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  #1  
Old 11-06-2011, 10:39 AM
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Default The Big Interview (Karl Smith & Kelly Evans)

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  #2  
Old 11-06-2011, 11:49 AM
r108dos r108dos is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

Karl is great. Things aren't sustainable. Kelly did a good job answering him. Keep them on together, or not.
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  #3  
Old 11-06-2011, 12:23 PM
Unit Unit is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

The problem with the firefighting analogy for central banks is that they might be using alcohol instead of water. To pursue the analogies, if the problem is one drug addiction then the path to recovery is detoxification and not appealing to the drug dealer of last resort.
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  #4  
Old 11-06-2011, 01:09 PM
Unit Unit is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

In the debate of fiscal policy vs. monetary policy it seems to me that there is an underlying assumption that the choices between these two policies are "independent" of each other. Maybe Karl knows: how much do economists worry about the correlation between these two policies? How does fiscal policy affect monetary policy and vice versa?
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  #5  
Old 11-08-2011, 10:51 PM
Blackadder Blackadder is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Unit View Post
In the debate of fiscal policy vs. monetary policy it seems to me that there is an underlying assumption that the choices between these two policies are "independent" of each other. Maybe Karl knows: how much do economists worry about the correlation between these two policies? How does fiscal policy affect monetary policy and vice versa?
In countries with flexible exchange rates the answer is that monetary policy cancels any effect from fiscal policy. See here.
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  #6  
Old 11-08-2011, 10:58 PM
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Blackadder View Post
In countries with flexible exchange rates the answer is that monetary policy cancels any effect from fiscal policy. See here.
Thanks!
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  #7  
Old 11-06-2011, 01:49 PM
db63 db63 is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

It seems to be Karl is promoting first-year undergraduate nihilism.
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  #8  
Old 11-06-2011, 02:20 PM
karlsmith karlsmith is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

I prefer to think of it as second-semester sophomore nihilism combined with optimal control theory.

No, but the core of the issue is this:

If you think of policy as an infinite horizon problem, then there is always some discount rate that justifies an arbitrary amount of human suffering today, to relieve the probability of human suffering in all future periods.

Traditionally, people speak about policy as if this was the objective function we are maximizing.

Thus questions between suffering today and increasing the long run path of suffering are always value questions. How much do you care about the future?


However, once you accept that this is a finite horizon problem that changes. For some cases there exists no discount rate such that human suffering today can be justified by a lower probability path of human suffering tomorrow.

Doing the "responsible" is thing unambiguously worse for humanity irrespective of your valuation of the future.


I think this is important because its important to realize that some policy decisions to suffer now for the greater good can simply be wrong. Not a question of values or moral, but demonstrably wrong. The world simply does not operate under conditions that would allow that to be the solution to some utility maximization problem.
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  #9  
Old 11-06-2011, 09:34 PM
Diane1976 Diane1976 is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by karlsmith View Post
I prefer to think of it as second-semester sophomore nihilism combined with optimal control theory.

......Thus questions between suffering today and increasing the long run path of suffering are always value questions. How much do you care about the future?.....
I think this is important because its important to realize that some policy decisions to suffer now for the greater good can simply be wrong. Not a question of values or moral, but demonstrably wrong. The world simply does not operate under conditions that would allow that to be the solution to some utility maximization problem.
All this just made me think of ideologies, communism, socialism, libertarianism, free market worship, all of them. They're all the same. There's always some greater good and be damned the people who have to suffer for it now. If there's a big financial crisis and the theory gets all screwed up, blame the poor Americans who were hoodwinked into buying houses they couldn't afford, or the kids that took out student loans, or, hey, why not the people of Greece. It must have been their fault.
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  #10  
Old 11-06-2011, 09:57 PM
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Diane1976 View Post
All this just made me think of ideologies, communism, socialism, libertarianism, free market worship, all of them. They're all the same. There's always some greater good and be damned the people who have to suffer for it now. If there's a big financial crisis and the theory gets all screwed up, blame the poor Americans who were hoodwinked into buying houses they couldn't afford, or the kids that took out student loans, or, hey, why not the people of Greece. It must have been their fault.
Agreed. But unfortunately that's the centralized system we are saddled with, and which dumps the responsibility of getting things right on a few rationally bounded officials and tells them to do whatever it takes because in any case "In the long run, we're all dead"....
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  #11  
Old 11-07-2011, 03:51 AM
Sulla the Dictator Sulla the Dictator is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Diane1976 View Post
If there's a big financial crisis and the theory gets all screwed up, blame the poor Americans who were hoodwinked into buying houses they couldn't afford, or the kids that took out student loans, or, hey, why not the people of Greece. It must have been their fault.
I don't understand this way of viewing the world. It assumes that individuals are children, incapable of actually being responsible for their actions. Instead, blame the "system", perpetually.
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  #12  
Old 11-07-2011, 08:16 AM
bkjazfan bkjazfan is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Sulla the Dictator View Post
I don't understand this way of viewing the world. It assumes that individuals are children, incapable of actually being responsible for their actions. Instead, blame the "system", perpetually.
Maybe they didn't have an old school, non college educated grandmother like I had who said "don't spend money you don't have."
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  #13  
Old 11-07-2011, 09:23 AM
Unit Unit is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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I don't understand this way of viewing the world. It assumes that individuals are children, incapable of actually being responsible for their actions. Instead, blame the "system", perpetually.
In a sense yes, people's knowledge is limited and their rationality is bounded. People overcome this being using prices that should be a feedback loop and a guide. However when prices are distorted people are led astray. If going into debt is all of sudden artificially cheap, because of several interventions into the economy by the institutions, then people are going act a certain way and you can't expect them to understand the whole picture the way we understand it now after the fact.
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  #14  
Old 11-07-2011, 12:51 PM
Sulla the Dictator Sulla the Dictator is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Unit View Post
In a sense yes, people's knowledge is limited and their rationality is bounded.

