Greenback lost 41% of its value under Bush

[bascule]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aH0_cYGS8Avc&refer=home

 

America is now the 2nd worst performing country in the G8, after Italy. A weak dollar doesn't bode well for a country with a massive addiction to foreign imports, including oil.

 

I'd attribute this to decades of Milton Friedman-inspired economic policy blowing up in the country's collective face (and that includes such policies introduced by Clinton). Massive deregulation precipitated massive corruption which in turn precipitated massive devaluation.

 

Of course none of this is going to deter free market advocates who think that the economy was overregulated even under Bush.

[ecoli]

Of course none of this is going to deter free market advocates who think that the economy was overregulated even under Bush.

Yup... but since when does an overregulated economy = a good economy?

 

Bush just had the exact wrong amount of regulation. Too much to let the free market work properly and too little to do anything about it.

 

I'm over generalizing, but you get my point.

[Pangloss]

This is a partisan ideological argument, not a demonstrable establishment of cause. Oh look, people are hurting, quick, blame Friedman and the market types, before they can blame the Keynsians! It must be true because we've gone market and look what happened!

 

This is no more of an answer than the mainstream media's "Bush's failed economic policies" meme.

[iNow]

How is showing a specific percentage decrease in the value of the dollar over a given time period a "partisan ideological argument?"

 

You've lost me on that one, I must say.

[Pangloss]

How is showing a specific percentage decrease in the value of the dollar over a given time period a "partisan ideological argument?"

 

You've lost me on that one, I must say.

 

K, now read the rest of the OP:

 

I'd attribute this to decades of Milton Friedman-inspired economic policy blowing up in the country's collective face (and that includes such policies introduced by Clinton). Massive deregulation precipitated massive corruption which in turn precipitated massive devaluation.

 

Of course none of this is going to deter free market advocates who think that the economy was overregulated even under Bush.

[bascule]

This is a partisan ideological argument, not a demonstrable establishment of cause.

 

I think it's a fairly well known fact that the variety of fiscally unsound mortgages banks began to offer after deregulation of the mortgage industry, such as adjustable-rate mortgages, mortgages that started interest-only or with introductory teaser rates, and mortgages with no down payment, are what lead to the housing crisis which only compounded the sagging dollar and further dampened the economy. This wasn't the only cause, of course (many blame Greenspan for keeping rates too low for too long) but it was certainly the principal one.

 

I'm not saying there wouldn't have been a market correction otherwise, but it was certainly a severe one thanks to deregulation.

[Pangloss]

That's a much more purposeful and meaningful (and reasonable) argument, thank you.

[Rev Blair]

Free market economics simply don't work. Deregulation leads to bad business practices and corruption, bad business practices and corruption lead to market collapses.

 

We learned after 1929, but we forgot it again.

 

Most of it is also incredibly short-sighted. Look at the environmental problems we face, and most of them come from a lack of regulation of industry. Look at shrinking wages and growing wage disparity. How is it good for CEOs to make millions while the people who do the actual work can barely afford to pay for food and shelter?

[Pangloss]

We don't have a free market economy, we have a compromise between an open market and a controlled economy that we call a "free market economy". The debate is just about how much control you apply and where you apply it. So highly generalized appeals to fear and ignorance, like comparisons with 1929 or talking about how much money CEOs make while people can barely pay for Xbox 360 games, aren't going to teach us anything.

[ecoli]

We don't have a free market economy, we have a compromise between an open market and a controlled economy that we call a "free market economy". The debate is just about how much control you apply and where you apply it. So highly generalized appeals to fear and ignorance, like comparisons with 1929 or talking about how much money CEOs make while people can barely pay for Xbox 360 games, aren't going to teach us anything.

Maybe we should start talking about the real issues then,

Like exactly what should be regulated in the type of economy that we do have. Obviously we can and should have regulations (the housing and credit problems are two examples of that). Creditors were screwing over ignorant homeowners, and that obviously shouldn't be allowed, because the effect reached beyond those individual homeowners.

