mikkel
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Plus, there's the fact that a lot of times the people who have the public podium have these ulterior motives, but they also represent a viewpoint that is shared by many people who don't have that baggage.

The other people in the discussion should address the substance of the issue in order to either find points of agreement or define differences of opinion in an honest manner with all of the other people who don't get to bring their honest or nuanced views to the public forum because they're not pundits or policymakers.

Actually I don't think that at all. As we talked about on the last thread I've very sympathetic to the idea that the government shouldn't be promoting home ownership as an ideal and if it does, that it should be small and kept contained in its own box. I am very interested in how the CRA may have led to reduced standards in the private market and am concerned about that not only occurring in the future with this particularly, but how government policy can cause that generally.

But you didn't address the rest of the paragraph. I'm not saying those people have no point, I'm saying that they are pushing that point in order to get off the hook by obfuscating the end result about who benefited from it. That's what set Barry off. If you came in and said “OK I understand that these banks and whatnot were responsible for this and they should have to deal with the consequences, but maybe the reason why they thought of it was because of the CRA” then he would probably at least hear it out.

I admit that some of it comes down to ideology about which you believe is the “core” problem that needs to be addressed, but some of it also comes down to whether we're talking about working within the system or construction of a new system. For instance I think Obama has the best ideas about what to do to ameliorate our current problems, but if we were starting a new government and economic system from scratch then my ideal would be completely different and I'd support a very tiny government that would be about a fourth of its current size.

Ditto.

I'm personally not opposed to a reasonable amount of corporatism as long as there are checks and balances.

I think that when govt is probusiness and progrowth, everyone benefits. However, that growth shouldn't be in favor of the top management and pit them against the workers. I think there are ways to acheive a balance of both, and to help both sides in the management-labor equation become more symbiotic.

And I think in theory, people believe that we have one party in this country which pretty overtly represents the interests of management and another which pretty overty represents the interests of labor. But first of all, that's mostly a facade, and second, even the things they do to represent those interests are done to set up an adversarial relationship- much more than is necessary and more than is healthy.

I tend to be more critical of the Democratic party because I think there's a lot of disingenousness in their policies. (That's sort of a 'better the devil you know than the devil who decieves you' sort of logic.) I think the Dems use rhetoric to convince voters that they're on the side of the everyday Joe, but behind the scenes they take money from corporate interests too. And then when they really do side with labor, they tend to support stupid policies of labor unions unconditionally (which leads to situations like Detroit, where the labor unions negotiated for these unsustainable contracts for pools of laborers and costly retirement benefits.)

I don't think the alignment of one party with one side of the equation is healthy- I think both parties would serve the country better if they would see their 'partnership' with one side or the other as one which permits oversight- so that the GOP doesn't enable terrible policy on the part of corporate leadership and the Democrats don't enable the unsustainable demands of labor unions.

Instead of just harping on the populist message by demonizing the CEOs and bankers, they could credibly tie in the corporatist label to the GOP and position their party as the one which will restore free market policies which keep the govt as a watchdog instead of a lapdog of the business interests.

I mean, I have to admit that it would gall me if they did that because I do know that it's not just the GOP that's been guilty of the corporatism- but I think that in the current environment they could get away with it and in a way I think the country would be better served if they did so instead of leaving voters to believe that this was just some sort of unavoidable mess which happens in a capitalist system and that's why the govt should become larger in proportion to the private sector.

Well not to get all radical on you, but I don't think that the US really has a capitalist democracy, I think it has corporatism, both the ad hominem form (meaning that political interests are driven by corporate business interests) and informally at least, the political theory definition.

“at the national level the state recognizes one and only one organization (say, a national labour union, a business association, a farmers' association) as the sole representative of the sectoral interests of the individuals, enterprises or institutions that comprise that organization's assigned constituency. The state determines which organizations will be recognized as legitimate and forms an unequal partnership of sorts with such organizations. The associations sometimes even get channelled into the policy-making processes and often help implement state policy on the government's behalf.”

While this isn't explicit in the US, I do think it is pretty de facto. I do think that the “sole representative” can change based on popular opinion, economic makeup and who is in power, but they do drive the echo chamber. In short, when it comes to economic policy in particular, and many national policies in general, I think that the full spectrum of “options” is defined in terms of these representative groups. The reason why this and many other common sense policies aren't adopted is because there is no large group that directly benefits, and thus the options don't even exist for policy makers.

See, I find that this general meme has infected all of our public discourse. It's so much easier to brush off legitimate complaints by dismissing the complainers rather than actually debating the points. I'm not saying you are doing this- but you generally accept it from other people and I find that's a big problem.

I think you know what I mean but other specific examples where this happens all the time include the global warming debate and evolution. It's even evident in the broader political sense now as the WH has adopte the strategy of using Rush Limbaugh as the poster boy of conservatism and then implying that anyone from that side is an ideologue like him.

