Curt Doolittle

Theme: Incentives

  • Payback Time? But what’s the fee?

    Entitled “Payback Time”, this NYT article by Steven Erlanger states that “Crisis Imperils Liberal Benefits Long Expected by Europeans” I’d like to clarify this argument a bit with the following points: 1) It will take somewhere between 3-5% of GDP to correct the retirement funding problem given the current ratio of prices and payments. 2) The problem with any policy is in determining the degree of uncertainty with regard to the future state of production (how much the productive people in any society will earn without the historical advantage that west has had in capitalist political and economic systems.) This means that the 3-5% number could be about the same, or it could be as much as twice that amount. 3) Most of the world, Europe in particular, will need to increase military expenses as the US loses it’s ability to project the power needed to police world trade routes, and it’s citizens lose the will to do so. We do not know what this cost will be. For european countries it will likely be on the order of 10% of GDP if history is any measure, that will mean roughly doubling the wealthier countries in europe, and quadrupling the spending of the eastern fringe countries.

    [callout]The fact that this economic instability is going to be caused by demographic changes, much of which will be caused by immigration of non-integrating subcultures, will remain the unspoken elephant in the room for years to come.[/callout]

    4) Most of the developed world will have to increase expenses on infrastructure due to aging populations. We do not know this number. Health care in particular will need to be rationed further as the cost of prolonging life continues to climb. 5) Cost of government is increasingly expensive and burdensome as productivity declines. 6) demographic changes underway, the increasing differences between american super-regions, and the lack of integration of immigrants, and the rising racial tensions, will lead to the increasing potential for political upheaval, somewhere in the 2015 – 2025 range, which would put extraordinary financial burdens on the world as regional power vacuums forced rapid reallocation of resources worldwide. The conservative position would argue that the world system is much more fragile than we assume, and that it’s prudent to cautious in our expectations of the future. The libertarian position would be to change from speculative policies that rely on growth and government, to calculable policies that rely upon saving and productivity, and in doing so, create both security and prosperity rather than worrying about the degree of risk we’re taking on. The likely cost then, is somewhere between a low of 3% assuming stability, and a high of 15% of GDP over the next ten years. The fact that this economic instability is going to be caused by demographic changes, much of which will be caused by immigration of non-integrating subcultures combined with aging dependent generations will remain the unspoken elephant in the room for years to come.

  • Understanding Greece And Germany In Terms Of The Economics Of Human Action Rather Than Moral Sentiments And Class Envy

    Over on Economists View, where the left seems to hang on like dirty ruffians intent on downgrading the local bar, Mark Thoma posts a misleading article: “About That Mediterranean Work Ethic” Do Greeks work less than Germans?, which states that Greeks work a lot of hours, perhaps more than germans. Which is a pointless and false because it is intentionally misleading, because it assumes individuals are equally productive and the societies  are collectively equally productive, when in fact, the term ‘productive’ means ‘the market price of stuff produced per human hour’. One of the people who leaves a comment sees through the veil and says: “These kind of statistics are not enough….”. Which is correct. They don’t tell us anything. Another who lives in Italy says “The problems here are political and cultural. It’s very frustrating to see…”. Which again is correct. Work is an individual expression. [callout] Productivity is an INSTITUTIONAL problem: people lack the institutions and habits by which to create productivity by forming capital alliances in GROUPS[/callout] Productivity is an INSTITUTIONAL problem: people lack the institutions and habits by which to create productivity by forming capital alliances in GROUPS. In Italy (like in southern california) business stay artificially small because of tax and benefit predation by the government, rather than encouraging competitive business, and taxing the very large corporations with whom the state must do business and support. Another says “Greece has crazy early retirement ages and a tax collection system that is pathetic?” Which is true. These are institutional problems. Largely political problems. But people in democracies CHOOSE their governments, now, don’t they. And Another (by a leftist sycophant who goes by the pseudonym of Paine) attempts to avoid the cultural and institutional predicament, as well as the problem of the productivity of the greek people, as well as the culture of corruption, by saying it’s all a problem of insufficient TAXATION. But WHAT KIND of taxation? Let’s look at this a bit. Yes, the chart is misleading (and so are Paine’s arguments, and in so many dimensions, per usual, that refutation is the process of tedious swatting of gnats who by virtue of their simplistic reproductive capacity put a drain on one’s energy simply by their volume.) First, the Greek problem is productivity not work hours: the market competitiveness of one’s goods and services in relation to one’s trading partners, divided by the number of human work hours necessary to produce the goods and services. The Greeks work longer hours to produce goods of lower value than that of their neighbors.

    [callout]the Greek problem is productivity not work hours: the market competitiveness of one’s goods and services in relation to one’s trading partners, divided by the number of human work hours necessary to produce the goods and services. The Greeks work longer hours to produce goods of lower value than that of their neighbors.[/callout]

    Second, the institutional reasons within the system that either encourage or enforce that behavior: lack of return on efforts due to a) silly cultural ideas, b) lack of education in productive information, c) lack of advanced institutions, d) private and political corruption and political impediment, e) political predation on the productivity is out of proportion to the marginal effort and risk needed to produce increases in productivity, f) cultural regression due to status impact of success on group cohesion (the urban african american versus the eastern orthodox ethos versus the jewish or protestant ethos. Third, the cooperative and competitive relationship between groups of different cultures: groups ‘fund’ shared objectives by forgoing opportunities. Forgone opportunities are a cost. Taking advantage of opportunities is a theft from those who forgo them. Since different cultures have different ambitions embedded in their habits, there is a forgone opportunity competition that permanently divides people with dissimilar interests. This is WHY people of different grope dimensions compete with one another: differences in forgone opportunity costs.

    [callout]groups ‘fund’ shared objectives by forgoing opportunities. Forgone opportunities are a cost. Taking advantage of opportunities is a theft from those who forgo them. Since different cultures have different ambitions embedded in their habits, there is a forgone opportunity competition that permanently divides people with dissimilar interests. This is WHY people of different grope dimensions compete with one another: differences in forgone opportunity costs.[/callout]

    Fourth, the status economy is material to people because they ACT as though it is material to them. Just as the race-preference is material to people because they ACT as thought it is material to them. Just as the creed-preference is material to people because they ACT as though it is material to them. And, precisely because of the forgone opportunity costs associated with those preferences. Most cultural differences have to do with the impact on social status of different forgone opportunity costs. People do not want to give upon their investments. Biases are NOT fanciful or meaningless: most often they directly impact mating choices, social status and therefore group-economic status.  Ie: people stay in-group often because they are given better status signals in-group than extra-group.  They transact across group, but they status-seek within group. Argument by emphasizing the material economy alone is a convenient way of distracting the argument from the forgone opportunity economy (discipline), and the opportunities, resources, financial, and labor costs that are required to create those institutions.

