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[BLOG] Misery loves company
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Author Topic: [BLOG] Misery loves company  (Read 9078 times)
Heq
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« Reply #15 on: October 19, 2008, 11:22:43 EDT »

Andrei, just to nerd it up here I would say you've got a good chunk right, but feudalism in fact is more a centralized-decentralized sort of structure, and doesn't require foreign intervention.

Feudalism seems to arise naturally from an area that has some sort of cultural cohesion and a weak central military body, such as Han China, or the Celts, neither of whom were invaded/invading at the time (arguably the celts did some invading of Ireland).  It provides a group with most of the benefits of an imperial army with a fraction of the cost, and most nations after Roman times realized that without a large body of troops available, you'd quickly get pwned by anyone who could raise a significant force.

If anything, feudalism is closer to communism then capitalism.  As in a feudal structure the common people have immense power, as without standing military or policing forces those in power must rely on the good graces of the people to raise troops.  This is why all that business about owning castles and such, as well as the "natural selection" of leaders during a time of crisis.  We like to think kings and such wielded immense power, but they were really very boxed in.

As a side note, communism and capiltalism are not always mutually exclusive, most feudal lords were fiscally capitalistic agriculturally socialist, and militarily they were bound into a sort of "will of the people" leadership style.
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« Reply #16 on: October 19, 2008, 14:09:46 EDT »

and yet another is that it really isn't a good idea to have a small island nation that doesn't produce enough food to feed itself having its economy become over-reliant on financial services.

Oh.

...

Dammit.

Well... Provided we stopped exporting fish we wouldn't have any problem on the fish department, seeing as we export about as much as we import...
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Andrei
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« Reply #17 on: October 19, 2008, 23:22:32 EDT »

Quote from: Heq
Andrei, just to nerd it up here I would say you've got a good chunk right, but feudalism in fact is more a centralized-decentralized sort of structure, and doesn't require foreign intervention.
I won'r pretend I understand what you mean by "a centralized-decentralized structure".

However, while I agree that feudal-like societies don't require foreign intervention to appear, I think there are serious differences between home-grown feudalism and foreign-imposed one.

First and foremost, foreign-imposed feudalism seems more common. I gave examples above. In all fairness, you can argue feudalism is a natural social order and that foreign invasions always cause social upheavals, so it's just a statistical fluke, but I'm not sure I buy the argument.

If nothing else, I'd say a foreign-imposed social order is more likely to be of feudal flavor than a home-grown one.

Second and secondmost, while I have no actual data to present (mostly out of laziness), it is my impression (from my limited knowledge of history) that there is a difference between home-grown and foreign-imposed feudalisms when it comes to social mobility.

Namely, it is my impression that feudal-like societies which arose out of foreign invasions tend to be closer to caste-based systems, whereas home-grown feudalisms tend to be closer to class-based systems.

This is in fact why I mentionned Romania was never that feudal (except Transilvania which was under Hungarian rule). So many different peoples went in and out in the area that neither formed the entirety of the noble class, and nobles were more landowners than real noblemen, separated from other peasants primarily by economic standing and not by legal one.

Quote from: boring7
If I set a fire and charge someone to put it out, it's the FIRE, not I, that is threatening to burn down their homes.
I once read an anecdote about Catilina having a similar racket. His men would set the house on fire, then he'd offer the owner a ridiculous price for it as the owner ran out.

If the owner accepted, his men put out the fire and the owner was left with a ridiculous amount of money. If not, he just let them try to deal with the fire.

Quote from: wodan46
You seem to draw arbitrary lines between trade and crime.  A threat of physical force is a crime, but a threat of depriving you of resources that will result in you starving to death isn't?  All trade has threats implicit in it, even if those threats aren't explicitly physical in nature, because failure of the trade or hostility from the trader can have all sorts of negative consequences.
I'm not sure I buy that argument. I think that similarity between trade and crime is common to all human endeavours except charity.

To give an example, I work as a teaching assistant and tutor on the side. I insist on being paid for both of those activities.

Arguably, if you're in the desert and you know the location of the only water spring in the area, it would be thuggery to force people to pay for you to tell them where the spring is... but that doesn't mean all remunerated transmission of knowledge is the same as crime.

I certainly don't feel like a thug because I insist on being paid for my efforts.

Likewise, just because some commercial practices can (and should) be considered thuggish doesn't mean all commercial practices are.

I do believe that trade is somewhat closer to thievery than other human activities, but not because it has a non-trivial intersection with thievery.

I believe so because both have as end objective to gain undeserved money - after all, "a good deal" for a trader involves keeping or receiving money that he should rightfully have paid or not received.
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« Reply #18 on: October 19, 2008, 23:38:15 EDT »

Andrei, yeah, that was suppose to be an arrow, my bad.  It's a move from a centralized to a decentralized structure.  it is more common from foreign intervention and they do tend to be different, depending on the marriage laws of the invading culture.

It's really the caste-based generally pops out because there is a desire to keep a certain group of bloodlines "pure", this never really works out for that long, but it's the theory anyway.  To be fair there are only a couple of big feudal systems in western history with distinctive origins.  But yeah, homegrown ones end up often about ability and specialization, and often have a lot more wibbley bits in them to make sure a truly horrendeus ruler doesn't pop up, whereas imposed feudal structures rely on certainty that so-and-so -is- in charge.

Of course, as I always like to state, history isn't that clean, and voluntary foreign invasions can and do occur (or feudal obligations with un-ruled peoples), and often people borrow feudalistic concepts.  Western History is a bit of a mess early on to boot, but as I have stated, it is that mess which has proven to be the West's big trump card, it never really runs efficently, but has shown an amazing ability to keep running.
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boring7
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« Reply #19 on: October 20, 2008, 09:59:17 EDT »

I'm not sure I buy that argument. I think that similarity between trade and crime is common to all human endeavours except charity.
Even charity exist within the terminology of trade, unless you believe that altruism is truly selfless.  Charity creates that lovely sense of righteousness and even, according to most religions, purchases "positive karma" or "a better place in heaven."  Giving to others and charity a He who gives food to the hungry is "buying salvation," as the kids say. 