People overcome this being using prices that should be a feedback loop and a guide.
That is true in a clean, consumer market in a more retail sense. But is it the case when it comes to contracts? I don't think so. The presumption for minimal standards of responsibility is that people read what they signed. If we accept that as a given, then we know that they knew the kind of financial risk they were running.

Quote:
However when prices are distorted people are led astray. If going into debt is all of sudden artificially cheap, because of several interventions into the economy by the institutions, then people are going act a certain way and you can't expect them to understand the whole picture the way we understand it now after the fact.
But it seems to me that the emphasis here is in the wrong place. Is it actually artificially cheap? Interest rates were much higher than today, the difference was short term gimmick programs which mitigated the actual expense; but the balloon on these arrangements was always obvious, and the payments weren't actually low at all, compared to now. They weren't all that low compared to the 1990s either, when lower prices balanced out higher rates. The biggest difference driving people's behavior, the distortion, is the potential for appreciation.

Now, if vast swaths of these people are actually little different than speculators, at what point do we assign responsibility to them for the fallout of their investment?
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  #15  
Old 11-07-2011, 07:22 PM
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Sulla the Dictator View Post
That is true in a clean, consumer market in a more retail sense. But is it the case when it comes to contracts? I don't think so. The presumption for minimal standards of responsibility is that people read what they signed. If we accept that as a given, then we know that they knew the kind of financial risk they were running.
People were essentially given the option of renting with the prospect of building equity, no money down. Who wouldn't do that? If you don't have any skin in the game you can walk away at any time with minor consequences for yourself. I don't think this is the right place to look for the irresponsibility.
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But it seems to me that the emphasis here is in the wrong place. Is it actually artificially cheap? Interest rates were much higher than today, the difference was short term gimmick programs which mitigated the actual expense; but the balloon on these arrangements was always obvious, and the payments weren't actually low at all, compared to now. They weren't all that low compared to the 1990s either, when lower prices balanced out higher rates. The biggest difference driving people's behavior, the distortion, is the potential for appreciation.

Now, if vast swaths of these people are actually little different than speculators, at what point do we assign responsibility to them for the fallout of their investment?
It's not just low interest rates, it's also the degradation of lending standards that I mention above, and a swath of other forces that induced investors to give money to highly leverage betting outfits without feeling the need of following the money or doing proper diligence.
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  #16  
Old 11-07-2011, 07:35 PM
Sulla the Dictator Sulla the Dictator is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Unit View Post
People were essentially given the option of renting with the prospect of building equity, no money down. Who wouldn't do that? If you don't have any skin in the game you can walk away at any time with minor consequences for yourself. I don't think this is the right place to look for the irresponsibility.
But doesn't the above read to you as incredibly irresponsible? Certainly no one who did that can be considered a victim, right? At the outset they considered themselves clever, with no skin in the game. They didn't actually think they would have to walk away, but if they did, as you said, it would be of minor consequence. That attitude has led to systemic crisis.

Quote:
It's not just low interest rates, it's also the degradation of lending standards that I mention above, and a swath of other forces that induced investors to give money to highly leverage betting outfits without feeling the need of following the money or doing proper diligence.
The government is responsible for a substantial amount of the degradation of lending standards. But of course a lot of this, when we discuss sub-prime, is about stated income. Anyone who lied about their income was knowingly entering into a financial arrangement they couldn't actually afford. It is the appreciation which drew them; a quick payday. And how can we sympathize with someone who lost that bet?
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  #17  
Old 11-07-2011, 07:45 PM
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Sulla the Dictator View Post
But doesn't the above read to you as incredibly irresponsible? Certainly no one who did that can be considered a victim, right? At the outset they considered themselves clever, with no skin in the game. They didn't actually think they would have to walk away, but if they did, as you said, it would be of minor consequence. That attitude has led to systemic crisis.



The government is responsible for a substantial amount of the degradation of lending standards. But of course a lot of this, when we discuss sub-prime, is about stated income. Anyone who lied about their income was knowingly entering into a financial arrangement they couldn't actually afford. It is the appreciation which drew them; a quick payday. And how can we sympathize with someone who lost that bet?
I'm neither sympathizing nor condemning. If there was fraud then that's another story, but not everyone was involved in that. What I'm saying is that people will take a deal if you offer it to them (you have to look at their alternatives). So if your interest is to explain what happen you have to look at the reasons why such deals were offered in the first place. And yes there was a lot of industrial planning behind such deals, that's where the outrage should be directed. Saying that the attitude of choosing the better deal is what led to a systemic crisis is like saying that gravity is what led a plane to crash.
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  #18  
Old 11-07-2011, 09:36 AM
miceelf miceelf is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Sulla the Dictator View Post
I don't understand this way of viewing the world. It assumes that individuals are children, incapable of actually being responsible for their actions. Instead, blame the "system", perpetually.
Actually, blame the "system" is kind of the conservative response to things. A CEO engages in fraud or chooses to decimate thousands of jobs. Oh, he's not responsible, it's just "the free market"
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  #19  
Old 11-07-2011, 12:42 PM
Sulla the Dictator Sulla the Dictator is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Actually, blame the "system" is kind of the conservative response to things. A CEO engages in fraud or chooses to decimate thousands of jobs. Oh, he's not responsible, it's just "the free market"
Sorry; fraud is not considered a valid market tool by Conservatives. Maybe you're confusing us with some sort of cartoon the Daily Show had on.
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  #20  
Old 11-07-2011, 01:12 PM
miceelf miceelf is offline
 
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Sorry; fraud is not considered a valid market tool by Conservatives.
It sure is, as long as it isn't technically against the law. Any law toward truth in advertising among banks, or to have the actual credit card agreements spelled out in normal, understandable language, is met by howls of "socialism! tyranny!" by conservatives. With regard to banking and credit, a great deal of the current republican enterprise is geared toward keeping as much fraud and opacity legal as possible.
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  #21  
Old 11-07-2011, 02:17 PM
Sulla the Dictator Sulla the Dictator is offline
 
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It sure is, as long as it isn't technically against the law.
Ok, so you mean Conservatives favor fraud as long as it isn't fraud.