 

That doesn't mean that an economy is best heavily regulated. For example, heavy tariffs on imported good from certain countries can be a bad thing.

 

Discuss.

[bascule]

Well, the S&L crisis was another example of deregulation blowing up in the country's collective face. The California electricity crisis at the beginning of the decade was also caused by deregulation, exploited by vindictive plant managers trying to cash in by purposely lowering the energy supply to drive up the cost of electricity. The result was rolling blackouts. The recent New York blackout is another example of deregulation gone bad: electrical lines that were originally designed for failover are now used to sell electricity between various parts of the grid. This makes the grid substantially more fragile as there's less excess capacity in the lines to handle failures in other parts of the grid.

 

In my opinion markets which play an enormously important role in the economy (the mortgage market) and ones which provide essential services (the power grid) should most certainly be highly regulated, and attempts to deregulate them have repeatedly resulted in disastrous failure.

 

And while we're at it, with the national debt approaching $10 trillion (having increased 66% since Bush took office) we should probably consider reducing new foreign debt, but that'd probably involve ending the war... something only Obama can do at this point as McCain seems pretty intent on business as usual.

[Pangloss]

I agree that careless deregulation can be detrimental. Unfortunately deregulation has become a polarized partisan issue -- one side trumpeting it as always bad, the other side as always good. The truth is in between. And the fact of that matter is that it's "something in between" for even its most ardent proponents and opponents, when they stop demonizing their enemies long enough to admit it. Regulation proponents never propose regulating every single aspect of society, and deregulation proponents might say so, but they shut their mouths when the next disease rears its ugly head or the next time a passenger plane falls out of the sky.

 

In between.

[Sisyphus]

I've heard plenty of plenty of people say it's always bad, but I've yet to hear anyone claim it's always good. I'm not even sure what that would mean - something like Stalinism?

[ecoli]

I agree that it has turned into a partisan issue. I think we should stop listening to the politicians and more to the economists on this one.

 

Yeah, regulation for product safety makes sense, but regulation, for example subsidies to big oil makes no sense. Alternative energies would be served much better if the free market had more reign, because the demand is out there . (this is an example).

[bascule]

I think we should stop listening to the politicians and more to the economists on this one.

 

I think the blame is equally shared between politicians and economists for our present situation. Bernanke didn't go as far as to blame Greenspan for the present situation, but he certainly implied it. Steve Forbes blasted Greenspan outright.

[Pangloss]

I've heard plenty of plenty of people say it's always bad, but I've yet to hear anyone claim it's always good. I'm not even sure what that would mean - something like Stalinism?

 

You mean regulation? Yah, that's what I was trying to say in my last post. Even the most ardent supporters of regulation stop short of proposing regulating all aspects of society, thus proving that even they believe that an in-between position is correct. Not marxism/stalinism, and not objectivism/pure-capitalism either. In between.

[ParanoiA]

Damn, I'm on vacation and just couldn't help stopping in...

 

The housing crisis is the perfect example of coddling people along FAR TOO MUCH for FAR TOO LONG and then suddenly freeing them up, only to scratch our heads at how inept they appear to be at these decisions.

 

The housing "crisis" isn't a crisis. It's a freaking lesson. Free market checks and balances by natural forces and when you over-regulate you circumvent that natural structure. These checks and balances will need to be exercised ever now and then when people forget they're there. Just like you have to whip your 3 year old's butt to remind him that it's STILL not okay to pull the curtains down at your neighbor's house.

 

We need more and more deregulation, more and more self responsbility, more and more freedom and liberty. It is a recession of the human condition to invest coersive forces, which is what government is. Needing government is a reality, but our evolution only seems sensible to less and less government and regulation. I see no value in thinking FOR people, let them fall, roll around and get up. Help them, don't do it for them.

[bascule]

The housing "crisis" isn't a crisis. It's a freaking lesson. Free market checks and balances by natural forces and when you over-regulate you circumvent that natural structure.

 

Can you detail to us more how you think the mortgage crisis was caused by overregulation?

 

To me it's a crystal clear case of deregulation gone bad.