The mistake is seeing economic activity as being defined by morals, it is not.  Theft is an illegal harvesting of resources, mining is a legal harvesting of resources, charity is a giving away of resources, and bombing of a building is a destruction of resources (though also a creation of more of the "angry vengeful American" resource and the "fired up and proud of their success terrorist" resource, but we're getting complicated).  It's all economic activity, completely divorced from morals or ethics or other concerns.  This is not to say that one should not concern themselves with the ethical or moral implications of economics, quite the opposite in fact.  It is to say that people need to concern themselves with such things, because "the economy" never will. 
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« Reply #20 on: October 21, 2008, 06:50:00 EDT »

Quote from: boring7
-Your diatribe about "accidental" is as unnecessary as it is long-winded.  Incorrect or no, it is summarily ignored along with the deliberate misrepresentations built upon it.
Where have I misrepresented you?  I don't think I've misrepresented you anywhere in this discussion.  If I have please point to the specific sentences and I'll apologise.

Quote from: boring7
-Without government-backed money we would not have many of the obvious advantages of money.  Claims that this is a "myth" are unfounded as has already been explained.
I don't think we really disagree about this.  The myth I was attacking was the idea that government is responsible for _all_ of the benefits of money.  Clearly it is responsible for some of them.

Quote from: boring7
-Your arbitrary delineations between "law" and "regulation" are based on fundamentally flawed assumptions and contradictory arguments.

Quote from: Current
Economics only really concerns itself with situations where there is a rule of law.
This is wrong and directly contradicts your earlier position of "economics is just a fuzzy conceptual paradigm for transactions and trades."
What happened was, you said:
Quote from: boring7
There is not function or purpose to a thing that only exists as a conceptual aid.  "The economy" (whichever one we're talking about) is simply a descriptive term or psychological category for all trades and transactions within it.  It, like the ecosystem of a jungle or the process of evolution, has no "plan" or "grand goal" in mind, it simply is.
I replied:
Quote from: Current
You are absolutely right here.  I wish more people understood this.
Which is what I think.  However, when I talk about trade I use the definition from dictionaries and economics textbooks.  Unlike yours that definition doesn't include things like theft.

Quote from: boring7
You are applying artificial impositions of "property" and "ownership" while ignoring other artificial impositions.
No I'm not.  This is the general viewpoint of most economics literature, which is what I was talking about.  Government and crime are not normally treated, in order to simplify matters.

Still, I agree with the viewpoint economics takes, for most purposes.

Quote from: boring7
Another pair of contradictions is here:
Quote from: Current
Quote from: boring7
Let's say I am a privately-owned utility, and the only source of water within 100 miles of a particular desert community.  If I refuse to sell water to that community they might die, they might just be really thirsty while they find a workaround (say, my nearest competitor from 100 miles away).  That's perfectly legal, and it is also trade.
Yes.
Quote from: Current
Trade is an exchange that neither party is being coerced into making.
Your token defense of this is simply wrong.  The thug is being paid to offer security, a security that he owns just as surely as Mr. Water guy owns the water supply.  You pay him and he does not hit you, just as the town pays Mr. Water Guy and they do not die of dehydration.  The "Mr. Water Guy is not threatening them, the desert is" argument is as ridiculous as the thug explaining that it is not HE that is doing the hitting, but his fists.  Without payment the town dries up, and the thug beats people up.
Quote from: boring7
"Trade is an exchange that neither party is being coerced into making," you say.  So if a desert community has the choices "buy my water or die" that's not trade?  "Oh it's trade because MWG (Mr. Water Guy) is not the one doing the killing," you say.
The two situations you describe are entirely different.

The thug in your example threatens a person in order to extort money.  The thug may decide not to do this.  It does not take him any effort at all not to act.

The water seller is in a different situation.  If he does nothing then the town in question will still be in a dire situation because it is in a desert without much access to water.  In order for this situation not to occur the water seller must act.

Quote from: boring7
Of course he is threatening, I If I set a fire and charge someone to put it out, it's the FIRE, not I, that is threatening to burn down their homes.
Both are obviously practicing intimidation, the water seller though is doing it through trade.  Although he is threatening he is not coercing anyone.  The desert and the government's administration of the law are the problems the town faces.

Quote from: boring7
It can be seen clearly when you consider what would happen if the trade had never been offered.  The thug would beat you up (he likes beating people, he just enjoys money more)
Not necessarily.  Whether he beats anyone up or not is his decision.  He may like it or he may not.

Quote from: boring7
, and the town would simply pump water out of the owned lake/aquifer/whatever without paying attention to the owner's artificially-enforced property rights.  Or did you forget that the concept of "property" is either an artificial construction of the government or "whatever you can defend with your guns/knives/teeth"?
The concept of "property" is certainly artificial, and as you say is a construction of government and other agencies and powers.  However without it there can't really be such a thing as economics.

Let's take your example further.  You say "the town would simply pump water out of the owned lake/aquifer/whatever without paying attention to the owner's artificially-enforced property rights."

If they do that then exactly what meaning does property have?  If the government have permitted the town to do this then who owns what?  Surely whoever has the power to control things owns them.  A few paragraphs down from this you condemn arbitrary power, why do you prefer it here?