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Any law toward truth in advertising among banks, or to have the actual credit card agreements spelled out in normal, understandable language, is met by howls of "socialism! tyranny!" by conservatives.
What did you have in mind? I'm an avid reader of National Review and the Weekly Standard, and don't recall anyone arguing against disclosure. There have been proposals that have been opposed which may contain elements of disclosure, but as I'm sure you know, these were not the reasons Conservatives opposed them.

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With regard to banking and credit, a great deal of the current republican enterprise is geared toward keeping as much fraud and opacity legal as possible.
If you don't mind, perhaps we can establish a baseline understanding here. How much of the current debt burden Americans face is actually due to fraud and opacity, do you think? Do you believe that people didn't understand what adjustable interest rates were? Do you believe that people who see the rates on their cards jump from 7.9% to 23% have within themselves the ability to understand that increase, and to take action from there? Perhaps to cancel the card, and pay off what they owe?

And certainly you can't be arguing that the mortgage mess has much if anything to do with fraud or opacity.
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  #22  
Old 11-07-2011, 02:41 PM
miceelf miceelf is offline
 
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Ok, so you mean Conservatives favor fraud as long as it isn't fraud.

No, they favor fraud that is currently legal. And, they favor lax enforcement of laws against fraud that would affect "job creators" (ie., banks).

So, you tell me, what are the supposed reasons that conservatives oppose regulations of the banking industry?


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Originally Posted by Sulla the Dictator View Post
How much of the current debt burden Americans face is actually due to fraud and opacity, do you think?
A third to a half.

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Originally Posted by Sulla the Dictator View Post
Do you believe that people didn't understand what adjustable interest rates were?
Yes, absolutely.

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Originally Posted by Sulla the Dictator View Post
Do you believe that people who see the rates on their cards jump from 7.9% to 23% have within themselves the ability to understand that increase, and to take action from there? Perhaps to cancel the card, and pay off what they owe?
Well, let's evaluate your advice. Pay off what they owe is generally good advice. Cancelling the card is usually bad advice as all you are doing there is further damaging your credit score.

But why is this the only option? Why did the rate jump from 7.9% to 23%? was it a penalty for late payment where the "late payment" was actually the CC company failing to process payment in a timely manner? Was it based on a change in credit score, which in turn, was caused by a changing of the debt to limit ratio, which was caused by the change of the credit limit by the same CC company?

Or are you really pretending that jumps in rates are never due to incompetence or dishonesty on the part of credit card companies? Your "solution" to the problem of one's rate jumping dramatically, is for the consumer to grab their ankles, regardless of what caused it, and to engage in behavior that will make it worse for said consumer while maximizing the return that CC companies get. Why am I not surprised?
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  #23  
Old 11-07-2011, 05:34 PM
sugarkang sugarkang is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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No, they favor fraud that is currently legal.
Fraud, in strictly legal terms, can't possibly be legal. Maybe that's a bit nitpicky, but I assume you're talking about deceptive practices? If so, I agree in certain situations. Banks, yes. Now, I've never paid a single overdraft fee, but I do understand these to be sneakily employed by banks. Similar bullshit is done by telecoms.

So, with regard to your point about why or how conservatives defend these practices, I have some thoughts. It's not that conservatives defend deceptive practices; it's that every time people get mad about some tiny little thing and expect it to be fixed, they seek government to add more regulations which will unlikely fix the problem at hand and most likely create a new unforeseen problem elsewhere. Meanwhile, a greater proportion of the national product goes to taxes. In the end, conservatives have a skepticism about government's ability to fix man's fundamental flaws because government can only be made up of imperfect men (and wymmyn).

Case in point? The aim of Dodd Frank was to stop deceptive bank practices. Great! So, to make up for lost revenue, they (BofA) instituted a monthly fee to use a debit card. However, if companies don't provide services for free, it makes people angry. So, what should customers do? A national bank transfer day (or whatever they're calling it) sounds like a good idea. That's what the customers did; that's what customers are supposed to do: vote with your consumer dollars. These days, the internet provides consumers with a lot of power to get a particular point across. It's the very essence of "collective bargaining."

Punish the assholes in the market by avoiding their products. Resist the temptation to fix things through legislation. We get better products and services, smaller government and lower taxes. Win/Win.
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  #24  
Old 11-07-2011, 06:12 PM
stephanie stephanie is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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So, with regard to your point about why or how conservatives defend these practices, I have some thoughts. It's not that conservatives defend deceptive practices; it's that every time people get mad about some tiny little thing and expect it to be fixed, they seek government to add more regulations which will unlikely fix the problem at hand and most likely create a new unforeseen problem elsewhere. Meanwhile, a greater proportion of the national product goes to taxes.
This assumes that the effect of new regulations is more litigation and a greater burden on the corporations which are regulated.

That's not necessarily true.

For example, there seems to be a relationship between big punitive damages granted in tort cases and the existence of strong consumer protection laws. States that lack the latter are disproportionately the source of the former. Similarly, states which have limited punitive damages through tort reform have in some cases (I understand this is so with TX and OH) made the law more open to consumer protection lawsuits.