    [callout]Argument by emphasizing the material economy alone is a convenient way of distracting the argument from the forgone opportunity economy (discipline), and the opportunities, resources, financial, and labor costs that are required to create those institutions.[/callout]

    In the cast of Greece, it is a poor and corrupt culture that cannot create hard-working low-friction institutions that allow people to increase productivity by the process of constant creative destruction. It appears that Greek IQ is declining slightly probably due to poor urban education. And this has material impact on a society: assuming a broad enough population, people with IQ’s above 122 design machines, people with IQ above 105 repair machines, and people with IQ’s below 105 are limited to using machines. IQ distribution matters because it affects the general set of institutions that a body of people can develop. Education differences can depress IQ means by as much as twenty points. (Exactness of this is disputed but it’s certainly ten points). This mean limits the productivity of any nation, and in turn the appropriate institutions for any body of people. We are not equal in ability to comprehend abstractions, nor in our group ability to produce abstraction-producers and consumers in sufficient numbers to lather the group’s competitive advantage.

    [callout]assuming a broad enough population, people with IQ’s above 122 design machines, people with IQ above 105 repair machines, and people with IQ’s below 105 are limited to using machines. IQ distribution matters because it affects the general set of institutions that a body of people can develop.[/callout]

    Germany is a nearly land locked, oceanic temperate and continental temperate country of rivers and friction-able land transport that despite constant attempts of external containment has remained productively competitive for two millennia. This is accomplished by the discipline of forgone opportunity in order to create institutions that accumulate competitive advantage at a material cost to the citizens as individuals, but which is a cumulative investment of high returns for the group. Greece is a geographically advantaged, climate advantaged, port-rich country with limited agrarian potential, and a large urbanized population with few choices but to increase productivity. Institutional development costs are the HIGHEST productive cost paid by any civilization. That is why the non-corruption habits are so rarely developed in the world. (We do not yet know why some cultures have such a difficult time forgoing opportunities for gratification and developing longer (lower) time preferences. There are both biological and cultural and environmental hypothesis.)

    [callout]Institutional development costs are the HIGHEST productive cost paid by any civilization. That is why the non-corruption habits are so rarely developed in the world.[/callout]

    After forgone opportunity costs. The second highest cost is human capital: literacy, education and training. The third highest cost is the political institutions. The fourth highest cost is economic institutions (credit, banking, contract) And lastly comes the material cost of resources. These costs, when combined with the realities of group IQ differences, when combined with the realities of territorial resource availability, are the primary reason for development differences between cultures. We do know that Greece and spain were more productive cultures before Spain experienced new world gold, and before Greece was administered by the ottomans. So it would appear that these are not biological problems, but institutional (cultural and habitual, and political) problems. Greece is less productive because it’s institutions are poorly paid for by forgone opportunity, because their government is corrupt and bloated, because their people work in unproductive efforts, and because they have no group incentive to work otherwise – and so Greece is poorer because of its instutions. And since germans pay the forgone opportunity cost as well as the monetary cost, they are (rightfully) resentful of it. And the convenient myopia of quants is that they disregard REAL costs of action in preference for visible monetary costs simply because of the ease in which the data can be collected. A convent way of perpetuating leftist ideas – ignoring the majority set of costs in preference of the confirmation bias permitted by the data that’s easier to collect. As the right always says “we are not against taxes we are against bureaucracy”. The problem is not taxation. It’s the USE of taxes to steal the productive result of forgone opportunity costs : double taxation on the productive which only serves to limit the investment by the non-productive in the bank of forgone opportunity costs, which are, in reality, the primary cost any civilization must pay : behavioral costs. Property itself is a forgone opportunity cost. The more granular and abstract we make our definitions of property the more opportunity that people have to steal it. Objective truth telling is a forgone opportunity cost. Each forgone opportunity for deception and fraud is a high cost. One does not need to be materially wealthy to pay that cost. One simply needs to forgo opportunities to profit from deception. One does not need to be deprived of good pay as a bureaucrat, one needs only to forgo opportunities to charge for one’s services rather than render them at the lowest cost to the beneficiary.

    [callout]This is the moral argument for redistribution of wealth: if you conform to forgone opportunity costs, you may receive redistribution from the results of productive ends. But ONLY if you pay your ‘taxes’ in forgone opportunity costs.[/callout]

    Or put another way: the secret to the success of the pacifist monotheistic scriptural religions is that they undermine the forgone-opportunity-cost economy via redirection of opportunity costs toward the group-persistence costs of a new social institutions, and away from materially productive institutions. In other words, they are a non-participation rebellious movement, a form of economic tax evasion. (In case this isn’t clear, there are two forms of tax evasion: monetary and forgone opportunity, with the productive classes seeking to evade monetary taxation and the unproductive classes seeking to evade forgone opportunity costs.) This is the moral argument for redistribution of wealth: if you conform to forgone opportunity costs, you may receive redistribution from the results of productive ends. But ONLY if you pay your ‘taxes’ in forgone opportunity costs. In other words: conform or no redistribution. This effectively is the german argument against Greece. Or more precisely, monotheistic religions are resistance movements and they are what people like Paine advocate: the adoption of a lower cost forgone opportunity strategy that undermines the productivity of the more productive classes, making them subservient to the resistance movement. Greece needs an austerity program. It needs freedoms to compete disruptively internally, it needs to concentrate its capital on goods that are competitively productive, it needs to improve its infrastructure. It needs a broken window policy of zero tolerance (the place is a dump), it needs regulations on quality (which are underrated as a social institution), it needs better education. But most of all it needs the elimination of a predatory state whose members see their positions as personal property to be exploited rather than a public service to be rendered at the lowest cost to the population. Leftism is predation on the productive classes. Rightism is too often predation on the non-productive classes. (Productivity being different from labor hours). The issue for any culture is to reduce predation in favor of cooperation, maximizing the productivity of the group in response to other groups. Acknowledging inequality is only acknowledging rarity. we are vastly unequal in our abilities. Therefore we are vastly unequal in our productive capacities. However, we are equally productive in our ability to forgo opportunity from theft or fraud, especially theft by over breeding one’s self into permanent poverty. If you conform to these institutions, then you are PAYING for these institutions, and therefore you are EARNING some amount of redistribution. But if you are not willing to work regardless of the job (as are the Japanese and chinese) and if you are not willing to forgo drugs and violence and theft, and if you are not wiling to forgo the effort of manners and ethics and morals, then you are not worthy of redistribution of the productive gains because you have not PAID for the effort needed to create the institutions that make such productive gains POSSIBLE. We can all equally forgo opportunity. In this context, Universal egalitarianism is simply another means of predation on the productive classes. Which means predation on the society itself. Greece needs to pay it’s taxes. It needs to pay it’s forgone opportunity tax. It needs to pay it’s monetary tax on the result of productive efforts. The most important feature of taxes on productivity, is that it incentivizes the government to enforce forgone opportunity costs, for the purpose of increasing productivity. This creates cultural unity, class unity, and competitive advantage for the group.