In a free-market society the law arbitrates between different claims to property.  In other sorts of society various powers have power to manage without restrictions of law.  The one we live in is one with aspects of both.  Often things like water supplies are influenced by government, which is quite sensible.  But in general it is more free-market than not since the government arbitrates rather than directing.

Quote from: boring7
The problem is you keep asserting that the definition of "trade" follows one set, universal rule or another, but then ignore exceptions or contradictions to those very same rules.  You take property rights as set in stone, yet property rights are constantly in question.  You cannot steal my house, but what if you cut down trees on my property.  What if you are breathing my air?  What I am pumping pollution into your air?  I could tell you the long argument that still rolls about whether I am allowed to put electricity-generating windmills on my hillside property if that can ruin my neighbor's property values.
I agree with you.  What I wrote above was a simple explanation.  Of course you are right, what property is and how it is defined is undergoing constant revision everywhere in the world.  What trade is undergoes much less revision, but of course trade depends upon property.

Quote from: boring7
You make these assertions that claim (implicitly or explicitly) to be objective and fundamental definitions or rules about economic behaviors/activities.
Not really.  I'm talking about generalities here.

Quote from: boring7
This is not true, every one of them is subjective
To some extent, yes.

Quote from: boring7
Theft is illegal, but from another point of view it is simply harvesting resources that happen to be in your wall-safe.
I don't understand you're point here.

Quote from: boring7
Beating people up is extortion, but so is demanding the Gross County Profit for a lifeline of water.
If you view simple withholding of resources as extortion then surely we are all guilty?  By keeping your money in your bank account surely you are denying it to people starving somewhere in africa?  You could send some of them a letter offering some of your money in exchange for some service from them.  Or you could just ignore them, in which case they may starve.

In your view is it that simply making the offer of exchange is extortion?

Surely we are in the same situation as your water seller?  Or rights to our property in the affluent west are just as arbitrary as his.  Just because those he is selling too are near his property changes nothing.

Quote from: boring7
Demanding that the financial sector follow certain rules is a restrictive regulation, but it also frees us from other restrictions like a currency suddenly becoming worthless.
That all depends on what those rules are and how they are created and maintained.

Quote from: boring7
To your stances on what is or is not property, extortion, law, or regulation are all subjective.
To some extent yes they are.  I think that yours are too.

Quote from: boring7
Why does that matter?  It matters because it blinds you from seeing that criminal activities and the defenses against them are economic activities and what that means for the bigger picture.
From the point of view of the subject of economics they generally aren't.  However, I agree that they are profitable, and are certainly things that occur in society.

Morally speaking what you are trying to do here is to equivocate various different actions.  To convince people that all sorts of power are really derived from force and are therefore equivalent.  You are right of course that all power and property are ultimately derived from force, but that doesn't make all use of force equivalent.  Simply because there are problems with the ideas of property and trade doesn't mean that they should be abandoned.  The alternative is rule by arbitrary dictats coming from whatever government arises.  This is clearly vastly inferior, even if that government is democratic.

Quote from: boring7
In a truly free market there is no block on robbery
If there is no block on robbery then surely there is no property, and therefore as we have discussed, no trade.

Quote from: boring7
Property rights become "what you can keep" so police and law are replaced with private security forces and "my home is my castle and these are my guns."
Which is hardly property rights.

Quote from: boring7
There are factions in this country which already seek to do this (or so it would seem) right now.
Yes.  I'm not one of them.

Quote from: boring7
The law stops me from being profitable by grabbing what I want and it also means I do not have to spend time, money, and effort on private security because the government and the law do it for me.
Yes.

I don't understand you argument here.  If you disagree with what you are criticizing in the last four sentences above then explain your example regarding the water seller.  Without property law the town may seize the water supply regardless of who notionally owns it.  Property becomes, as you say "what you can keep", meaningless and dictated only by who holds power.

Also, if you agree with the law and see how it protects you then why do you want to hand more power to financial regulators?

Quote from: boring7
What is this to finance?  Government-backed currency and law provides a stable (usually) playing field for the game of economic activity.  Banks get to hold money, banks get to loan money, and they all follow the rules.  The regulations that keep banks from, say, lending all their money to failed institutions and then having no cash to cover the deposits of their customers are the same as the regulations that mean you can call the police and retrieve your property if I mine your garage for a rich vein of "Car" ore.
Yes.  I certainly approve of government backed law providing a stable playing field.  And I certainly approve of governments holding banks to the law and preventing them from making loans of the sort you mention.

Quote from: boring7
Stable banking is like reliable police, it makes doing business less dangerous.  You needn't worry about someone robbing your home when you are out to buy groceries and you needn't fear the bank losing all your money.
Again, I agree.

Quote from: boring7
The problem is, as it has always been, complex, because it is so interconnected.  But it can be simplified for purposes of explanation.  There exist those who wish that the bank regulations were done away with, because like doing away with the police, it affords them opportunity for profit.  The analogy would be "anti-regulation banker is to regulation as Mafia Don is to police."  A businessman convinced that what he is doing is not all that bad, who will be very successful (if only for a time) once the restriction is removed, and who will eventually be destroyed and torn apart by other like-minded fellows who enjoy the cutthroat game of dog-eat-dog business.  The inherent instability that you refuse to see is that these anti-regulators and their analogous mafia bosses are generally VERY successful if they manage to get rid of the shackling laws that keep them down.  Then everyone else becomes able to do the same thing they did.
I disagree with you.  What laws would you be referring to?

Quote from: boring7
the cutthroat game of dog-eat-dog business
Believe it or not businessmen are human beings too.  In circles where people know how to argue you will get nowhere by defaming those you disapprove of.

Quote from: boring7
When the industry titans clash and the mafia bosses attempt to rub each other out, great big fluctuations occur and the destruction in its wake can often outstrip any development that happens in the interim, rather like wartime production not being equal to peacetime growth.
Perhaps, but that isn't what has happened.

