreneurs with our own small credit union, than at the mercy of a NationState Central Bank that steals wealth from its citizens in secret (see news from UK on the Bank of England overturning Pitt's 1846 reforms re "quantitative easing")

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4214232/Reform-plan-raises-fears-of-Bank-secrecy.html

For those who enjoy devouring big books, may I propose Jesu Huerta De Soto's "Money, Bank Credit and Economic Cycles" as the tome for the times (the Word for all time remains Sacred Scripture of course)
http://mises.org/books/desoto.pdf
It details the failings in fiduciary trust in fractional reserve banking that Pitt would not have comprehended when proposing his groundbreaking reforms, and details the inherent moral hazard weaknesses of FIAT currencies. Every Christian ought deepen their understanding about what is sinful and what not (the good Spanish Prof elucidates the thinking behind the Salamancan discourses of the Golden Age of Discovery, and traces the alternate paths in banking legislation/regulation rooted in Roman law and Northern European law, pointing to the inherent weaknesses in Anglosaxon commercial practices) before embarking on discussing the fiscal deceits that threaten our market economy and how to remedy them. Hopeful stuff if you have the stomach for it!

my comment held - too many embedded URLs - pls advise?

Yes, stay away from URLs of any kind until you've become a more established commenter. Even then multiple URLs can get your comment troll-rated. I've had comments held and I'm the editor!

Lydia:

And I would say that when an investment is accepted, those who are accepting the investment capital should feel a responsibility to make sure it can be paid back.
I think you overstate the case, if you are including an implicit "no matter what" in there. I've made (and accepted, for that matter) unsecured loans, structured as convertible debt, to small startup companies. I have never had - and none of the lenders has ever had - the expectation that those loans would be paid back if the company failed. (When companies like this fail, there are usually very few valuable assets to divide in a bankruptcy anyway). A good faith economic failure is a bad thing, but it is not a moral wrong.

Loans done properly always specify what will be done in a case of default and what constitutes a case of default, though often some of that is implicit in the law which governs the loans. This Shylockean idea people have of debt as something which must be paid back no matter what happens, and that all other conceptions of debt must be rooted out, is counter to the reality of lending as actually practiced; and in my view certainly should be counter to lending as actually practiced.

If I accepted a loan from a friend and knew (though he didn't) that I was going to lose my job soon and not be able to pay it back, that would be wrong.
I agree -- which is why material facts are required to be disclosed by law, or else it is a case of criminal fraud. You could actually go to jail for doing what you described, even if there was no loan paperwork at all, and that is just. In fact I know one man who is a convicted felon because of pretty much exactly that kind of fraud, involving a sadly small amount of money.

What happens in the case of a bankruptcy is specified in the capital structure, understood by all parties. In some cases a bank will insist on personal guarantees by officers when a loan is made to a small corporation; in some cases not. Everyone goes in with eyes open, and is responsible for their own due diligence.

This idea of debt as a transcendent Shylockean claim on a person is just wrong, both as fact and as prescription.

Lydia:
"If I accepted a loan from a friend and knew (though he didn't) that I was going to lose my job soon and not be able to pay it back, that would be wrong."
read Lessius, you may find you're incorrect in your moral theology.

http://blog.acton.org/archives/2161-iJournal-of-Markets-amp;-Moralityi,-Volume-10,-Issue-2.html

If the loan would help you reeducate yourself for a new career or set yourself as self-employed you could still pay back the loan, it depends on the terms and those remain "negotiable" for the length of the contract. If one party fails to honor the terms (aka unwilling to renegotiate) the other has redress to the courts. The good faith of the parties (folly or prudence) would be determined by their peers, as has been done thru all history, no?

What is dangerous in fractional reserve banking is that a deposit is treated like a loan when it is not. A depository institution in obliged to hand other peoples property to a much more rigorous degree than a credit agency. That's what we've all lost in adopting the loosey-goosey legal basis for banking in the Anglo-saxon commercial world where the central bank and the treasury treat our deposits (the paper we have is a token to represent the value being exchanged) as their own "investments" to gamble with... the mortal sin of the lie, followed by the mortal sin of theft. Such modern-day embezzlement is termed "misappropriation" in academic circles to cover up the naked truth of such immorality, but, like that other colloquialism 'birth control' its widespread nonetheless in the culture of death!

A good faith economic failure is a bad thing, but it is not a moral wrong.