It's become really insidious, IMO, and I honestly don't think we'll solve our serious problems this way because we're getting all one sided solutions. You dismiss the importance of the CRA thing, for instance, because you don't think that there's going to be a repeat of that sort of thing and I have no idea why you'd be convinced of that. To me it's just the opposite, and ignoring where those policies went wrong is highly dangerous when we're now looking for more and more government intervention to 'fix' things.

But that said I can fully appreciate their righteousness about their positions because on the stuff about CRA and things it's pushed not by fact seekers with nuance such as yourself, but apologists and ideologues. Hypothetically, if we were trying to construct new programs and everyone that was involved and made billions upon billions had lost their misbegotten wealth because they made the wrong judgement calls, then yes, I would be harsher on the bloggers for not having nuance. But that's not where we are now. Where we are now is that the side that is putting the emphasis on government failures are less interested in reform and more interested in avoiding repercussions. Most of the high profile people railing against the government programs either don't understand (or are disingenuous) about how much their stature relies on the status quo. Mish is completely anti-government but he's also anti stupidity. He believes that the government will ruin everything trying to “save” us but that all the bankers, mortgage brokers and everyoen should be liable and sued and lose everything as well. When Barry Ritholtz goes off it's not on people like him, it's about the CNBC types that enjoy privilege of the bull and are now blaming the government for trying to take the punch bowl away.

I think it's perfectly obvious where some major mistakes were made. First Glass Stegall which had provisions that almost guaranteed that the investment banks would keep cannibalizing each other (growing 'too big to fail' which unfortunately also meant they were too big to regulate and too big to manage.) Then the lack of oversight of the securitized mortgage products, and the CDSs, and the use of overly loose money supply to keep the bubble growing. It was all insane, and certainly not the way the free market is supposed to work or the only way that they could function.

It's like every step of the way the govt was stepping in to encourage faulty decisions, but since everyone was profitting and everyone had this bizarre belief that things could be propped up indefinitely there was no rational basis for decision making.

I don't doubt that the Republicans would 'do the same thing' but I don't get why the Democrats aren't doing the right thing because politically for them it would be a win win situation (as I've said elsewhere, one of those rare situations where their political interests are actually best served by doing the right thing.) I don't know, maybe because it really wasn't just a Republican failure to regulate but Democrats were going along with everything too, so maybe they are afraid of some downside risk to exposing everything that went wrong.

I know that's a conservative critique of government in general, but to be blunt, quasi-free market economics hasn't proven to be much better…and there isn't the political or societal will for complete free markets.

On the first sentence, I presume you could see me grinning that you are coming to that conclusion. Anyway though, I think that's a false dichotomy in your next sentence. We've mucked up free markets and can fix a lot of what we did to muck it up rather than making a complete paradigm shift. I'm about to comment on your other comment and address what I mean by that.

I think I have a pretty keen sense of 'group think', just intuitively. Even if what you say is 100% accurate and that they're prior predictions are proving true, there's still a risk of overgeneralizing their ability to accurately diagnose and forecast right now.

Take the CRA discussion we had recently- you referred me to some of those blogs and the discussions I started tracing back on that all seemed pretty circular and dismissive of contrarian views- even to the point of using a disingenuous debate tactic when they claimed that CRA couldn't have been the culprit since it was instituted in the 70s even though the point is that changes were made to CRA during the 90s which fed into the current situation.) I brought up certain portions of the contrarian view which it seemed you somewhat agreed with when I made the points (like the general concept that the gist of the CRA was an attempt to do a social engineering program without the downside political cost, by presuming that the costs would be covered by housing values climbing into perpetuity.)

I'm not suggesting that your confidence in those bloggers is misplaced, just perhaps a little bit overconfident and I think no matter what the situation it's important to look for devil's advocates who will challenge your thinking.

I think you're not giving Obama enough credit about his long term plans. He knows perfectly well that they can't just make up for the growth gap through taxes of any sort. He has said this many times (including at the recent thing about reforming long term benefit programs) that his goal is to change the fundamentals of the government programs so the growth rates fall below GDP growth and thus become sustainable. His plan isn't to just soak the rich indefinitely, it's to try to rebalance the relationship between the working and upper class in the belief that it will actually raise long term GDP growth (I think it will) and to fix healthcare by getting in technologies and policies that will alter the makeup of the field and reduce cost growth enormously.

Now there is plenty of room to say that he won't be successful in doing that, or to challenge the worldview of course, but I don't think it's his goal to keep raising tax rates like that.