This makes sense, as what ends up being an arbitrary punitive damage approach is unfair to the big losers (the companies that get hit) without doing much to protect the average person. The better approach is lesser damages or penalty imposed more regularly (as Kleiman would say re criminal sanctions).

Similarly, insisting that everything fit into a a fraud type claim (even if under civil fraud) or the general consumer protection/deceptive practices laws that exist is problematic as what is and is not forbidden is unclear. It makes more sense to be clear -- spell out what needs to be spelled out, for example.

I'm not as sure as miceelf that the absence of such rules makes the difference. There already are applicable rules in some of these areas. But the idea that having clear rules would add to the cost seems to me inconsistent with the situation as it really exists and I see no legitimate reason to be against it. Far more likely conservatives are against such rules because the companies they would affect are. And the companies they would affect are because they make money from people paying fees, from being able to increase interest rates, etc.

Disclosure seems to me the obvious issue, even if I'm not all that sympathetic most of the time to people who claim they didn't understand the contracts they signed. The argument that I find more problematic is the idea that certain loans shouldn't have been made (or credit cards given out or whatever) as a legal matter, and not merely a matter of financial stupidity on both sides. The latter really does get taken care of if the banks are forced to bear the risk, but then you need to address too big to fail -- the financial mechanisms that led to that and not simply the size of companies -- and also reject the arguments of banks for various types of debt not being dischargeable in bankruptcy.
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  #25  
Old 11-07-2011, 07:08 PM
Sulla the Dictator Sulla the Dictator is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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No, they favor fraud that is currently legal. And, they favor lax enforcement of laws against fraud that would affect "job creators" (ie., banks).
Seems to me that this attitude towards "fraud" simply defined as clever business is open to all kinds of interpretation. In what sense doesn't it serve as complaint for any party that ever loses money in a bad deal?

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So, you tell me, what are the supposed reasons that conservatives oppose regulations of the banking industry?
Conservatives don't oppose regulations of the banking industry, writ large. They oppose specific regulations for specific reasons. If you want to take Dodd-Frank for example, it's that it actually doesn't address any of the real problems which led up to this crisis. It extends federal power into trivia, like mortgage broker compensation in residential mortgages (Which I oppose), for example. It also bizarrely allows the state to liquidate non-bank financials and insurance companies given certain circumstances, despite the fact that neither industry has FDIC insured funds.

Also, it leaves the writing of regulation to regulators, which is bizarre. This industry has proven itself hyper-susceptible to regulatory capture, and this will advantage large hedge funds and banks at the expense of smaller institutions. On the other side from regulatory capture is the grandstanding of ideologues; crusaders who will institute unworkable regulatory schemes that will turn the flow of credit into slush.

To give you an example of this, I'd refer you to Title XIV of the law. This section deals with the "problem" of "predatory lending" (As if that was a major contributor to this crisis). All very popular talking points from the time, to be sure, but there are some problems which arise from this. This refers to the mortgage broker compensation I mentioned earlier, but it also discusses total costs that can be assigned to a home buyer. Why this is the province of the federal government, I have no idea. And while it may seem more than sufficient in New York or Washington, there is a substantial difference between 3% of $650,000 and 3% of $70,000. So in a place like Vegas, let me tell you what happens. Mortgage brokers do not service loans under a certain amount, because they would basically be paying for the deal. Banks also do not do loans under a certain amount (Albeit lower), and in addition, they have higher credit requirements (Due to Dodd Frank) than mortgage brokers.

So what happens? You have a financial crisis which annihilated a housing market, causing prices to plummet to the point where most people here are underwater. The only bright side of this is that people who were priced out of the housing market now find it affordable....except that the tight requirements by the bank prevent them from getting a loan, and the limits on charging (And elimination of YSP) prevent them from getting a loan from either the mortgage broker (Which has looser credit requirements) or the bank even with its lower lending amount.

So who can lend? Private, hard money...which will charge them 14% on a two year interest only balloon loan.

Then of course we come to the fact that it doesn't do anything about Fannie and Freddie. These are just a few of my problems with this one instance of "bank regulation".

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A third to a half.
I don't know where you could possibly come to that number. The idea that people didn't know what they were signing says more about people than companies, and I'm surprised to see you think these people are so incompetent.

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Well, let's evaluate your advice. Pay off what they owe is generally good advice. Cancelling the card is usually bad advice as all you are doing there is further damaging your credit score.
You've come to the point where your left-of-center catch 22 comes to fore. People aren't businesses. Most aren't legitimate members of the investment class. Why do they need easy access to credit? To be able to purchase things they cannot afford; and unlike investment, to be doing so for pleasure rather than return. It isn't as though you need a fantastic credit score to get a student loan, for example, and you don't need a stellar credit score for a car. Moreover, your debt ratio is lower by avoiding dependence on this credit card.

What is the need for this easy credit, really? To give bourgeois illusions to people?

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But why is this the only option? Why did the rate jump from 7.9% to 23%? was it a penalty for late payment where the "late payment" was actually the CC company failing to process payment in a timely manner? Was it based on a change in credit score, which in turn, was caused by a changing of the debt to limit ratio, which was caused by the change of the credit limit by the same CC company?
What does it matter? In all instances, the cardholder knows the rate changed. He has a choice of paying down the card to nothing, looking for a better card in the meantime, and not charging more money that will be subject to a 23% rate. He made a bad decision signing forms without reading them (The usual situation, in my view, behind all of this "predatory" lending business)? That's too bad; his lesson in the dangers of rootless finance capital only cost him a couple hundred, or thousand, dollars. The knowledge is priceless.