Quote from: boring7
But to reel it back in to a perspective that matters, "regulation is necessary" is a fact of life whose denial involves blatant lies about history.  "Regulation can be good or bad, and one must find the middle path"
That depends on what you mean by regulation.  The regulations you have described so far are not the sort of thing I'm criticising.

Rules that are announced beforehand and administrated by officials that have no reason to be partial are exactly what I want.  That is not though what most people advocating more regulation say they want.

Those advocating regulation want regulators to have the power to act arbitrarily.  The commentators I have read don't want regulators to lay down rules for industries to follow.  Rather they want regulators to extert a sort of managemental control.  The regulators will not be the judge and courtroom of the financial system, rather they will be the CEO and board of directors of the financial system.  This is what is dangerous, nobody is fit for that task.

This current crisis has been caused because we rely too much on that sort of managemental regulation already.  Especially because of the Federal Reserve's manipulation of interest rates.

The solution does not depend on regulatory agencies overseeing every aspect of the operations of the finance industry.  Rather it depends on setting up clear financial laws and policing them with as many people as necessary for that task.

Quote from: boring7
is as unsurprising as Iceland's banking collapse.  Iceland wanted the wild business upswing of free banking and the stability of a federal reserve, attempts to get the best of both worlds resulted in neither and now people are going to be very miserable for quite some time.
I'll talk about this when I reply to the second part of your previous post.
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« Reply #21 on: October 22, 2008, 15:51:37 EDT »

Going back to your earlier post...

Quote from: boring7
And that is the point, the whole kit'n'kaboodle of regulation, ALL laws are a regulation on economic activity
Yes.  That doesn't mean though that a law is a "regulation" in the normal sense of the word regulation.

Quote from: boring7
because as you said yourself: "these things (economics) and politics are all, in practice, interconnected."  Or as Nwabudike Morgan put it: ""Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant...the rewards of wealth still await those wise enough to recognize this deep thrumming of our common pulse."
Yes.

Quote from: boring7
Quote from: Current
I certainly agree that lying about the properties of investments is a crime.  The law in the US and every western country I know about already makes it so.

If you think that people who have committed fraud like this should be prosecuted then I agree with you entirely.  But this isn't a control or a regulation, and it isn't what those proposing regulations or controls want.
You're attempting to create a false dichotomy (as well as straw-men, but we'll get to that) where law is one thing but market regulation is another.  Law GOOD, regulation (and fire) BAD!  They're all still law which you so cheerfully proclaimed to be a "concept" and they are all law in the "passed into law" sense too.  Marijuana, guns, and "protection" (i.e. you pay person A so person A does not beat you savagely) are all illegal to sell without regulation, that is undeniably a regulation of transactions, but what makes Marijuana different from "protection" and do you think gun control is a law or a regulation?
Well, I don't blame you for not understanding me, I haven't been very clear.  The difference I'm presenting here is between types of law with different history and different thinking behind them.

The law against "protection"/intimidation for example, exists for obvious reasons.  It is there to protect one party from the actions of another.  It is there to protect the wellbeing of the parties involved.  It has no particular greater aim except to allow people to go about their lives freely.  The state in this case is an arbitrator.  The legal system is setup with this in mind.  The officials of the legal system, such as the judges have no particular interest in the cases they try.  They are not charged with bringing about particular changes in society at large.  They are charged with executing the legal process, that task has no particular goal.  All of the sorts of law you mention are really of this type.  The law against Marijuana could be considered an exception, I'll come to that.

The state though often sets up systems of rules that are quite different to this.  I called them regulation previously, but they can be called various things.  F.A.Hayek called them "Teleos".  The state create an agency to oversee a certain area of society.  Normally, this agency then sets up rules to govern the areas of society it surveys, regulations.  Usually, the parliament doesn't do this task.  Rather than government legislating to create laws, or taking existing laws from Common law the agency creates them.  The agency is normally given a set of guiding principals from central government, these are particular goals, something law doesn't have.  Often the agency doesn't work in public, often it can pick and choose when it applies it rules.  Often it can change them if it wants.  Sometimes it can arbitrarily direct businesses or other organizations to do certain things.

The above differentiations I'm talking about are very general.  There are loads of corner cases and specifics, (such as the ban on Marijuana where the legal system isn't really arbitrating).

A good example is the comparison between a publisher and a radio station.  A publisher makes books from paper and ink.  The legal system sets down property law for that paper and ink.  The law also sets down copyright and indecency laws.  The radio station has all this to contend with too.  But, rather than paper and ink the radio station has radio waves.  These are the province of the communications regulator, the FCC in the US.  The FCC doesn't just arbitrate between disputes, it has an interest in them.  Its guiding rules specify that it promote the use of the airwaves for the public good (whatever that is).  In practice this gives it huge leeway to do whatever it wants.  It's this kind of thing that I am opposing.

Quote from: boring7
Quote from: Current
Your theory doesn't have many defenders amongst professional economists.
There's quite a few
George Soros is not an economist.

Quote from: boring7
but it's like the old Smith vs. Keynes, the camps cling to a theory like a religion
So, you think they have no evidence?  They have plenty, I'll give you some references if you like.  What is _your_ evidence.

Quote from: boring7
and since economics never manages to isolate enough variables to be considered a science they just keep believing and denying evidence to the contrary.
If economics never manages to isolate enough variables to be considered a science then why do you believe in your little theory?  What you have given is an economics theory.  If you can demonstrate it with evidence then expect a Nobel prize.  From what you have said so far you have no evidence for it at all, and only a sketchy outline of theory.