Like I've said before, maybe he's lying and I'm completely naive, but that is just a matter of trust. On an intellectual level though I think that Obama's plans are principled and self consistent. My primary problem with ideas are when he's bought into some academic and industrial theory that I don't buy; as Pete pointed to the Brooks' column “the White House made a case that was sophisticated and fact-based.” That's no doubt true, I just debate whether the facts are realistic. My secondary problem is what we saw with the stimulus. The Republicans went in to talk to Obama and professed that he had a vision they could agree with, then Congress put together some crap and then Obama signed it. No matter how principled and methodical his theoretical construction of policies are, I am becoming increasingly skeptical that they can retain the necessary characteristics once turned into policy. I know that's a conservative critique of government in general, but to be blunt, quasi-free market economics hasn't proven to be much better…and there isn't the political or societal will for complete free markets.

In my cynical view there is nothing they could do to address the underlying problems without the entire house of cards collapsing. Thus they are just dumping resources trying to prop up the system and hoping things right themselves. McCain and any Republican would do the same thing. Heck I might even do the same thing if I were in that position (of course I wouldn't be because I would have campaigned on my cynicism). It's exactly what I figured would happen for the last two years.

C, couldn't this argument be made for all spending in a progressive tax structure? Military spending will grow indefinitely, so anyone who supports robust defense spending would be more consistent if they acknowledged that one must eventually seize the means of production. I guess my question is, what do you mean by 'grow indefinitely' and which programs are likely to do so?

Now I still read Mankiw, Krugman and various others (such as Margin Revolution) to see what they are saying because they occasionally have good points and also they represent mainstream economic thought, but they are tied into orthodoxy that I think is completely missing the boat. Whenever Krugman has a “wonkish” post where he starts by stating “assuming all these relationships hold, we can calculate” and then they are all sorts of differential equations that don't even incorporate time and whatever, then he arrives at a result that tells him what policy should be I just want to slam my head against the table. That's because I know his assumptions are based on economic theory that has little empirical evidence to support it at any given point in time.

Mankiw is even worse IMO because he is obsessed with individual marginal cost. I full agree with him that we should have more Pigovian taxes re: pollution and whatnot (in fact I believe if we could actually charge corporations all the externalities of their business then they would have to be regulated much less, but I'm not convinced that such accurate calculations are possible) but he does the same thing as Krugman: starts from a valid philosophical economic theory and then derives all these equations assuming that they held at all times in order to derive policy or individual actions. He once tried to explain how a 3% tax increase proposed by Obama would dictate how much time he'd do speaking engagements instead of playing with his kid, and how it really was a 60% increase or something if you incorporate his decreased time doing the speaking engagements, how long he had to live with investment returns and how much his kid would get through inheritance. Um, no that's just complete BS when trying to describe real world behavior. He should instead calculate how much time he spent on that post and take that much time off to play with his kid while he still can.

This brings me to a general point that I love about all the blogs that I posted. I am actually very conservative and skeptical about the ability for economic theory to give guidance about actions to take. There are core scientific, statistical and philosophical reasons for this (briefly you can't repeat the same thing over again, there will never be enough data to be able to get statistical validity and once you have a policy that uses some theory people's actions change and can invalidate the theory) so my understanding is fundamentally negative, rather than positive like Mankiw or Krugman. I think it's much more important to understand the root dynamics of things and attempt to make a system that gets rid of some of the positive feedback and other problems and then once there is a solid core, viewing most other points as part of political policy. This is something that Yves Smith at Naked Capitalism makes many good points about.

So the interesting thing is that while the blogs I posted have very similar ideas about how the economy and financial system work (at least at this point in time) they have very different ideas about what to do about it. Most of them advocate breaking up the banks even if it requires forced nationalization and subsequent breakup because centralization is a core problem that is driving dynamics, but if it came down to tax rates or business policies or whatever they would all disagree and accept it because the root understanding gives no guidance on that. Mish advocates doing nothing and letting there be a depression and then getting rid of the Fed and going to the gold standard. Even though those sound like completely different things, they are both trying to resolve the same issue with present dynamics.

Sorry for the long comment but it's something that has just been bothering me (and pretty much any systems dynamics person because it's so obvious) a lot and is very frustrating. There are only two major economists I can think of that have an understanding of the world view that I'm talking about: Volcker in his folksy, intuitive Warren Buffett sort of way, and Joseph Stiglitz. Volcker is ignored for the most part because he has no problems with being blunt and Stiglitz is ignored because he is unabashedly liberal…but he's liberal in a very unorthodox way. He and Mish are nearly polar opposites about implementation but would agree almost entirely about which dynamical properties are “good” and “bad” for a global economy to have.

One of the most bizarre things about the Obama administration is that they don't seem to be addressing this at all. Where are the calls for bipartisan commisions to review what went wrong and make recommendations on fixes (well, I think McCain is calling for this, but I haven't heard a thing from Obama's team.) It would be politically popular to do this and would make sense (a rare combination which should be taken whenever these situations present themselves.)

It would go a long way to restoring confidence in the markets if people felt that the underlying problems were being addressed. Is Obama's team just too over their head to see this, or is it a more sinister desire to NOT find a way to make the stock market attractive again to investors?