    [callout]And “it is not taxes that are paid, but unpaid” is true. It is the unpaid tax of forgone opportunity cost which is the very ‘charge’ for entering the civilized market, and becoming a citizen rather than a barbarian.[/callout]

    Ie: Paine is advocating thievery, economic and social destruction here on a daily basis, by simply replacing the absurd moral arguments of monotheistic scriptural religion with the one-sided absurd argument of economics and egalitarian redistribution of productive gains in order to fund his predation on the productive classes, so that he, and others, do not have to pay the forgone opportunity costs needed to create institutions that permit productivity. Yet another silly religion that is simply a rebellion movement that justifies tax evasion. And “it is not taxes that are paid, but unpaid” is true. It is the unpaid tax of forgone opportunity cost which is the very ‘charge’ for entering the civilized market, and becoming a citizen rather than a barbarian. Hayekian knowledge is economic knowledge: it’s an institution. And it’s the most expensive institution we have to pay for.

  • Krugman Watch: Debt Totalitarian

    Default, Devaluation, Or What?

    Is there anything more to say about Greece? Actually, I think so.

    Krugman goes on to comment on the loveliness of more debt. Why? Because debt causes two systemic changes. First, it transfers power to the banking class and the state. Second, it replaces law, custom, and religion, as a means of social management. We have evolved three systems so far for managing society: first phase: religion and shared labor, second phase: law and taxation, and third phase: credit and debt. My Krugman wants us to enter the third phase without understanding the first: concentration of resources, the second: trade routes and markets, or escaping it’s claws. [callout title=Debt Slavery]Mr. Krugman your world view is full of debt slavery.[/callout] The truth is that we must keep each of these systems of social organization. Religion is a means by which we establish general goals for concentrating effort and resources. Soldiery and market making allow us to control land, trade routes, and to build markets and a division of labor. Credit and Debt let us build a more complex world of incentives and regulations on a more granular individual basis so that we may increase the division of knowledge and labor. But none of these systems is sufficient alone. A reader comments to this effect on Mr Krugman’s blog:

    Konstantin, New York, N.Y. May 4th, 2010 Mr. Krugman your world view is full of debt slavery. Greece should leave the tyrannical European Union and then if it wishes can devalue their currency but not too much.

    To which I responded:

    “Mr. Krugman your world view is full of debt slavery.” Quite true. But this strategy suit’s Mr Krugman’s desire to move society from upper class military control over trade routes for the purpose of creating markets, to working class bureaucratic control over individual lives for the purpose of creating the illusion of psychological certainty. In other words, from a growing to a dying society. Since we possess too little information to predict the future, we invariably make our judgements about the future according to our class and cultural metaphysical assumptions. We confuse these assumptions or ‘preferences’ for truths. But they are just ‘silly ideas’ writ large, whose silliness is obscured by ignorance, time and complexity.

    And unfortunately, it would be a full time job to criticize Mr Krugman’s silly logic. He complains elsewhere that the volume of criticism has increased of late, and that it’s from the Crazies. Crazies simply include a vast number of people in and out of the profession that see him as not an economists but a political hack. But I’m not sure that there is any better way of illustrating the foolishness of the left than to build a body of work that articulates one’s position by showing the consistency of errors in one’s opposition. And it’s entertaining as well as utilitarian. Unfortunately, I dislike the man.

  • Conservative Complaints About The Social Security Scheme

    The conservative complaints with social security are that it is not a fund, but a state-expanding tax. Nothing was paid into it, and therefore it is simply a current tax to redistribute from young producers to old consumers who failed to save. And secondly, that this tax also funds an intrusive and abusive government. These are structural complaints, not complaints about ambitions or outcomes. The original creators’ ambition for this tax was to create an insurance scheme for the minority of people who lived past 65. Except, people vastly live beyond 65 today. In other words, the tax went from low to high risk because of unforeseen consequences. The conservative objection to liberal hubris is that they are asked to absorb risk because of the STRUCTURE of this system, which is now a form of intergenerational welfare, rather than the form of insurance that it was designed to be. The solution to this structural problem is as follows: 1) to convert from an inter-temporal redistributive and high risk tax to a low risk insured savings program. 2) To change from income tax to balance sheet tax. 3) To have the government participate in, and redistribute, profits from the use of credit money – credit money which is borrowed from and secured by the promise of labor by the average person. This set of changes would eliminate benefits at a specified multiple of the mean. It would unfund government bureaucracy. It would insert more money into the economy as investment capital, and decrease the negative effect of inflating the monetary supply on savers.

    [callout title=It’s A Tax]social security … not a fund, but a state-expanding tax. Nothing was paid into it, and therefore it is simply a current tax to redistribute from young producers to old consumers. [/callout]

    The general argument against the correction of the social security system, is that if we increase the tax by 2% and change the age slightly, that the system as it stands would be fully funded. To which I’d counter, only if that 2% comes from balance sheet weight, not income. Because for a vast number of companies that are not subsidized by the financial markets, 2% would be half of their annual profits, and this failure would have to be built into the system. I see no reason to rely upon assumption that the 20th century, which consists largely of the greatest external advantage that a nation has ever experienced, can be used to project the future. It is not logical to ask decreasingly populous generations facing increasing worldwide competition to support a longer living and increasingly expensive class of retirees, when instead, retirees should have saved to lend money to the generations that follow. These advantage are not sustainable, and even if they are, the system currently asks all to risk in order to fund current government, rather than all to save, to insure their mutual success. The belief that we will continue our economic advantage is the myth of american exceptionalism. Savings is sustainable – in any culture. But not the assurance of worldwide competitive advantage which can be redistributed. As an entrepreneur, I do not fear the market. I fear that the government will extort enough from the entrepreneurial class that they will abandon their belief that they can outpace the predatory state. Tax individuals not by income but by balance sheet. Progressively tax companies for market participation. Eliminate the double tax system on dividends. Increase the tax on speculative returns.