Quote from: boring7
Quote from: Current
Businesses and individuals are in general risk averse.  They will not risk a high chance of their capital being destroyed, unless it is in exchange for great rewards.  The prices of shares and bonds demonstrate this clearly.  A risky share generally costs less than a blue-chip share if both have paid the same dividend in the previous year.  A blue-chip share costs less than a government bond if both pay the same dividend.

In Iceland the banks have got into the state they are in because they had guarantees.  Like other central banks the central bank of Iceland had promised to be their lender of last resort.  They behaved recklessly because they thought there was little cost in doing otherwise.
That was pretty much my point and what I already said.  Risky ventures pay more, they have to in order to attract customers.  Iceland chose to tell all it's private banks "we'll cover you, but don't worry about those pesky regulations."  Those pesky regulations went away and the banking ventures became risky, they made and paid a lot more money, right up until the whole house of cards came down.
Yes.  As I understand it things were like Japan in the 1980s.  The board of the commercial banks were on friendly terms with the administrators of the central bank.

Quote from: Current
Your implied assertion is that the only reason people joined those risky ventures was because they were still backed by the Central Bank of Iceland, which runs counter to, "everyone knew what was going on with Iceland."  If they knew, they would know that a venture that LARGE that the Central Bank of Iceland's "security" would not be enough.
Well, I don't think anyone knew it was so large.  What I read about regarding Iceland was dodgy central banking practices.  I didn't know they were bad enough to trigger what we have seen.

This is risk that was only undertaken because there was protection.

Quote from: boring7
Quote from: Current
Well, if by "controls" and "regulations" you mean laws, then I agree with you.  But this isn't what most people advocating "controls" and "regulations" mean.  What they mean is that they want an overseeing body that can act like a manager stopping whatever is thought to be bad.
I reject that assertion of "what the majority wants,"
What I mean is, this is what most commentators I've read on the subject want.

Quote from: boring7
primarily because we already have such an institution in the Federal Reserve.
Well, most commentators I've read have recommended that the Federal Reserve do this job.

Quote from: boring7
We had regulations on mortgages and home loans, these were relaxed or removed with predictable (boom and then bust) results.  Us dirty regulators want those reinstated (or strengthened, or only partially reinstated, but we're getting too nuanced there)
There are still regulations on mortgages and home loans, they have not being removed.  The regulations have been changed with time.  They haven't really being "relaxed" in the normal sense.  The older systems only permitted certain products, the new ones permit more types, but give rules for the new types.  It hasn't simply being a case of removing rules.  Rather whole new rulebooks have been written.  We are getting quite nuanced here, but we should be.

What those who want "more regulation" must explain is exactly what they want.  The number of specific regulations is higher than it has ever been.  The number of people working for US financial regulators is higher than it has ever being.  So, if these are the things that protect against crises then why do we have a crisis?

This is because sheer number of rules and sheer number of enforcers does not lead to good behaviour.

Quote from: boring7
Quote from: Current
As I mentioned above businesses and individuals are generally risk averse.  If you want evidence of that then you only have to observe the existence of the modern world.  As Hayek pointed out "If you want to explain how everything can go wrong then first you must explain how everything could go right".
"-unless the reward is greater."
Yes.  This is tied up with interest rates though, I'll come back to this point.

Quote from: boring7
There is a reason that Vegas and state lotteries are still profitable.  Businesses and individuals will never risk for nothing, (let's not get into the adrenaline junkies) but a whole lot of us humans will gamble against pretty bad odds for a chance at "the big time."  Whatever that "big time" happens to be.  (I'd like a pony)
But we protect ourselves while gambling to chase the big time.  Certainly recklessness exists, but it is exception not the rule.

Quote from: boring7
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For most of the past three hundred years there have been no agencies regulating risk taking.  Businesspeople have been free to invest in what they wanted.  If they took too much risk then they went out of business.  This has led to a vast increase in prosperity across the world.  Most of the crises have been attributable to wars, trade wars or government revaluing their currencies.  How would this have been possible if businesspeople are foolish and their action always lead to collapse?  The theoretical ideas about managing risk are only thirty years old.  If economies could not function without them then how have they functioned for hundreds of years?
The Federal Reserve, the Old Lady of Threadneedle Street
Quote from: boring7
There are ALWAYS agencies regulating investment.
The Federal Reserve was founded in 1912.  Before that there were no regulatory institutions of the modern sort.  The Bank of England is called the "Old Lady of Threadneedle Street" because it is an old organization, not because it is an old regulator.  The Bank of England only became a part of the British state in 1946, before that it was a private bank.  It had some regulatory powers handed to it in 1842, but not many.  It had to keep a tab on other banks gold reserves and store them all in it's vaults.  Most of it's regulatory power are recent from the 20s and 30s.  For hundreds of years business worked with the sort of regulators we have today.

Quote from: boring7
The great depression, Savings and loans scandal, and most trade wars will point out that they were caused by (or simply WERE) risky business ventures that all failed at the same time.
Really?  Do you have any evidence for that?
Why do they all fail at the same time?  Surely this is an incredible coincidence?  What theory explains that?

Quote from: boring7
The 6th sentence is my argument encased in straw and shaped like a man.  The last two sentences are redered irrelevant by earlier answers or their own nature.
These are the relevant sentences...
Quote from: Current
How would this have been possible if businesspeople are foolish and their action always lead to collapse?  The theoretical ideas about managing risk are only thirty years old.  If economies could not function without them then how have they functioned for hundreds of years?
My point in the 6th sentence is, if the regulations you praise are so necessary then how did society ever progress without them?  Before electronic transactions it was not even possible for agents of the state to know what other were doing unless they were copied on the paperwork.  From the 18th century nearly to the present people could trade in shares and debt, futures and options without having to report their activities to government.  Stock markets and other markets existed but there was nothing forcing people to use them.  In the UK it only became law in the last few years that a person must exchange shares on a stock market.