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Or are you really pretending that jumps in rates are never due to incompetence or dishonesty on the part of credit card companies?
I cannot think of a complaint, even, that alleges CC companies didn't have a clause suggesting the possibility of a rate increase. I do not sign contracts for financial contracts with vague clauses. Why would anyone else?

I recommend a debit card to all these innocent fawns with jet skis and a $20,000 credit card bill.

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Your "solution" to the problem of one's rate jumping dramatically, is for the consumer to grab their ankles, regardless of what caused it, and to engage in behavior that will make it worse for said consumer while maximizing the return that CC companies get. Why am I not surprised?
As long as "what caused it" was within the contract then yes, they should OBVIOUSLY accept the consequences of their decision to take the card. A contract is a promise, you know. Rates will sort out people who should have credit cards and people who should not.

After all, everything you used to need credit cards for can be done on debit.
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  #26  
Old 11-07-2011, 08:22 PM
miceelf miceelf is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by Sulla the Dictator View Post
Seems to me that this attitude towards "fraud" simply defined as clever business is open to all kinds of interpretation. In what sense doesn't it serve as complaint for any party that ever loses money in a bad deal?
It depends on what you mean by a bad deal. If you mean something other than a deal in which one side attempted, successfully, to mislead the other about the nature of the agreement, then we don't have a disagreement. I am talking about intentionally misleading user agreements, which were the industry norm for credit cards until recently.

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Originally Posted by Sulla the Dictator View Post
I don't know where you could possibly come to that number. The idea that people didn't know what they were signing says more about people than companies, and I'm surprised to see you think these people are so incompetent.
The agreements were written in a verbose and misleading fashion and in small enough print that they were not going to be read by most people. The "summaries" of the agreements didn't actually comport with the fine print of the agreement, as people would find out under some circumstances. But you seem surprised that something written with the express intention of being neither read nor understood, was, in fact, neither read nor understood by most people.


Conservatives like to complain about how horrifically complex the IRS tax code is. And yet, last year, when I both a) completed my 1040 (not EZ) and b) got my credit card updated, it took me longer to simply read my credit card agreement than it did for me to complete and file my 1040.
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Old 11-08-2011, 02:18 PM
miceelf miceelf is offline
 
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More on how misleading/fraudulent practices are not at all endemic in banking.

(although i freely admit that Bank of America takes the cake for pure sleaziness, as I understand things):

http://abcnews.go.com/US/wireStory/j...4#.Trl3hEMr27t

A federal judge on Monday gave final approval to a $410 million settlement in a class-action lawsuit affecting more than 13 million Bank of America customers who had debit card overdrafts during the past decade.

....

The lawsuit claimed that Bank of America processed its debit card transactions in the order of highest to lowest dollar amount so it could maximize the overdraft fees customers paid. An overdraft occurs when the account doesn't have enough money in it to cover a debit card transaction. Similar lawsuits have been filed against more than 30 other banks.

Despite the settlement, Bank of America insists there was nothing improper about the processing sequence. New regulations enacted following the recent financial crisis prohibit banks from charging overdraft fees on debit cards without first getting customer permission.
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Old 11-07-2011, 12:02 PM
sugarkang sugarkang is offline
 
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Originally Posted by Diane1976 View Post
All this just made me think of ideologies, communism, socialism, libertarianism, free market worship, all of them. They're all the same. There's always some greater good and be damned the people who have to suffer for it now.
This sounds right. This is the good/evil narrative that people create to make sense of the world and people will create the narratives to fit their ideologies. Sometimes, it's valid to do so. However, Karl's point seemed to be that the morality tale doesn't fit this particular scenario and that the problem is a technical one.

Which is why the remainder of your comment is confusing.

Quote:
If there's a big financial crisis and the theory gets all screwed up, blame the poor Americans who were hoodwinked into buying houses they couldn't afford, or the kids that took out student loans, or, hey, why not the people of Greece. It must have been their fault.
You've made an implicit assumption that debtors are victims being unjustly blamed. There are indeed some Republicans doing so. I've seen Herman Cain tell OWS to "blame yourself." I've seen Rudy Giuliani tell the same people to "get a job." Those stances seem patently ridiculous when people are constantly looking and applying for work, but there aren't any jobs to be had. You can tell someone in the 1960s to get a job when there's plenty of work for everyone. You can't do that to someone who's looking for something that doesn't exist. To that extent, victim blaming is wrong.

However, more fundamentally, one should ask whether these debtors qualify as victims of intentional wrongdoing or of unfortunate circumstance? Did Big Tony bust through their houses, dump a bunch of money on the floor and threaten to break their legs if they didn't pay it back with interest? Your word selection seems to suggest this.
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Old 11-07-2011, 12:16 PM
miceelf miceelf is offline
 
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Originally Posted by sugarkang View Post
You've made an implicit assumption that debtors are victims being unjustly blamed. There are indeed some Republicans doing so. I've seen Herman Cain tell OWS to "blame yourself." I've seen Rudy Giuliani tell the same people to "get a job." Those stances seem patently ridiculous when people are constantly looking and applying for work, but there aren't any jobs to be had. You can tell someone in the 1960s to get a job when there's plenty of work for everyone. You can't do that to someone who's looking for something that doesn't exist. To that extent, victim blaming is wrong.

However, more fundamentally, one should ask whether these debtors qualify as victims of intentional wrongdoing or of unfortunate circumstance? Did Big Tony bust through their houses, dump a bunch of money on the floor and threaten to break their legs if they didn't pay it back with interest? Your word selection seems to suggest this.
I generally agree (I think) with your post. But you agree that there are people unduly blaming those without jobs and with bad loans, and say that it's an implicit assumption that blame is happening. It's happening, and not universally, but I don't think universally was the claim.