    [callout title=Fears]I fear that western advantage, which was demographic, technical and military, will be neither demographic, technical, or military. And that the very institutions that were limited enough to guarantee us our freedom will be the institutions by which we are permanently enslaved and impoverished.[/callout]

    I fear that the bureaucracy, as in the UK, will become a predatory class living on a virtually enslaved population. I fear that western advantage, which was demographic, technical and military, will be neither demographic, technical, or military. And that the very institutions that were limited enough to guarantee us our freedom will be the institutions by which we are permanently enslaved and impoverished. It is easy to rate the success of any government by the direct redistribution divided by the cost of government employees, and seek to constantly improve the ratio, just as we do for non-profits.

  • IEA Blog: UK Lib Dem’s and ‘Ten Years Of Substantial Unemployment’

    I love reading the UK press, because by and large, the quality of discourse is far beyond that of what occurs in the US. I posted on the IEA Blog, this response to the statement that, coarsely written and paraphrased here as ” Yes the Lib Dem’s may achieve power, but anything is better than ten years of substantial unemployment.” I’m a little cautious about sounding like a critic when I actually think that the IEA produces great thought. But it is far less work to criticize a good idea, than it is to refute an ocean of fantasy and ignorance. Hence I apologize if I come off a critic rather than an advocate.

    Unemployment results from the government’s confusion between consumption and production in that they assume that consumption is equal to production. Their policy of general liquidity that diverted capital from production to consumption and created both recursive asset inflation, and a reduction in competitiveness. This is the broken joint in Keynesian logic. It assumes that increasing liquidity can be put to increases in production. Production means that an activity increases output while decreasing man hours, and costs. The problem for any state is to put captial, not behind consumption, but behind increases in production that cannot be achieved by the private sector. … This concentration of capital will create new jobs, and ongoing competitiveness, from which redistributive capital can be siphoned. Private sector production increases will lead to some unemployment. Uncontrolled breeding and immigration will lead to unemployment, and particularly disadvantage second quintile workers. (A step above the bottom). So the state can divert this process by participating in funding international (export) competitiveness. The state must adopt a policy of investment, not liquidity or redistribution. Because only investment allows redistribution. (And the government, which consumes such a vast amount of GDP is simply a redistributive system.) A free market is a bounded market, because there are LIMITS to private investment. Since all borrowing is, under fiat money, borrowing from the middle and lower classes, and they (as we have just demonstrated) carry the risk of borrowing, then the reward for that investment should be returned to them. As such the state should borrow to create productivity increases (power, transportation, technical innovation, resource exploitation, and education) and return a portion of the profits to the citizenry as redistribution. Laissez faire both puts the citizenry at risk without reward, concntrates capital in the hands of a state sponsored class, and deprives the citizenry of opportunities. That is how to prevent ‘ten years of very substantial unemployment’. The party that accomplishes it is meaningless. THe party that ignores it is meaningless.

  • Conservatism Is Not A Longing For The Past – It’s A Capitalization Strategy.

    Being a conservative simply means taking a gradual approach to social change and particularly with respect to the financial, family and military traditions that affect status and political power, which they are skeptical of. Conservatism means being skeptical that our visions of the future will come true, and looking at the world as what people ACTUALLY DO not what we WISH they would do. In that sense, conservatism is historically scientific even if linguistically archaic. Conversely, while liberalism is linguistically modern, it is utopian, idealistic, contra-observation, contra-history, and therefore anything but scientific. The differences between these two philosophies are vast and numerous, but the one that is most important, is the difference between the reliance abstractions from experience in conservatism, and the reliance on abstracting experiences in liberalism. This may seem a complex idea, but liberals try to extrapolate the daily experience into the extended order of human cooperation. THis is called ‘induction’. Conservatives synthesize the actual experience of aggregate human activity from history. This is called ‘deduction’. Induction is a process that we are not sure, despite the vast effort of philosophers, exists. In other words liberalism if faulty on scientific grounds. It is a religion. This language problem has always been an issue for conservatives. Liberal dictums may sound scientifically sound if one induces from experience. Conservative (dictums) are sensible when one deduces from abstractions of history. And everyone must use these shortcuts, because too few of us possess the knowledge to make rational judgements and therefore must rely upon basic principles when making decisions. In fact, rational thought is applied to the vast minority of choices. Most decisions are made by habit. The rest according to shortcuts. For the vast majority of people from either conservative or liberal, neither induction or deduction is a rational process of choice, but instead, a process of identifying analogistic sentiments: it’s the act of pattern recognition rather than reason. Pareto called this process of pattern recognition “residues and derivations”, others called them “Metaphysical Judgements” or “Sentiments”. Contemporary thinkers and public intellectuals call them “beliefs” or “biases”, or “science or religion”. And our language incorporates these different sentiments. Our arguments do as well. Our narratives, myths, popular fiction, entertainment, status aspirations do. But so do your political rhetoric, which, because reason would be a technique unavailable to the masses, rely entirely on a complex web of constantly warring sentiments wherein the citizenry seeks confirmation bias, rather than a simple argument consisting of reason, where the citizenry seeks both consensus and falsification of their biases. In other words, where people are skeptical – conservative and rational. Utopianism is a technology that people use during periods of prosperity. Because we have been artificially prosperous due to the discovery and exploitation of a continent, we as a nation are notorious for predicting an optimistic future that cannot or has not occurred. The public dialog over the causes of our prosperity is often inaccurate and self-congratualtory rather than factual. We have transformed our culture of evangelical christianity into one of evangelical democratic secular humanism. Conservatives are skeptics. They may speak in antiquated language, because antiquity is their source of their language. They may fail to articulate their position effectively in contemporary terms because of that language, but regardless of the source of their language, the content of their language is strategic, intelligible and rational. And it is not just a language, but a methodology that represents their strategy for social order. They ACT conservatively, think conservatively, and treat the world conservatively. This conservative strategy and conservative activities are why conservatives are, in general, more prosperous – and frankly, happy. And the sacrifices that they make in order to be prosperous are material to them. They remember them. And therefore they resent those sacrifices being ’spent’ by others who do not make the same sacrifices. Monetarists and capitalists are not conservatives. They may hide under conservatism. But they are not conservatives. The conservative class is a military, middle and craftsman class and it always has been and always will be. It is the ‘residue’ of the european fraternal order of soldiers at the bottom, and at the top, it’s a ‘residue’ of the middle class movement that revised and adopted civic republicanism during the enlightenment as a way of transferring power from the kings and church to the middle class. it is an alliance of the military and middle class. Liberalism (socialism, communism) is a ‘residue’ of a union of the priestly cast and the peasantry. Academia is simply an outgrowth of the church. The peasantry has always allied with the church, and the church has always had power because of it’s support by the peasantry. And that said, we do not have a separation of church and state. Our state religion is now democratic secular humanism. We are now a state-run-religion using the myth of division of church and state to oppress (or reform) religions so that we can have a state sponsored church. That’s it. That’s the articulated conservative position. The republican party collects conservative coalitions. The republican party is not a conservative party. conservatives join the republicans because they have no choice. They see the party as corrupt. People are complex and only join parties because of limited choice mandated by our ‘winner takes all’ form of government, which fosters class warfare. In fact, all political decisions exist on a spectrum or bell curve. There are a myriad of political decisions to be made. There are a myriad of people with different abilities to understand each political opinion. Each person is interested in a myriad of decisions. Parties are collections of people with opinions. Very skilled people tend to be highly unsatisfied with party choices. Very unskilled people tend to simply support their party of nearest interest. Parties therefore pick platforms that make enough people happy that they can get into power. Arguing that conservatives want to keep things asa they are, is a silly argument. The objection is simply illogical. The question instead, is whether liberals propose a solution that conservatives can live with, and wether conservatives can propose a solution that liberals can live with. The difference between social classes are differences in Time Preferences (between “consume” or “capitalize”, or gratification now versus gratification later). Longer (lower) time preferences are only possible if you have the ability to comprehend long term time preferences. This is another reason why social classes are organized by intelligence, and why a market economy tends to organize us into economic classes according to our application of intelligence to the satisfaction of OTHER PEOPLES WANTS, instead of our own. Time preference affects not only a dimension covering an individual’s perception of gratification. It’s a second dimension that describes whether his gratification now or later is served by providing solutions to himself or to others. This is the moral lesson of Adam Smith – that capitalism creates a virtuous cycle. If we had listened to the liberals in the last century we would have ended up like either Russia or China. If we had listened to conservatives we would not have had our progressive social changes, but we would not have corrupted our financial system using Kenesnian inflation. It’s the competition of ideas that gives us the choice as a body politic. It is the combination of LIBERAL OBJECTIVES and CONSERVATIVE METHODS that provides the means of achieving shared goals. Lets say that again. Liberal objectives are moral desires. Conservatives methods are moral means. It requires both these tools to achieve moral ends. The problem is, conservative methods take time because they require the learning and adaptation of people to calculative processes. These processes have nothing to do with religion. Christianity is largely a religion of the poor. Protestantism is perhaps the most important religion for generating wealth in the west as it is a class religion. Secular humanism is a feminine religion just as Aryanism (expansionist civic republican tradition of the initiatic fraternal order of city-defending soldiers) is a masculine religion. We do not need all to believe one thing, share one goal, work according to the same rules. If we did, we’d break the principle of the division of knowledge, labor, time, and intelligence. WHat people really want when they seek universal agreement is to concentrate labor, knowledge, time and intelligence on their goals at the expense of other people’s goals. Since people are unequal in their ability, in their class goals, in their cultural goals, in their age and experience, in their knowledge and in their intelligence, then we must divide up our actions into bits and pieces which we cooperate with each other to achieve. Democracy as we have implemented it is a winner-take-all political order. It foments class warfare. It does not foment class cooperation. We need a government that is a return to the division of labor and division of classes and time preferences. Democracy is a failure as we have implemented it. Because we confuse the value of the transformation of power inherent in democracy with the universal aspiration of classes, cultures, ages, generations, and abilities.