I agree with that, but I think it depends on what counts as "good faith." I have this odd and interesting caveat lendor (a made-up fake Latin phrase) sense from you, Zippy, whenever this subject comes up. What _I_ would mean by "good faith" would be something like this: "The person accepting the start-up capital has thought about the matter responsibly and does not expect to fail; he has good reason to expect that it will work out and he will be able to pay back." I get this odd impression that what _you_ mean by "good faith" is fully satisfied if he openly tells the people lending the capital, "Hey, guys, it's a wild gamble, and I hope I don't default, but you never do know! It's pretty darned risky. But you pays your money and you takes your risks."

What's funny is that I don't think you would apply this in other economic areas. For example, you don't seem to apply it to employment contracts. When it comes to questions like a just wage, I never hear anything along the lines of "everybody goes into the contract with their eyes open, and it's up to each person involved to do his own due diligence." And I would guess you would be uncomfortable with similarly libertarian-ish statements concerning caveat emptor matters of the quality of merchandise sold.

Lydia,

Moldbug's plan - if you could call it that - with respect to the Stuarts is laid out here:

I suggest a Stuart restoration in an independent England. Through some beautiful twist of fate, the Stuart succession has become entangled with the House of Liechtenstein, who just happen to be the last working royal family in Europe. The father-son team of Hans-Adam II and Hereditary Prince Alois are not decorative abstractions. They are effectively the CEOs of Lichtenstein, which is a small country but a real one nonetheless. As you'll see if you read the links, the last "reform" in Lichtenstein actually increased the royal executive power. Take that, 20th century!

And Prince Alois's son, 13-year-old Prince Joseph Wenzel, just happens to be the legitimate heir to the Stuart throne - illegally overthrown in a coup based on the notorious warming-pan legend. Therefore, the structure of a restoration is obvious. The Hanoverians have failed. They have become decorative pseudo-monarchs. And as for the system of government that has grown up under them, it makes Richard Cromwell look like a smashing success. Restore the Stuarts under King Joseph I, with Prince Alois as regent, and the problem is solved.

Like most of his positive program, this idea is, well, let us say... unique. But there you have it.

Lydia:

I have this odd and interesting caveat lendor (a made-up fake Latin phrase) sense from you, Zippy, whenever this subject comes up.
It is a good phrase. I fully embrace it, as long as we understand that the caveat is a risk caveat not a fraud caveat.
"The person accepting the start-up capital has thought about the matter responsibly and does not expect to fail; he has good reason to expect that it will work out and he will be able to pay back."
That just isn't the case with many of the kinds of loans I am used to dealing with personally. Everyone knows that most startups fail. It is an expected and accepted aspect of doing business on that end of the risk curve. If investing worked the way you would like it to work, very little investing would take place on the tails of the risk curve. In fact investing in risky businesses would be pretty much prohibited by the kind of principle you are proposing. Heck, forget about risky businesses: if morality requires an expectation that losses are nigh impossible, then investing in productive activities at all is pretty much out.

Now maybe you think there is a problem in principle with investment in risky businesses. I'm not completely averse to that result, and I wouldn't discount your moral intuitions simply because of that result. But I'd be more inclined to conclude that the risky nature of the venture has moral implications, including implications on the kinds of people it is acceptable to hire, to enter into contracts with, to borrow money from, etc. than to conclude that risky ventures are simply unacceptable, even when everyone collaborating on them is fully aware of the risks and is reasonably equipped to personally absorb the consequences when things go wrong. It is this latter part which is lost in the credit default swap market, which operates without any reserve requirements whatsoever.

For example, you don't seem to apply it to employment contracts.
Au contraire. I have no moral issue whatsoever with layoffs driven by economic necessity. Furthermore, a loan and a human being are in fact fundamentally different kinds of things: if one chooses to employ a human being, one is not exempted from the requirement to treat him as a human being by the nature of the employment relationship. Treating a human being as a transcendent entity is a different matter from treating debt or equity as transcendent entities.

[Note - comment fixed to say "credit default swap" -- Z]

if morality requires an expectation that losses are nigh impossible,

I didn't mean to say anything quite _that_ strong. Just that the complete inability to pay back, business completely failing, capital all lost, is not reasonably expected. But I think your point about being personally able to absorb the risk is also a very good one.

if one chooses to employ a human being, one is not exempted from the requirement to treat him as a human being by the nature of the employment relationship. Treating a human being as a transcendent entity is a different matter from treating debt or equity as transcendent entities.