As to whether intentional wrongdoing vs. unfortunate circumstances, well, neither option makes the victim blameworthy. As to intentional vs unfortunate, if they are victims of the financial crisis, then it's intentional wrongdoing just not at the direct level of the provider of the loan, but rather the wrongdoing that led to the collapse.
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Old 11-07-2011, 12:57 PM
sugarkang sugarkang is offline
 
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Originally Posted by miceelf View Post
As to intentional vs unfortunate, if they are victims of the financial crisis, then it's intentional wrongdoing just not at the direct level of the provider of the loan, but rather the wrongdoing that led to the collapse.
I agree. Although, we might disagree on the definition of "wrongdoing." I've said this before, but the most egregious things are legal, not illegal.
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Old 11-07-2011, 01:02 PM
Don Zeko Don Zeko is offline
 
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Originally Posted by sugarkang View Post
I agree. Although, we might disagree on the definition of "wrongdoing." I've said this before, but the most egregious things are legal, not illegal.
Much like Congress, the real crime is the stuff that's perfectly legal. On this subject, apparently Jack Abramoff is out of jail and possibly writing a memoir.

Quote:
In the interview, Abramoff gives away some of the tricks of his former trade. The big one? Dangle a job, he told Lesley Stahl. “When we would become friendly with an office and they were important to us, and the chief of staff was a competent person, I would say or my staff would say to him or her at some point, ‘You know, when you’re done working on the Hill, we’d very much like you to consider coming to work for us.’ Now the moment I said that to them or any of our staff said that to ’em, that was it. We owned them. And what does that mean? Every request from our office, every request of our clients, everything that we want, they’re gonna do. And not only that, they’re gonna think of things we can’t think of to do.”

Abramoff had softer methods, too. “I spent over a million dollars a year on tickets to sporting events and concerts and whatnot at all the venues,” he says. “I had two people on my staff whose virtual full-time job was booking tickets. We were Ticketmaster for these guys.”

Once the key staffers or legislators were bought, the trick was getting clients what they wanted without attracting attention. “So what we did was we crafted language that was so obscure, so confusing, so uninformative, but so precise.” The following line of text, for instance, quietly won Abramoff’s Native American clients a casino license: “Public law 100-89 is amended by striking section 207 (101 stat. 668, 672).”
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Old 11-08-2011, 09:20 PM
badhatharry badhatharry is offline
 
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Originally Posted by Don Zeko View Post
Much like Congress, the real crime is the stuff that's perfectly legal. On this subject, apparently Jack Abramoff is out of jail and possibly writing a memoir.
Abramoff was found out and went to jail. That's a good thing. Also he has published his memoir. I'm sure he'll be using the proceeds to pay the millions of dollars in fines he managed to pile up. I think his book will be a very informative read.
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Old 11-06-2011, 10:21 PM
db63 db63 is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by karlsmith View Post
I prefer to think of it as second-semester sophomore nihilism combined with optimal control theory.

No, but the core of the issue is this:

If you think of policy as an infinite horizon problem, then there is always some discount rate that justifies an arbitrary amount of human suffering today, to relieve the probability of human suffering in all future periods.

Traditionally, people speak about policy as if this was the objective function we are maximizing.

Thus questions between suffering today and increasing the long run path of suffering are always value questions. How much do you care about the future?


However, once you accept that this is a finite horizon problem that changes. For some cases there exists no discount rate such that human suffering today can be justified by a lower probability path of human suffering tomorrow.

Doing the "responsible" is thing unambiguously worse for humanity irrespective of your valuation of the future.


I think this is important because its important to realize that some policy decisions to suffer now for the greater good can simply be wrong. Not a question of values or moral, but demonstrably wrong. The world simply does not operate under conditions that would allow that to be the solution to some utility maximization problem.
That was needlessly snarky. I apologize for the tone, as this was actually an interesting talk.

I think you can remove the social scientific/economics jargon and rephrase your problem in the following way (let me know if I'm wrong): People assume (with regards policy choice) that bearing costs today to put off future suffering is objectively "better" (value judgment) that putting off these costs. (n.b.: I wouldn't say this is actually how people talk about policy, as it seems that the major republican intellectual claim about climate change legislation is that the cost is too high for us to make policy changes that could theoretically effect the future climate.) But, you're saying that in actuality certain costs that we could incur today to make a better tomorrow are not actually worth it because, as Keynes said, in the long run we're all dead.

The problem, as I see it, is that this is ultimately (as you implied) a question of values. My given values may differ from yours, etc. And the issue of values is a problem that the social sciences, especially economics, cannot solve. That is to say, I don't see how you could ever demonstrably prove something "wrong" (it seems that you are implying there is a level of human suffering that cannot justify sacrifice today for tomorrow. But where you place this line is ultimately arbitrary). I am not trying to be a value relativist, but I am just pointing out that you seem to imply an economic definition to what is ultimately a philosophical problem that the discipline of economics isn't fit to solve. It seems that you would have to accept the academic division of labor here and perhaps turn to other disciplines, likely philosophy, to address the value-issues you're discussing.
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Old 11-07-2011, 12:37 AM
db63 db63 is offline
 
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Originally Posted by db63 View Post
That was needlessly snarky. I apologize for the tone, as this was actually an interesting talk.

I think you can remove the social scientific/economics jargon and rephrase your problem in the following way (let me know if I'm wrong): People assume (with regards policy choice) that bearing costs today to put off future suffering is objectively "better" (value judgment) that putting off these costs. (n.b.: I wouldn't say this is actually how people talk about policy, as it seems that the major republican intellectual claim about climate change legislation is that the cost is too high for us to make policy changes that could theoretically effect the future climate.) But, you're saying that in actuality certain costs that we could incur today to make a better tomorrow are not actually worth it because, as Keynes said, in the long run we're all dead.