  • Contra Mises and Rothbard, and Aligning Mises, Hayek and Hoppe With Weber and Pareto

    I dont like to criticize postings at the Mises Institute, of whom I have been a member and supporter for almost a decade. It is far less work to improve on small errors than to solve catastrophic ones. And therefore less work, and more reward, to criticize your friends in the hope of making progress, rather than undertake the vast effort of correcting your enemies in a vain attempt at altering their desires, when their arguments justify their desires rather than their desires being the outcome of good argument. There was another recent posting on the MI blog regarding the use of private property. It proposes unlimited permission to use private property for private ends. And, I simply don’t like this facet of libertarianism. I don’t think it helps our cause. It’s not that I have sentiments against these kind of arguments. Its that I know that these arguments are not only false, but they’re fraud – theft. And if property and freedom are the underlying principle of libertarianism, then theft is the opposite of libertarianism. And the article by David Albin entitled Historic Preservation VS Private Property Rights is an example of how libertarian thought has incorporated the justification of fraud and theft into it’s doctrine by defining property to PERMIT fraud and theft. And, I see it as my duty, and that of any other seeker of freedom, to undermine any such doctrines so that we can continue our efforts to correctly identify the scope of powers that we must endow to the minimal state so that we may preserve our freedom (juridical defense), our property (registries of opportunity that permit economic calculation), and our prosperity (hours gained and prices decreased by dividing knowledge, labor, and and time.) The reason I have a problem with these errors, is that they have consequences. In particular, such errors as Mises and Rothbard (and Rand) have inserted into the discourse, have tainted the school of thought we call Austrian, such that some members of the libertarian movement are abandoning the term Austrian and adopting the general “libertarian” label, in an attempt at creating distance from the Rothbardians who are trying to legitimiza themselves by adopting the historical label of “Austrians”. In this broader context, the article, as as an example of the errors in the movement, is a proponent of fraud, is counter intuitive to the civic republican tradition to the extent that it appears to freedom seekers as either immoral or criminal, resulting in decreasing adoption of the principles of freedom. It weakens the insight that Hoppe has given us into democracy, monarchy and their corollary the coordination and calculation problem, deprecates the good Austrian thought of Hayek, Popper and Parsons, discounts the valuable part of Rothbard’s analysis of property and incentive, and taints Mises accumulated scholarship and wisdom by emphasizing a failed system of logic (Praxeology) — which failed because of it’s erroneous definition of property and limited definition of action, the logical necessity of which it purports to rely as an observational science in an effort to justify it’s conclusions and therefore act as a functional abilty to persuade people to adopt policy and political ends. This error is both a moral hazard and an intellectual one. intellectual because it advocates something that the movement specifically exists to support, and Moral because it does not facilitate the preservation and advancement of freedom. I have taken on the labor of rewriting a number of chapters of Human Action by Mises such that the statements are positive and do not incorporate the errors caused by Misesian limitations on action, and Rothbardian limitations on property. Hayek likewise could be corrected for his use of sensory order rather than calculative order, and thereby making the sentiments in traditional knowledge as he defines it, articulable in Rothbardian language. Approaching the works of these authors with these corrections is useful for both my self education, but also for revising the vast doctrine of examples and a priori language that have been build up in the field. This is a heroic effort, and I may not, partly because of the age at which I started working full time on the problem, be able to complete it. If I make a dump on my property next to yours have I not stolen from you? If a man wishes to use violence against you, is that not because he feels his property has been stolen? Isn’t this the entire premise of libertarian property rights, which is, that the state has allowed violation of property rights (by pollution in particular) in the name of ‘social good’? What’s the difference in going to a city council and asking to resolve disputes and going to a judge to resolve disputes and going to a sheriff, or priest, or tribal elder to resolve disputes? The answer is just the different criteria that the judge uses to determine his ruling. A city council who asks you to absorb losses is different from the city council who prevents you from speculating (in this case, that’s what’s going on, speculating.) Speculating is a risk. Quite unhappily for my friends here, individual property as a conceptual institution and it’s political institution of juridical defense (what we called freedom) is an outgrowth of the european system of fraternal defense, and in particular, fraternal defense of cities. While there were origins in greece’s fraternal order, the egalitarianism of the Civic Republican tradition is a european artifact – and a Germanic one at that. People ‘pay’ for property rights by restraint: by forgone opportunity. They pay for the political institutions by forgone opportunity. These costs are more substantial costs for the strong than for the weak. The ongoing justification for property rights is a) production increases in the division of labor and the decreased consumption of time, and the resulting reduction in prices, b) the conversion from a tax to a credit society allows a development of a code of laws for different social classes who are more productive or less productive than one another, and as such the cost of administration of a populace is distributed across the population. c) the decline in violence between groups who would otherwise resort to violence. d) the virtuous cycle resulting in the fulfillment of wants and needs. If I act to decrease the value of your property either directly or indirectly, why are you not simply STEALING from the pool of forgone opportunity investment? In other words, if other people who are affected by secondary costs REFRAIN from attempts at development they are paying an opportunity cost. If they codify this cost as a PROPERTY RIGHT by registering that loss with a property registry (the council) then anyone’s attempt to circumvent those registries is simply an act of fraud and theft, using the ruse of property rights to steal. That is the correct application of libertarian (hoppian) property rights, because those are the set of both the ACTIONS (costs) and RESTRAINTS (costs) that people take in order to make use of hte institution of private property. The attempts by certain sects of libertarianism to undermine this process of property rights is NOT the defense of property rights but a SCHEME for organized THEFT. This ‘sect’ of libertarianism is very easy to identify once we use the Misesian Doctrine that you can ACT by acting and ACT by not acting. You can also pay costs by ACTING and pay cost by NOT acting. There is no difference between a joint stock company and a city council as long as teh council is taking deposits on forgone opportunities RATHER than exploiting forgone opportunities. There are many types of property registry. It is the transformation of these institutions from property registries to political forces by which property can be extracted from forgone opportunities, rather than registries are a collection of forgone opportunities, a joint stock company, by which people can use micro payments of forgone opportunity to capitalize their efforts. To capitalize wealth by INACTION rather than action. To capitalize opportunity costs. This may be a big leap, but it is the missing part of Mises->Hayek->Rothbard->Hoppe, and the theory of human action embodied in Mises work, and personally, I find it a convenient means of attempting to STEAL from the wishing-well of deposits made over time by various people of all strata in an attempt to privatize wins and socialize losses. Mises made a mistake because he had too narrow a view of social cooperation, possibly because of his upbringing. (which Hayek noted.) Hayek was not able to correct mises, largely because he was distracted by his concepts of Sensory Order (because of his upbringing), and to turn his observations on common knowledge into action statements as did Mises. Rothbard continued to make progress but relied upon natural law, either as a means of avoiding the underlying problem or simply because he could not see the underlying problem. I see it eitehr as avoiding the problem, or a distraction resulting from egoism. Hoppe has almost corrected Rothbard’s bias. But these systems of thought all focus on visible actions and costs rather than the less visible forgone actions and costs. They justify ignoring them because they are hard to measure, then happily justify their desire to expropriate from the common man precisely BECAUSE they ignored these forgone opportunity costs. I am unable to fathom whether it is by malice or error that these ideas persist. However, failings aside, the anarchic research program has made it possible to undermine the assumed “calculative” necessity for government as we have envisioned it for millennia and to replace that error with a superior “calculative” tool of cooperation – capitalism. But the continued attempt to ignore the forgone opportunity costs and focus only on money costs, is simply an attempt at the deceptive theft, by fraud, not trade. Let me repeat that: A statement that relies upon property rights rights, but is SELECTIVE in the definition of PROPERTY, and specifically to apply infinite DISCOUNT to forgone opportunity costs, is FRAUD. Period. Either all costs are opportunity costs or they are not. Selective attribution of costs is simply FRAUD. This statement will have, or should have, as much an impact on libertarian thought as did natural rights. And if it does not, then there will cease to be a movement. Because the reason that conservatives and libertarians fail to achieve significant political success is that they have failed be able to articulate those elements of their framework such that they can provide a POSITIVE solution for humanity, rather than a resistive one. And in particular, the argument that says we must rely on the MORAL position of libertarianism is simply a TRAP so that we can further ignore the forgone opportunity costs paid by all people in a society. Instead of a specious moral mandate, the problem is one of coordination, and as a problem of coordination among large numbers of people, where there senses are inadequate to provide needed information for decision making, the answer, rather than moral, is ‘calculation’. Because ‘calculation’ is the only means of extending our perceptions such that we can make increasingly complex decisions. Even if the ‘number system ‘ we use consists of time and property, and the numerical system we use is to gain efficiencies in perception on the use of time and property. From this standpoint, Mises and Hayek are not opposed. They are both inadequate with Mises solving the individual cost problem, and Hayek solving the opportunity cost problem – albeit in terrible and ineffective terms. Rothbard is inadequate as was Mises. Hoppe took us farther and compensated for some of rothbard, almost breaking out of the Rothbardian limits and simply returning to the problem of incentives and knowledge. We have spent a century trying to use money as our sensory system and means of analysis. Mises created or at least elaborated on a theory of action, while missing the underlying economy of forgone opportunity. Hayek and Popper dealt with the problem of ignorance. Pareto and Weber dealt with the problem of knowledge and bias. Parsons did his part as well. But these men all failed. Instead, the answer was sitting there in the socialist calculation debate. What surprises me is despite the obvious nature of that answer, and the predominance of misesian thought, that the history of human political operation has not be rewritten to accommodate it. “The greatest forgone opportunity cost is by the strong, who do not simply conquer the weak, but instead demand tribute for their institution of property rights as their lowest cost means of profiting by handling exceptions.” Individual property is the result of the defensive tactics of the fraternal order of soldiers and the need to enfranchise the population. This is the very opposite of the religious dictums proposed by all to many libertarians. Peace and property are the result of the use of and organization of violence. The state is the application of organized violence. It is the abuse of that violence by members of the state to steal from the forgone opportunities for violence that have been paid into the wishing well, and paid for, by constant recapitalization, the institutions and habits we call freedom, and it’s calculative tool, property rights. The question is not what happens with one man on an island. It is, should a thousand of us be put on an island, what happens? Island myth is false at it’s outset, and therefore all that follows is false as well. Again, since I learned more from these people than anywhere else, and I believe desperately in their mission, and I respect them immensely and call a number of these people friends, I am not criticizing any intention or character. I want to advance that mission. But to do so I think that the Misesian-Rothbardian error needs to be corrected for libertarianism to provide the intellectual leadership that conservatism needs, and to finally offer a positive solution to compete with the utopianism of the socialists. Curt Doolittle