While I can respect this opinion so dearly valued and espoused by Zippy who has made mention of it (i.e., his concept definition of 'fair wages' for the employee, particularly, the heads of families) several times between here and his realm, considering what it entails, it strikes me as rather an oblique contradiction that he yet considers himself (and, indeed, often commits to activities seemingly) 'conservative'; that he does not, instead, embrace those tenets commonly upheld and so cherished by the Democratic enterprise and its cause for the Modern Social Welfare State is a baffling puzzle, to say the least!

An enterprise soon to be realized upon the entire American people, which will henceforth after Tuesday provide a whole buffet of entitlements, consisting of even such bounteous tax refunds (which total is estimated in the billions) for those lacking income who do not even pay taxes in the first place!

It would take a profound miracle if this does not actually exacerbate an already dire situation, complicated by another likewise hazardous endeavour that our headstrong president elect is determined in pursuing, namely, that of infrastructure, which was a venture that the Japanese in the early nineties had attempted as one of the means to remedy their economic woes but resulted, instead, in utter failure!

Just that the complete inability to pay back, business completely failing, capital all lost, is not reasonably expected.
Well, OK, but again in early stage ventures that is the reasonable expectation. A few wild successes justify projects (usually one company = one project, though not always) most of which will definitely fail. Naturally everyone tries to maximize the chances for a given venture to be one of the wild successes; but as a rule, most startups fail.

So, funny question, Zippy: Suppose you were the guy doing the startup and seeking the capital. Would you feel at all strange, bad, even guilty, if your personal friends were involved and were the ones who lost their money completely when the startup failed? Would you feel like it hadn't been responsible to ask them to help out?

Well, I can't say how I'd feel. I expect I would find it ego-bruising. And I would certainly only accept money at all from certain kinds of investors in the first place. But I would not consider it a moral wrong if a company I started or ran defaulted on debt under the negotiated terms of that debt. In fact there are probably conditions where failing to default could be a moral wrong.

Kevin - I think that I appreciate much of what you say. But you must understand:

Sure, there are arguments for the "free market" based purely on utilitarian calculation - i.e., on the empirical claim that free markets maximize "economic efficiency," - at least, in the long run. For whatever that's worth.

But those arguments have never interested me, much.

The arguments that interest me, and appeal to me, are quite different, and closely resemble the arguments that Christian apologists have long urged in reply to the so-called "problem of evil."

Briefly: God gave man freedom of will, wherever it might lead, because he preferred to be worshipped (or not) by free people - rather than automatons. Even if that left the door open to, say, Stalin's terror-famine in the Ukraine, or Mao's "great leap forward."

I'm sure that you can complete the analogy on your own.

Lydia - yes, the Hanovers were already (long) in charge in England by the time of the American "revolution."

But to join the battle at that point is to join it *in media res* - for Mr. Moldbug is the reactionary to end all reactionaries: Cromwell, The "Glorious Revolution," the American Revolution, the American "civil war" - all were terrible defeats for the right, and for the righteous, as he tells the story.

He's as mad as the proverbial hatter - but he's also a mine of unexpected information.

FWIW

What's the matter Steve B., is economic inefficiency not evil enough for you? [I say mostly, but not entirely, in jest...]

It isn't even possible to talk about it with rational feasibility in the broader culture, so I'm tempted to take the cop out of saying that the culture has to be reformed first.

Ah, Zippy, but then the Liquidate Everything position might very well have (or have had) a profound reforming effect on the broader culture, far more than any influence peddling or Bible study could possibly had. Last September, the Congress were getting calls 100 to 1 against the "Bailout". By your analysis, they had no idea what they were asking for, but fine, let's consider the effects of giving the people what they wanted: no bailout for banks, and the heads of a few Wall Street execs on pikes. Would that not have long-term salutary effects?

All,

I don't really have any personal wisdom to add to this excellent discussion, but I did want to direct everyone (especially Lydia, Sage, and Steve) to this delightful (is there any other kind?) Mark Steyn column, tangentially related to this discussion.

Enjoy.

P.S. I enjoy Mencius more as a commenter on other blogs...his own blog posts tend to ramble a bit too much for me. Nevertheless, I believe Steve's original discription of MM, which I can't quote with precision, is the smartest take ever on his oeuvre.

I've never read Mencius before except occasionally in threads with Lawrence Auster. But when I tried to tell my family today about his post on the America Revolution, they wouldn't believe it was for real. "An original source fisking of the Declaration? Sounds like a satire."

Steve Nicoloso:

...but then the Liquidate Everything position might very well have (or have had) a profound reforming effect on the broader culture, ...
Well, yes, and in the same sense in which a nuclear exchange with China might very well have (or have had) a profound reforming effect on the broader culture. Intrinsic to the conservative temperament, and dare I say it to moral action more generally, is a limit on the willingness to destroy what is in order to reform it into what ought to be.