Also, as I point out knowledge about the management of risk is recent.  If, as you claim, there was always regulation in the past, then how could it have been good regulation.  Even given their current knowledge the regulators did not see and predict the current crisis.

Quote from: boring7
Except the laws were loosened so all those acts of almost-fraud were just "really good marketing."
Is that so?  It's my understanding that those who misrepresented their products are still liable for prosecution?
Which specific law are you talking about here?

Quote from: boring7
I know all that, except you got it wrong.  The banks are not forced to increase the number of loans just because they are allowed to.  Which is really the point, the cut interest rates and reduced required reserve (too. man. Rs.) was not a, "you MUST loan more or else bad things will happen" it was a "you CAN loan more if you WANT, but to do so you may find the only extra customers are the risky ones." 
If banks do not increase the amount of loaned funds then how is the interest rate supposed to drop?

The interest rate that consumers and businesses are charged is determined by the market for loans, not by the Fed directly.  But it is this interest rate the Fed aim to control.  Let's say the Fed reduce their discount rate to 2%.  At this rate all the commercial banks think that the Fed is crazy.  They refuse to lend lower than 4%.  All this means is that the Fed must cut the discount rate further to achieve it's goal.

The Fed will handout loans at whatever rate is required to meet it's goals.  For several years discount window interest rates were negative in real terms, and sometimes the interest rates charged to borrowers was too.

(Note also that a low interest rate increases risky business behaviour because it artificially reduces the returns on safe investments like bank accounts.)

All this doesn't mean the commercial banks are innocent in this issue, they played along with all this.  My point is that no improvement in their behaviour in this regard can solve the real problem.

Quote from: boring7
This is a reduction of the existing regulation, a freeing up of currency that used to be locked up.  Reducing the fractional reserve is a reducing of regulation.
Well, I agree that reducing the fractional reserve is a reduction of regulation.  That though is a side issue.  Interest rates have been reduced in recent times by the Fed lending out extra reserves not by changing the reserve fraction.  Lending reserves out is not reducing regulation.  Surely for it to be a reduction in government activity it must involve government *not* acting.

The Federal Reserve's pushing down of the interest rate is part of the whole Federal Reserve mechanism of control.  The board of the Fed decide on the interest rate and money supply thorough the fractional reserve system.  One part of it can't be understood without the others.

The Fed board decide the interest rate.  The don't do this as a matter of following rules.  Rather the Fed board judge what in their view the interest rate should be based on their expertise.  They have a set of guidelines given by congressional legislation.

Some say that the Fed board were wrong in these particular interest rate cuts.  I don't think so, I think the Fed is wrong in concept.  Rather than controlling the interest rate it should simply insist on maintaining a commodity standard, like the old gold standard.

Quote from: boring7
My point is not that there must be an overarching management keeping businesses from risking themselves and the possibility of losing their shirts, my point is that some regulation is necessary so that when a business venture gets HUGE and then decides to collapse (even low-risk has risk, and no-risk investments do not exist, that Mayo jar full of money my cousin hid in a cold dark hidden place was eaten by a hungry grue) there's a back-up plan to keep people from starving.  All business and economic activities wax and wane but such waxing and waning IS "instability" and the greater the wiggly Sine Wave of ups and downs the more uncomfortable the rollercoaster ride.  Ergo it is wise to have a force which does not think of profit first and only to try and slow things down, and keep the ups and downs from being too great.  The laws that determine what a bank cannot do stabilizes a currency, and a stable currency leads to more business and prosperity in the long term.  It is impossible to finish a 10 year project if the economic boom-bust cycle is once every 5 years.
Overarching management is where the problem comes from, it is not the solution.  If agencies such as the Fed are allowed to behave as they please then chaos will result.  Fed chairmen will make themselves heros by cutting rates and creating booms.  They will leave office before the busts take place, just as Greenspan did.

The regulators are not a force that slows things down and keeps the ups and downs from being too great.  That is their stated intention but not their actual effect.  In truth they have no idea how to meet that goal.

Laws that lead to stable currency could be enacted with the need to for handing arbitrary power to regulators.  This could be done by a gold standard, as it was in the past.

What we need now is laws that lay down what can and can't be done, and a financial police force to enforce them.  What we don't need is regulators making things up as they go along for their own purposes.  Unfortunately that is what we will get.
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« Reply #22 on: October 23, 2008, 11:52:29 EDT »

More to the point, if free markets are "inherently unstable" then how do regulations help?

The science that deals with systems and their property is called cybernetics, and it is surprisingly universal, as it can be applied equally to technical, biological, economical and even social systems.
Really, it can be applied to economic and social systems?  How are they like other systems that control systems theory deals with?  Control systems theory and cybernetics deal with systems that have very few degrees of freedom.  They deal with systems that contain no intelligent components, nothing like human beings.  Also, they deal with situations where the relevant data can always be detected by some means.On this point, if you have a few minutes read this.

At the least cybernetics has to prove that it can do the job, at present they have come nowhere close.

Besides regulators don't, as far as I know, use cybernetics to do their work.

Unstable systems can be stabilized by various control schemes. A simple example would be an inverted pendulum. Left alone, it won't stay an inverted pendulum for long - it's not stable. It is fairly easy, however, to come up with a set of control rules and an implementation of them in a machine which will keep the pendulum inverted, even against outside force to tip it.
Yes, but what has this got to do with economics?  Who is to say that an economy is anything like one of these sorts of system?

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In this most recent crisis the regulators foresaw none of the problems.  They were busy implementing regulations to force banks to lend more to low income borrowers.