The problem, as I see it, is that this is ultimately (as you implied) a question of values. My given values may differ from yours, etc. And the issue of values is a problem that the social sciences, especially economics, cannot solve. That is to say, I don't see how you could ever demonstrably prove something "wrong" (it seems that you are implying there is a level of human suffering that cannot justify sacrifice today for tomorrow. But where you place this line is ultimately arbitrary). I am not trying to be a value relativist, but I am just pointing out that you seem to imply an economic definition to what is ultimately a philosophical problem that the discipline of economics isn't fit to solve. It seems that you would have to accept the academic division of labor here and perhaps turn to other disciplines, likely philosophy, to address the value-issues you're discussing.
I was unclear when I said "that was needlessly snarky." I was referring to my first post; Professor Smith's response was not snarky at all, but was polite and put me in my place. Jaron Lanier was right--snarkiness just degrades conversation.
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Old 11-07-2011, 11:42 AM
karlsmith karlsmith is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

"I am just pointing out that you seem to imply an economic definition to what is ultimately a philosophical problem that the discipline of economics isn't fit to solve. It seems that you would have to accept the academic division of labor here and perhaps turn to other disciplines, likely philosophy, to address the value-issues you're discussing"


Lets say that we could do Austerity now and 1 Million Greek people will loose their jobs. But, it will decrease the probability of crisis in which 10 Million people lose their jobs by 1% each year.

That is we are now in a more sustainable place.

Is this a good idea?

You could say well I think society should always look towards the long term and 10 Million jobs lost is a horrible outcome. We need to face Austerity now, not kick the can down the road.



I come back and say, well look, in the back of your mind you are doing an infinite horizon calculation and you can always make this a worthwhile thing to do simply by putting more weight on the future. That is, implicitly saying I have more patience or a lower discount rate. In this case any discount rate of less than 10% will make it worth your while to do this.

So you actually have to be quite impatient not to want to have austerity.


However, if you recognize that this all is going to come to an end sometime then its no longer true. Lets say that there was a 10% chance that the world was going to end each year.

Then in that case no discount rate. Even one of zero would make this idea good because the probability of anyone actually experiencing this bad thing is so low that its never a good idea to make people suffer now for the future.


These are really simplistic numerical examples but I hope the point is that once you recognize that you are dealing with a finite horizon problem you actually have to sit down and do the math. You can't just claim that there is SOME discount rate that makes this a good idea. Or, in other words you can't just claim that "if only people were far-sighted enough" they would think this was a good idea.
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  #36  
Old 11-07-2011, 11:11 AM
Alexandrite Alexandrite is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

Quote:
Originally Posted by karlsmith View Post
I prefer to think of it as second-semester sophomore nihilism combined with optimal control theory.

No, but the core of the issue is this:

If you think of policy as an infinite horizon problem, then there is always some discount rate that justifies an arbitrary amount of human suffering today, to relieve the probability of human suffering in all future periods.

Traditionally, people speak about policy as if this was the objective function we are maximizing.

Thus questions between suffering today and increasing the long run path of suffering are always value questions. How much do you care about the future?


However, once you accept that this is a finite horizon problem that changes. For some cases there exists no discount rate such that human suffering today can be justified by a lower probability path of human suffering tomorrow.

Doing the "responsible" is thing unambiguously worse for humanity irrespective of your valuation of the future.


I think this is important because its important to realize that some policy decisions to suffer now for the greater good can simply be wrong. Not a question of values or moral, but demonstrably wrong. The world simply does not operate under conditions that would allow that to be the solution to some utility maximization problem.
The difference between a socialist growth rate of 1% in Greece versus say, a Free Competition growth rate of 5% by merely the end of the century (which many people alive today in Greece should live to see), is the difference between the United States and Sudan today in terms of quality of life. If you would not make the argument for your ancestors in 1920 to adopt such anti-growth methods that would relegate your current living standards to Sudan, if you think there would have been something wrong about your grandparents or great grandparents destroying your future so they could enjoy high government wages and universalwhatevers, then you probably need to rethink your Got-mine-FU attitude towards the future.


There are worse things that can happen than cutting government spending 40% (Your 3% imf target is ridiculous nonsense). The fact is, the Greeks will never reduce their government to a level they can afford unless they take a bit of pain. The idea of buying stuff they can't afford needs to be so ridiculously painful they will never, ever do it again. It needs to hurt so bad, Italy, and Spain, and all the other nations of Europe back off of reckless spending as well.


All punishment is a moral hazard. All punishment is inflicting evil and suffering. Pointing out that this particular instance of punishment is painful isn't going to change the fact that punishment and justice serve purposes that are higher than the moral whims of the moment.
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Old 11-07-2011, 11:47 AM
karlsmith karlsmith is offline
 
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Quote:
All punishment is a moral hazard. All punishment is inflicting evil and suffering. Pointing out that this particular instance of punishment is painful isn't going to change the fact that punishment and justice serve purposes that are higher than the moral whims of the moment.
I am sorry that I am not going to be able to fully engage this but my basic point here is that we really need to do the math on this.

Austerity may or may not be the worst thing that can happen, but Global Financial Crisis is among the worst things that has happened to a Capitalist Economy.

This is what we are potentially facing.

To continue your analogy the optimal level of crime is not zero. It is not a good idea to ramp up your police state to the point where no crime happens because a police state is worse than crime.

Yes, it would be good if the criminals just willingly changed their ways but given that the actual means at your disposal is violence from the state, it is not in your best interest to punish every crime to the point where crime disappears.

I am arguing here that it is not in your best interest to risk Global Financial Crisis to push Greece into closing its gap.