Sure, there are arguments for the "free market" based purely on utilitarian calculation - i.e., on the empirical claim that free markets maximize "economic efficiency," - at least, in the long run.

Steve, what you hold as mere arguments actually constitute the operating logic of our Capitalist system. I don't blame you for finding its Canon unappealing, but that doesn't absolve you from staring it in the face.

As for the "problem of evil", our current financial-technological pushes the insidious notion that the human person is a quantifiable unit of consumption placed within a morally neutral plane of activity. He is not so much a moral actor participating in the drama of his own life, but a superfluous entity designed to serve a powerful, rational engine of "growth.

Chesterton long ago saw where this was headed;

"...it is in the fable of the man who sold razors, and afterwards explained to an indignant customer, with simple dignity, that he had never said the razors would shave. When asked if razors were not made to shave, he replied that they were made to sell."

Just like the mortgages, securities, debt instruments and swaps which were substituted for real economy activity. Meeting man's spiritual and material needs has been replaced by something very unhealthy.

"In all normal civilisations the trader existed and must exist. But in all normal civilisations the trader was the exception; certainly he was never the rule; and most certainly he was never the ruler. The predominance which he has gained in the modern world is the cause of all the disasters of the modern world."


"...like that other colloquialism 'birth control' its widespread nonetheless in the culture of death!

Good job Clare in finding the culture of death's fingerprints on the control panels of our economic engine.

Thanks Kevin, but 'twas not my intention to hijack the thread as a culture-wars activist. But since you've invited that comparison, permit me to dwell upon it: is it not a shame my previous post got "contracepted" by the "blog system" ("If your comment is held for any reason, please be patient and an author or administrator will approve it.")

A good faith economic failure is a bad thing, but it is not a moral wrong.
Is the WWWtW disclaimer disclaiming in good faith or not? Am I "owed" the promised reward for my invested "patience"? Do I instead secure myself with a 'credit default swap' -- cut and paste the comment to a text file -- that in the event my posting partner loses the investment of my "intellectual" equity, I can recover the original thoughts behind the words? In the free market of internet discourse what place first things teleology, traditional ethics and subjective marginal utility? The theology of the body teaches the participation of human action as love and responsibility -- openness to mutual fertilization, no? Ought we consider the elements of economic activity as noble as the marital act? That the conjugal partners owe one another the irrevocable trust of "in sickness and health"? in their material exchange? Is money indeed *male* (a transferable fungible) while capital is certainly *female* a unique locus or *womb* in a particular time and place? If you think capitalism as wealth creation ought be like some pasha collecting himself a harem, then of course you'd want eunuchs in charge of the central planning department, but if you see wealth creation via capitalism as the natural state of things where a family patriarch elects to employ the scarce resources at his disposal to meet the needs of his family in the marketplaces he has access to, at the level of subsidiarity proper to his station, then you'd see central planning "regulator-eunuchs" as loathsome, indeed immoral, no? If economics is to feed growth, interference in the co-creativity of market intercourse is as much an "Injustice to our Creator" as abortion, no?

(May I beg your indulgence if my flippancy offends
- I'll offer a prayer of reparation as I try to stay
warm during our chilly March in Washington on Thursday)

Well, yes, and in the same sense in which a nuclear exchange with China might very well have (or have had) a profound reforming effect on the broader culture. Intrinsic to the conservative temperament, and dare I say it to moral action more generally, is a limit on the willingness to destroy what is in order to reform it into what ought to be.

Well that assumes, and none of us has certain knowledge of what might have been or what might yet be, your apocalyptic predictions were accurate--well "accurate" isn't the right word because you never claimed accuracy--perhaps "in-the-ballpark." I continue to remain skeptical, not hostile, but skeptical of those predictions. Of course, if thousands (or millions) of innocents would have died or suffered terribly had TARP I not gone through, then it was the right thing to do. I agree, morality trumps ideology every time. But that's an if. Yes, I'm aware that corporations (like the one I work for) have tons of cash tied up in "banks" that isn't physically there, and isn't insured by an FDIC-esque entity; and that if banks start dropping like flies, then the people who sign my (figurative) checks are going to have a hard time getting at that "cash". But would that really mean that their "cash" would truly have dissappeared? Forever? Could my employer not have paid me with IOUs for a period of time? Might not those IOUs have become a sort of currency? At least for certain transactions? Might not my employer's customers have paid them in IOUs for services and products rendered? Might this perhaps have been an opportunity for "money" to have been put back on a more natural (and thereby more solid??) footing? I mean there are just so many technical details in the (for lack of a better term) Zippy's Apocalypse Narrative through which I haven't been walked, I am forced to maintain an agnostic stance toward it, and stand entrenched all the more by the seemingly reasonable principle that greed and stupidity should not (at least in a perfect world) be rewarded (or "bailed" out).