Did these regulations say that the banks have to talk everyone and their dog into taking out mortgages with terms that would be considered ridiculous in the rest of the world (no downpayment on a house, wth?)
The banks didn't have to take the route that they did.  However, the Federal Reserve made the funding available, it was inevitable that it would be invested in some way.  In the last boom it was in dot com companies.  In the upcoming one it will be in something else.

and keep them in the dark about what the term "ARM" really means (i.e. that your payment is going to jump by 50% or more after two or three years)?
Well, I agree with you there.

And the crisis isn't just a matter of low-income borrowers, it's a matter of people being talked into mortgages that are too large for their income (even if that isn't considered "low" on an absolute scale). If someone makes $100k/yr and buys a $500k house with no downpayment, they're not exactly a low-income borrower, but in trouble nonetheless.
Yes.
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Ihlosi
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« Reply #23 on: October 23, 2008, 17:07:50 EDT »

Really, it can be applied to economic and social systems?

To basically everything that can be viewed from a "system" perspective. Heck, I found exactly the same diagrams that I know from my engineering textbooks in a book about _management_, of all things.

The wikipedia article is quite good:

http://en.wikipedia.org/wiki/Cybernetics

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How are they like other systems that control systems theory deals with?  Control systems theory and cybernetics deal with systems that have very few degrees of freedom.

Not really. As long as you don't mind dealing with mind-bogglingly large matrices (or have a computer deal with them), you can include as many degrees of freedom (independent state variables) as you want. In technical applications, you usually don't want that (computations involving mind-bogglingy large matrices consume mind-boggling amounts of CPU time, at least on small microcontrollers like you'll find in your car, etc), but it's sometimes unavoidable. In research, where you can have mind-bogglingly fast computers (compared to the above-mentioned microcontrollers), these large models are fair game.

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They deal with systems that contain no intelligent components, nothing like human beings.

Essentially, cybernetics _is_ a science that is about describing intelligence, artificial or otherwise. The trouble with modelling human behavior probably isn't related to intelligence, but to their occasional lack thereof and varying degrees of irrationality. But even that can be modelled statistically.

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Also, they deal with situations where the relevant data can always be detected by some means.

Not always. Sometimes, educated guesses will have to suffice. Mathematical tools for dealing with imperfect data exist, e.g. to deduce "hidden" state variables that cannot be observed directly from the current and previous measurements of observable state variables.

I'm not going to pick von Hayeks lecture apart. He seems to completely discount nuclear physics in the fourth paragraph, for example (in which many of the "important factors" that determine "observed events" are either completely unobservable or may not even exist (as in the case of radioactive decay, which condemns Schroedingers poor cat to being alive and dead at the same time)), and thermodynamics (which was pretty much revolutionized by the discovery of the "hidden" variable "entropy"), and goes from "wrong/oversimplified models have been used in the past" to "we shouldn't even try, it's way too complex for us". If this attitue prevailed, progress in any field would stagnate pretty quickly. It's like saying Einstein should have stuck to being a patent clerk, because Newtons theory of gravity is obviously wrong and the real behavior of gravity will be way to complex for us to understand or use.

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Besides regulators don't, as far as I know, use cybernetics to do their work.

Not consciously, at least. Which may be part of the problem.

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Yes, but what has this got to do with economics?  Who is to say that an economy is anything like one of these sorts of system?

Unless the economy is completely random (which it usually isn't), there will be some (albeit complex) equations that describe the relationships between the state variables. And an economy is much more of a "numbers game" than most other systems.

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« Reply #24 on: October 28, 2008, 13:39:36 EDT »

Really, it can be applied to economic and social systems?

To basically everything that can be viewed from a "system" perspective. Heck, I found exactly the same diagrams that I know from my engineering textbooks in a book about _management_, of all things.
Certainly everything can be viewed from a "system" perspective.  What that means depends on what sort of system perspective you are talking about.  Within Cybernetics and control theory there are several perspectives.  The point though is what can be gleaned from such a perspective?

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How are they like other systems that control systems theory deals with?  Control systems theory and cybernetics deal with systems that have very few degrees of freedom.

Not really. As long as you don't mind dealing with mind-bogglingly large matrices (or have a computer deal with them), you can include as many degrees of freedom (independent state variables) as you want. In technical applications, you usually don't want that (computations involving mind-bogglingy large matrices consume mind-boggling amounts of CPU time, at least on small microcontrollers like you'll find in your car, etc), but it's sometimes unavoidable. In research, where you can have mind-bogglingly fast computers (compared to the above-mentioned microcontrollers), these large models are fair game.
There are many problems with this sort of thought.  Normal methods for dealing with control only extend to small numbers of degrees of freedom.  Yes, calculations with large matrices can be done.  But what is to be calculated, the normal methods for control do not extend well.

Beside that problem what would you suggest be used as the variables?

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They deal with systems that contain no intelligent components, nothing like human beings.

Essentially, cybernetics _is_ a science that is about describing intelligence, artificial or otherwise.
That though is mostly a different part of cybernetics than the part you were discussing earlier.

The pendulum you mentioned earlier is not intelligent.  The control system used to control it may display some aspects of intelligence,  some control systems do.  But this is a different sort of thing to what economics deals with.  What you are suggesting though is making the component to be controlled one one which contains intelligence.  This is a different matter.

The trouble with modelling human behavior probably isn't related to intelligence, but to their occasional lack thereof and varying degrees of irrationality. But even that can be modelled statistically.
There are more problems than that.  There is the question of who knows what.  A person can attempt to act rationally but do so on incomplete knowledge.

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Also, they deal with situations where the relevant data can always be detected by some means.

Not always. Sometimes, educated guesses will have to suffice. Mathematical tools for dealing with imperfect data exist, e.g. to deduce "hidden" state variables that cannot be observed directly from the current and previous measurements of observable state variables.
Yes.