  • People ‘Earn’ Redistribution By Controlling Their Breeding

    Another Empathic Appeal for the poor on NewsJunkiePost.com, entitled, Poverty: Half The World Lives On Less Than $2.50 A Day Unfortunately, the first prerequisite for prosperity is to control your population’s breeding. The worlds problems are not ‘density’ or ‘pollution’ or ‘capitalism’ but the transfer of life-extending technology to peoples who do not the cultural ability to control their breeding without the limits set on life by agrarian food production. For thousands of years, food production and disease gradients have limited population for people who lack the personal and social technology to control their birth rates so that they may stay within their productive means. Then we in the west, in our compassion, and in our lust to profit, sell these people life extending technologies without demanding that they control their birth rates. Were we to distribute all the wealth of the west to these people they would simply consume it and would match their reproduction to all increases in production, impoverishing the west as well. The division of knowledge and labor, the resulting increases in production, and the virtuous cycle of lowering prices because of this increased production are only one half of the equation. The control of breeding in the (protestant) countries is the other half of the social problem. More countries need a one-child policy, and the infrastructure to support that policy. Unfortunately, corruption is so rampant in these breeding-centers. Thankfully the rate of capitalism’s transformation of the world from agrarianism where children are a productive asset, to industrialization where children are a very high cost, is slowing the overbreeding problem in the ’second world’ of organized states. Incorporation of women into the workforce further controls breeding, and often too much (Japan and Russia). The reason we need women’s participation in the work force, especially in poorer countries, is so that they do not breed their civilizations into permanent poverty. The problem isn’t money. It’s cultural discipline. If we are going to even discuss mobilizing states to correct poverty then we should mobilize states to control breeding. Otherwise, along with our technology of life extension we are simply handing a murder weapon to a madman. “In other words, in 2004 about 0.13 percent of the world’s population controlled 25 percent of the world’s wealth. If we consider the global spending priorities of 1998, the trends were already extremely alarming.” Most people who read have heard of the 80/20 principle. Which means that 20% of the people control resources. This principle was developed by Vilfredo Pareto, for whom it’s named the “Pareto Principle.” He used quite a bit of data to show that in England in particular, 20% of people controlled about everything, and that income was rewarded accordingly. This also supports the value added by people. Despite our rhetoric of egalitarianism and equality, the top third of people are more productive than the bottom two thirds combined. And, at least it appears, that the top twenty percent are more productive (have more impact on generating goods and reducing prices) than the rest combined. The problem for any society is allowing the most productive people to concentrate sufficient capital that they may raise the population into prosperity. After which it’s possible to implement programs of redistribution. you can’t share what you don’t have. Unfortunately, the only value most citizens have in an economy is to provide menial labor and to consume goods and therefore create demand for goods and sevices. Imbalances in assets are needed to allow the creative and productive members of society to concentrate capital (which is the ability to influence others in an organized fashion) so that productivity can be increased. There is no record in history of this system of wealth concentration being abated. If it IS changed, then the vast majority of people on this earth will rapidly die. The problem is instead, to control reproduction and to increase production and continue the ‘virtuous cycle’ while we live within our means, so that we can redistribute something on the order of 20% of our wealth to those who have EARNED that right by the cost of forgoing further reproduction. In other words, you EARN redistribution by controlling your breeding.

  • The State’s Moral Hazard, The States Immoral Mandate, and The Solution To Both

    Rafe Champion on The Austrian/Keynesian Marriage from The Coordination Problem.

    …the problem of regime uncertainty which the Keynesians address by saying you will get all the certainty you need from our helpful interventions. But we have long ago reached the point where most of the interventions are the problem, not the solution. Uncertainty is a fact of life and maybe the role of good policy is to provide political and legal stability – not certainty but a reasonably stable institional framework where people can plan for the future with some expectation that they will not be shafted by the next political or administrative decision. If the institional framework is badly broken it need to be fixed but as Roger likes to remind us, that can only be done by piecemeal, experimental steps to handle unintended consequences.

    (Note “Regime Uncertainty” is a term meaning “uncertainty created by fear of government intervention”.) Pietro Follows

    #1: monetary policy is a cost-socializing technology which reduces the costs and risks of investment, causes bubbles and pushes for a type of overconsumption called “equity extraction”: consumption out of unreal wealth, i.e., capital consumption (Machlup described the same process). #2: moral hazard makes irresponsibility and recklessness privately rational, and the bubble economy is the result. This is the transmission mechanism in its most abstract form: cost socialization begets coordination problems in terms of bad incentives and false information. #3: at the certain moment either (3a) the monetary drug is no longer available or insufficient, maybe because of inflationary fears (exogenous credit crunch), (3b) the financial structure is no longer capable of transmitting monetary stimuli because it is broke (endogenous credit crunch, which, as the famous rapper Freddie H sang “That credit crunch ain’t a liquidity trap, just a broke banking system”), or (3c) the economic structure is no longer capable of sustaining overconsumption (real resource crunch, whose result is normally a scarcity of circulating capital, like raw materials, that in fact have skyrocketed the first 12 months of the recession, and are rising now that someone ventures to talk of a recovery). In ABCT there is (3a) (the Fed takes away the punch bowl) and (3c) (the economy collapses because of capital structure problems), but there is no explicit analysis of (3b), i.e., systemic risk. I think that a breakdown of the financial system due to an unsustainable financial structure, such as excessive leverage, monetary multipliers, reliance on foreign credit, reliance on liquidity, maturity mismatch (30y mortgages vs 3m commercial paper!) is a more apt description of the recent crisis than problems in the capital structure. … An unsustainable financial structure is not an aggregate demand problem: it’s the legacy of a past moral hazard problem which causes a dearth of capital and a crisis. There is no path to a new equilibrium which does not pass through a credit crunch, the repayment of debts, massive deleveraging, exposure to maturity mismatch, and thus a reduction in investment levels.