On the reform issue, I absolutely agree, viz., that the conservative temperament ought be very suspicious of any attempt to make things as they ought to be. But that impulse cuts both ways. It just as likely to seek to let things lay where they might naturally fall.

Steve B,

Thank you, thank you for the link to UR. That is by far the most entertaining and interesting thing I've read on these internets in quite some time. I'm a fan now, if not yet quite ready to agitate for the Stuart Restoration.

Steve K

"...during our chilly March in Washington on Thursday"

Hope to meet you and other W4ers there! Chris Smith will be hosting his annual reception in the early afternoon at
2373 Rayburn House Office Building Room 2168. Be well.

Thanks for the info on Chris Smith - our parish is travelling by bus from PA. Will have to see when our section winds past the Supreme Court to see if we can reach the House Office Building in time (Senate offices are closer, no?) But by way of charity -- a voluntary unconditional donation -- to the commerce of blogdom (since it seems my demand for a "bail-out" on my previous entry "going bust" was declined) here's the author I linked to, Jesus Huerta de Soto, answering the Holy Father's New Year's Day call for a 'new model of development' in reforming the operations of global finance: Rules for International Monetary Reform, at
http://www.mises.org/story/3300

"Any of the reforms noted above, if adopted in the absence of a prior, firm conviction and decision to change the international financial and banking system as indicated, would be simply disastrous: a private banking system that continued to operate with a fractional reserve (orchestrated by the corresponding central banks), would generate — in a cascading effect, and based on the cash created to back deposits — an inflationary expansion like none other in history, one which would eventually finish off our entire economic system."

Am I the only one hearing echoes of Paul VI's prophetic voice in Humanae Vitae? Man's concupiscence was not overcome with the embrace of "family planning" however alluring, nor can the lure of fractional reserves, FIAT currency or central banking compensate for caveat emptor buyer beware. Chastity (aka reserve oneself one hundred percent for one's spouse) in the conjugal oeconomia (from Gk. oikonomia "household management") is as necessary for the common good as fiduciary trust (aka 100 percent reserves for one's private bank) in the free enterprise economy. Central bank monetary policy is to trade growth what China's communist one-child policy is to population growth! Centrally-planned sin.

oops my bad! Emphasis in quotation are mine not the authors (to underscore my reference to wisdom of church teaching in following para.)

Setting up a correspondence between certain institutional financial practices and contraception is certainly a novel analogy. There may even be distant - very distant - validity in comparing usury to deliberate sexual infecundity. But I expect taking the analogy too literally could quickly lead to insanity; e.g., must one make a lifelong commitment to make loans only to one person?

I would more readily make the comparison, not with infecundity (a medieval ecclesial argument, nothing novel in my analogy there) but of certain financial practices as prostitution-adultery, as David Heinrich does here:

"Again, if we succumb to the neoclassical fallacy of assuming homo economus there is no price so low that a buyer would not be willing to buy the land for it. According to the neoclassical delusions, I could not possibly refuse an offer by a prospective buyer to sell me his wife as a prostitute in exchange for $2; indeed, I could not even object to the idea that women could be used as units of monetary exchange. I would simply calculate that this I was buying sex with the man's wife for a very cheap price, and did not have to "buy" the possibility of sex for the very expensive price for which one normally has to pay for that consideration in a person's mind (namely, the "price" of love, sacrafice [ibid, Ed.], devotion, respect, and so-on and so-forth)."

if anything my "novel analogy" has more to do with the acting person's moral life of self-ownership, as John Paul II's phenomenological personalism would have us reconsider? See here

"Both Austrian economics and Georgist economics stem from studying the nature of man, from individual actions, from praxeology. However, they arrive at different conclusions regarding the cause of the business cycle. Both the geolibertarians (Georgists) and the Austrian libertarians start from the same axiom of self-ownership, yet arrive at different conceptions of property."

citations from http://blog.mises.org/archives/001610.asp discussing Rothbard's criticisms of the Georgists in "The Single Tax: Economic and Moral Implications" and "Power and Market"

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