I'm not going to pick von Hayeks lecture apart. He seems to completely discount nuclear physics in the fourth paragraph, for example (in which many of the "important factors" that determine "observed events" are either completely unobservable or may not even exist (as in the case of radioactive decay, which condemns Schroedingers poor cat to being alive and dead at the same time)), and thermodynamics (which was pretty much revolutionized by the discovery of the "hidden" variable "entropy"),
Those variables though are not really hidden in the way that Hayek means.  Observing entropy, for example, is quite simple.  A set of reactions can be performed in a vessel.  The temperature before and after can be measured and the heat emitted or absorbed can be measured.  The form of the chemical can be examined before and after.

Nothing similar can be done in economics.

and goes from "wrong/oversimplified models have been used in the past" to "we shouldn't even try, it's way too complex for us". If this attitue prevailed, progress in any field would stagnate pretty quickly. It's like saying Einstein should have stuck to being a patent clerk, because Newtons theory of gravity is obviously wrong and the real behavior of gravity will be way to complex for us to understand or use.
That isn't what Hayek means.  He is not suggesting abandoning understanding.  Rather he's suggesting understanding bottom-up rather than top-down.  Here I agree with him.

Unlike atoms, we can observe people's choices directly.  Some approximate understanding can be gained of the pattern of those choices.  So, understanding can be gained by finding out how those choices interact on a larger scale.  We don't have to take a black-box approach.

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Besides regulators don't, as far as I know, use cybernetics to do their work.

Not consciously, at least. Which may be part of the problem.
Economists in general are not ignorant of the existence of control theory or cybernetics.  I don't expect that regulatory agencies are either.

Many economic models resemble control systems.  In my view this is part of the problem.

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Yes, but what has this got to do with economics?  Who is to say that an economy is anything like one of these sorts of system?

Unless the economy is completely random (which it usually isn't), there will be some (albeit complex) equations that describe the relationships between the state variables. And an economy is much more of a "numbers game" than most other systems.
No.  By putting the question like this you are forcing a social science into the same kind of framework as a physical one, which is neither necessary or desirable.

At the most basic level economic decisions are the results of the laws of physics.  Like any other science economics could be considered to be a sub-discipline of physics.  Economic outcomes could be discovered in the process of predicting the future through the underlying law of physics.  Of course working this way is impossible.  We can't realistically seek understanding this way.

It is also useless, and inaccurate, to say that economies show no patterns, that they are random.  So the question becomes how is an understanding to be gained.  One possibility is to construct a set of equations based on relationships between inferred state variables.  However this is only one of many techniques that can be applied to the problem.

What those who propose this viewpoint must show is that it can be useful.  That is that a model can be created which is accurate.  It's only once that has been done that its reasonable for such people to suggest controlling the economy using such a model.  However, even if such a model works for a number of years that does not demonstrate its validity.  If it has no basis in an understanding of how human choices are made then there is nothing to say that it demonstrates anything fundamentally true about the economy.  So, it is in fact quite likely that a change may produce a different result than that predicted.  There is no guarantee that all the states in existence are covered by the model.  It is not even a reasonable assumption, as it is in hard sciences.

So, given the difficulty of discovering the necessary facts, and the lack of any certainty in a model even when it is found this point of view is unpromising.

This doesn't mean though that nothing important can be said.  In medicine there are many situations where there are no particular known equations. Borrowing an example from Scott Adams,  if you drink a lot your doctor can't tell you when you will die of cirrhosis of the liver, or even if you will.  That doesn't mean though that there are not useful things that a doctor can say about the situation.
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Kaerius
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« Reply #25 on: October 29, 2008, 17:31:48 EDT »

TLDR.

However:
Did you all know that the UK government because of some icelandic banks on the verge of bankrupcy put a stop to withdrawals simply because they ran out of liquidity, decided to declare the country a terrorist nation, which has deepened the financial crisis even further, as they basically can't trade(especially with the US, and to do any trading at all, they have to clear it with some sort of anti-terror council), and all icelandic assets in the UK have also been frozen.

Weee, massive abuse of anti-terror laws, who didn't see that coming?
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« Reply #26 on: October 30, 2008, 07:00:42 EDT »

TLDR.

However:
Did you all know that the UK government because of some icelandic banks on the verge of bankrupcy put a stop to withdrawals simply because they ran out of liquidity, decided to declare the country a terrorist nation, which has deepened the financial crisis even further, as they basically can't trade(especially with the US, and to do any trading at all, they have to clear it with some sort of anti-terror council), and all icelandic assets in the UK have also been frozen.

Weee, massive abuse of anti-terror laws, who didn't see that coming?
What happened was that Landsbanki a.k.a. Icesave went into liquidation and was nationalized.  The Icelandic government deposit insurance scheme promised to protect only the deposits of only Icelandic savers, not those in other countries.  Gordon Brown considered this action illegal.  He then froze the assets of Icelandic companies in the UK using anti-terrorist laws.

As Kaerius says it demonstrates the risks in anti-terrorist laws. It was also a ridiculous reaction.  What Brown was objecting to was the actions of the Icelandic government.  He responded to this problem by punishing Icelandic companies, this makes no sense, the companies are not the government.  What is more he punished those companies which were still in business, those that had not yet become bankrupt.  This drove a good many of those companies into bankruptcy too.

What this shows too is the problems with government backed deposit insurance schemes.  The countries involved will only be willing to pay back money to their own voters.  So, beware taking out bank accounts with banks operating from other countries.

This sort of action from Gordon Brown and his government is unsurprising.  He is a dyed-in-the-wool authoritarian, the Labour government are planning all sorts of new similar laws.  They are planning to require identification to buy mobile phones and to create databases of the internet usage and telephone usage of everyone in Britain.
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