We can argue more about the IMF estimates but this is the basic case.
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Old 11-07-2011, 12:42 PM
Alexandrite Alexandrite is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

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Originally Posted by karlsmith View Post
I am sorry that I am not going to be able to fully engage this but my basic point here is that we really need to do the math on this.

Austerity may or may not be the worst thing that can happen, but Global Financial Crisis is among the worst things that has happened to a Capitalist Economy.

This is what we are potentially facing.

To continue your analogy the optimal level of crime is not zero. It is not a good idea to ramp up your police state to the point where no crime happens because a police state is worse than crime.

Yes, it would be good if the criminals just willingly changed their ways but given that the actual means at your disposal is violence from the state, it is not in your best interest to punish every crime to the point where crime disappears.

I am arguing here that it is not in your best interest to risk Global Financial Crisis to push Greece into closing its gap.

We can argue more about the IMF estimates but this is the basic case.
Let's ignore the downside risks, since those are
A: prone to loss aversion and
B: Assumes that the problems Greece faces are outside of their control

The entire planet is prepared to pay the Greeks a ridiculous amount of money if they get their act together and move towards sustainability.

I don't know what the interest rate on Greek Bonds are, but if you - as King of Greece - knew for a fact that the default risk was actually 0, because you were prepared to do anything and everything to pay that money back...

You could make DI money off that. It would be the greatest insider trade in the history of mankind. The fact that the planet is willing to make bets like this is kind of ridiculous. It's so obvious that you'd have to be really stupid to not snap take them up on these bets.


Is there any austerity risk that you can present that is worth the potential money they can make? The fact is, the choice of default for Greeks is in their hands. They can choose to cut government wages, they can choose to cut services, they can choose to adopt more business friendly environment - all of the tradeoffs between the worker and the business, between the environment and business, between the customer and business, whenever a government makes the tradeoff in favor away from industry those are luxuries.

Luxuries that are increasingly becoming evident that the Greeks can't afford. Removing minimum wage laws in Greece might hurt, but when compared to the money they'll make if they don't, it's got to be on the table.

In 20 or 40 years when they're richer they can go back and revisit these trade offs, but the Greeks need to start thinking like the poor nation they are. No one questions that poor nations will make these kind of trade offs, no one questions that China doesn't have Universal Health Care, so why should a nation like Greece, who's long term economy looks much crappier than China's, be thinking they can afford something like that. They need to start thinking, "How can I get Nike to open a factory in Athens", because that's how poor they're getting. They need money, and nothing should be beneath them. If you think this is ridiculous, at current growth rates by the end of the decade, Greece will be below average for global GDP. Below 'developing' nations like Brazil. The rest of the world is catching up fast, and they don't have time for this kind of first world nonsense. What comparative advantage does Greece have compared to Brazil? The poor first world nations rested on their laurels, and they're about to get a massive wake up call.



I also disagree that Global Financial Crisis is among the worst things that has happened to a Capitalist Economy. In Capitalist nations 'crisis' happens every 50-100 years, and usually coincide with great reformations in technology and labor sectors. It's a large painful burning off of wealth-potential along deadend sectors as the workforce transitions from unproductive sectors into new productive ones, but it's always followed by large growth -periods of large recovery that make the misery worth it. It is natural and built in way of redistributing economic resources from unproductive places to more productive ones.

There are worse things than the pain of the moment, and that's getting locked into deadend directions. You end up in anemic go-nowhere economies that ultimately are overshadowed by the faster growth of their neighbors. How much richer could Japan have been today if they had chosen 20 years ago to let their failures flush through their system?
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Old 11-07-2011, 08:53 PM
timboy timboy is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

Karl --- Sure, I agree that in an infinite-horizon formulation you can always find a discount rate that justifies any amount of present human suffering. This will be especially true if your discount rate is greater than 1 (e.g. next year's utility is valued at 1.1 times the current year's).

But this doesn't necessarily argue that our models should have a finite horizon - it's equally reasonable to say that our horizon should be infinite but we should choose our discount rate with care.

For example: why is a finite horizon model for human achievement/happiness/economy preferable to an infinite-horizon model with a steep discount (say, 50% per year - next year's utility valued at half of this year, two years from now valued at 1/4 of this year, etc.)? The series of coefficients does converge.

The reason I ask this is that I agree that everything will eventually end badly, whether that's due to climate change/nuclear war in five years, or the heat death of the universe in tens of billions of years. But it seems to me that there is some tiny slim chance that our species will survive for a long time and maybe even spread beyond our planet, and I would like for the possibility of a good outcome like that to influence our decisions.
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Old 11-06-2011, 06:29 PM
T.G.G.P T.G.G.P is offline
 
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Default Re: The Big Interview (Karl Smith & Kelly Evans)

Alright, one of my favorite bloggers. And props to Kelly for responding to Scott Sumner. And now getting into bheads. Journalism has changed a lot.

I'm going to dissent on Lehman. From Scott Sumner's take on market behavior, things were already heading south and Lehman was the result rather than cause of that drop in NGDP. The Fed's failure was in allowing things to get so bad in the first place. If the rest of the economy was receiving helicopter drops while Lehman failed, it would just have been tough to be them.

Karl said if borrowing costs were not a problem, Greece would not have a problem. My impression was that this was true of Italy, but not Greece. So if Italy revalued it's currency, it could resolve its problems through inflation. But Greece is screwed no matter what (though default is probably the better option for them).

Scott Sumner is not a traditionalist, and constantly harps on how low interest rates don't mean "easy money" but often mean money is so tight people expect there to be little growth. Karl's timid statement is no Chuck Norris. Scare the pants off people about losing their savings if they are hoarding cash.

Last edited by T.G.G.P; 11-06-2011 at 07:41 PM..
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