    The question then, becomes one of quantity. How do we know how much social insurance and risk reduction is maximal? The moral hazard then exceeds risk taking on the part of individuals, and in turn becomes risk-mandating, when all participants in the bubble economy must not only forgo opportunity for gain, but instead, will be driven out of business if they fail to participate in the risk. This is what happened to bankers who need to keep clients, and employees, buliders who need to keep banking relationships, and subcontractors, business owners who see competitors using low priced capital to compete rather than superior products, services and prices, and the general public who fears missing an opportunity for gain, and losing both status material opportunity. That is the definition of a bubble: the point at which social-insured capital is being consumed as a defense against opportunity loss, rather than as an offense for the purpose of increasing production, increasing choice, and reducing prices. The problem for economists and policy makers is either knowing when this inflection point happens. Or knowing when it must occur. This knowledge cannot be achieved by monetary policy – it is a WEAK LEVER for managing an economy. That weakness is well known, and well understood. Our desired ends can only be achieved by LENDING, not monetary policy. The difference is the knowledge one has of MONEY IN THE AGGREGATE , which is zero, and the knowledge one has of his LOANS, which by is greater than zero. While it may not approach ONE, it is far greater than zero. Instead, we print money at public expense and give the proceeds (interest) to the people who do the WORK of the state: large capital firms, and they determine it’s use. The state should make loans to private industry and the state should collect the interest as earnings by the citizens for the purposes of redistribution. The government needs to become a bank that makes loans into an economy for the purposes of increasing production, competitiveness and therefore employment, not a re-distributor in the economy for the purposes of increasing consumption and achieving full employment by MANDATING the LOSS of competitive production. Fundamentally, we must transform elements of the physical world for human consumption. Fundamentally, money is a store of human effort. Borrowed money, or printed money, is a borrowing against future human effort. And future effort is lower if we invested in production increases. This is sensible borrowing. And future effort is higher if we increase consumption by borrowing against the future, but do not increase production by the act of borrowing. That is NOT sensible borrowing, it is simply self deception and over consumption. Property is an institutional tool for divinding up the labor of human interacdtion with the physical world into digestible and managable pieces by our limited and somewhat frail human minds. Loans are a type of property. They help us break up the world into estimable bits and pieces. Property solves a KNOWLEDGE PROBLEM. Property makes things CALCULABLE. Money is a means of making PROPERTY commensurable. (Money is a unit of measure, a method of account) But money is a PROXY for property. You cannot measure money itself in a meaningful way. YOu can only measure the objects that it represents. By putting unmeasured, chaotic money, into an economy, you have no control over whether that money goes to consumption (negative redistribution) or production (positive redistribution). The confusion over the nature and purpose of government’s monetary dictatorship is a KNOWLEDGE PROBLEM. Loans are a way of atomizing borrowing against the future so that the results are knowable, or at least estimable and calculable. Instead of investing in nuclear power plants, a new power grid, and perhaps electric vehicles, or new roads, all of which would produce vast wealth, we invested in speculations and gambling on the tech boom, then in houses, then in commercial real estate, all without increasing production (houses are consumption not production because external groups cannot compete to produce them) or decreasing prices (we increased prices). Without increased production we cannot increase redistribution. The goal of policy should be productivity increases, not employment. We can have our cake and eat it too. But we have to get away from the myth of democratic and socialist government, and the tools of law and monetary policy. And instead we need to move most of government into the banking sector, and treat our government as the bank that we wish it to be, using the technology of bankers and insurance companies, not the technology of ancient tyrants, who were, to the letter, to a man, tyrants because they used law and tax, because that is the only technology available to them We do not need laws and taxes. We need loans, credit and interest. There is only one law, and that is property. We can have our redistribution and we can measure it. We just need to deprive our government of the ability to issue laws and levy taxes, and print irresponsible money, and instead, constrain it to the use of money EARNED by investment on behalf of the citizenry in productive increases. All of which would be calculable. All of which would enable and encourage freedom. And all of which would help social classes work together rather than at odds. What I cannot understand is why so few people have come to this conclusion in human history. Why the great economists were so enamored of the state and the republican tradition, why some others so enamored of individual rebellion against the state that they failed to see it. Why a few people during the Great Depression managed to figure it out, but failed to compete against the socialists. We need to replace our system of government so that it embraces the use of fiat money for the purposes of insurance, governance, social order, and redistribution. We live in the credit society, not the law society. Now we need a government of the credit society.

  • Citi’s Prince Doesn’t Place Enough Blame On The Government

    From Reuters, regarding today’s CITI testimony before congress:

    Prince’s infamous comment that his bank was “still dancing” even as the subprime crisis worsened came back to haunt him at the commission hearing where he was asked about it. His explanation seemed to boil down to this: it was a race to keep up with competitors who kept loosening lending standards and Citi couldn’t afford to drop out.

    Prince is too defensive. The correct response was that the government was madly printing money in an attempt to recover from the tech bubble’s crash. In this environment of cheap cash, Bankers must lend or be forced out of business by the actions of the government. The risk was compounded by the governments failure to regulate new financial instruments. And the government failed to regulate them because academic economists has proposed models and equations that promised risk, and many financial luminaries, of which Greenspan was a member, believed that these instruments had indeed reduced risk. THe problem is this: by printing money the government created a moral hazard, and the government is responsible for the outcome. A banker, with understanding or not, should not be forced into being uncompetitive or into insolvency because the state dumps the commodity we call money on the market. Bankers just protected their organizations from the government’s interference in business. Sure they profited from it. Because the only other choice was to go out of business. If capitalism fails, it fails because of government interference. Markets cannot solve all problems, in particular, they cannot concentrate a large volume of capital on long term projects such as infrastructure. But failures of capitalism are almost universally failures of government to refrain from those acts which cause long term harm for short term good. We are two years into this crisis and still the blame is on the wrong parties. Bankers are normal people, and few of them have all but the vaguest understanding of the economy. They are largely clerical workers and accountants who move the commodity money around our civilization. For all there terminology, graphs and formulae, for all their statistics and reports, the vast majority have little understanding of the impact of their decisions, the outcomes of their actions, or the limits of our conceptual technology in forecasting such things as risk. If the greatest minds in history have had trouble with such consensus, then why should we think bankers should? Furthermore, why do we think government is capable of doing any better than bankers? It’s hubris on the part of government. Practicality on the part of bankers. And foolishness all around. But the people who CAUSED this problem, are the people who have, at least since FDR, but likely since the start of the federal reserve, conspired to destroy our money, and with our money, our cautious behaviors, and with our behaviors our nation.