 

Lenders sought to create a number of "bait and switch" mortgage products which prior regulations forbade. These are the afforementioned adjustable-rate mortgages, mortgages that started interest-only or with introductory teaser rates, and mortgages with no down payment.

 

The plan, as far as what I can tell, was to lure in mortgagors with low introductory rates, then lock them into much higher rates. It's the same thing credit card companies have been pulling off for years to some degree of success.

 

Except these aren't credit cards we're talking about. These are assets with a valuation of hundreds of thousands of dollars. These are assets intimately tied into larger financial markets in the form of mortgage backed bonds.

 

The lending institutions let lots and lots of untrustworthy people borrow money, and those people failed to borrow it successfully. The net result is lots of lost money: for the mortgagors, for the lenders, and for owners of mortgage backed bonds. Nobody came out a winner here... it was a massive experiment in failure.

 

Where, exactly, does overregulation enter into this mess?

[Pangloss]

I don't know if this is what ParanoiA meant, or how this would apply to this specific situation, but Alan Greenspan himself wrote a classic argument about how regulation itself causes the need for regulation, back in his objectivist days. The general idea of the argument was that by imposing regulations we forced companies into a mode of seeing those regulations as a kind of boundary, an outer marker of legitimate behavior, as opposed to working entirely within a framework of supply and demand. Once we put that boundary in place, businesses immediately pushed right up against it, and over time began to see a need to feel the precise edges of those boundaries, and operate under the presumption that any area of profit not specifically prohibited should immediately be explored, rather than deciding whether it was a good idea to explore it -- any ethical or moral ambiguity was erased by the government's imposition of what is permitted and what is not.

 

One could say that those areas of ethically bad business practices would have been explored anyway had their been any profit to be gained, and that's a legitimate point (e.g. the tragedy of the commons), but we essentially gave businesses a leg up, convincing them that it was a good idea to hire mountains of lawyers and create scenarios of plausible deniability, and so forth.

 

Look at it this way: In our modern world we take it as given that business is better equipped to deal with legal matters than government. Isn't that kinda crazy -- the opposite situation from what we should want? You'd think you'd want the government in charge and on top of legal matters, and business always ill-equipped and always behind the 8-ball, mostly concerned with making money and not really interested, much less motivated, in exploring bad business practices. The idea of businesses hiring lawyers to explore regulations should be a very alien concept -- it should seem crazy and far-fetched to us, instead of the accepted norm.

 

Mind you, I happen to not agree with this reasoning, and think it inherently flawed. I think ultimately those areas get explored anyway, because human behavior is such that the first time a baby is killed by a product you end up with regulation anyway -- it's inevitable. So Greenspan's point, if accurate, was ultimately moot.

 

So as I say I don't know how this applies here or if that's what ParanoiA meant, but it at least legitimizes for the sake of argument the overall concept of how regulation can create a situation in which businesses behave badly.

[ParanoiA]

Can you detail to us more how you think the mortgage crisis was caused by overregulation?

 

Sure. Similar to Greenspan's argument Pangloss outlined above, I believe it is overregulation in general that creates the "legitimator" role of government. I believe that feeds the notion to the poor, which are generally uneducated as well, that "it wouldn't be legal" if it could hurt them. So they take every "predatory" loan as an opportunity.

 

I can only offer anecdotal evidence, however it is many, many years in the gathering. I have lots of poor friends, and they just don't think deeply about financial matters, which is largely why they are poor. I believe this is a serious problem in this country - the promotion of ignorance in "boring" subject matter - like finances, politics, history and etc.

 

So when you suddenly deregulate something, you're going to see that natural check get exercised. That's what the housing crisis is - the sting that's supposed to marginalize the risky practice of subprime loans.

 

And don't forget the point made by someone here, I don't remember who, I apologize, but there's been a ton of pressure on mortgage companies to give the poor folks a chance to real home ownership and since this isn't a charity drive they must find a way to make money off of people that don't have any.

 

More importantly, people need to stop shrugging at the closing table, start understanding the business they're conducting. I'm amazed at how funny some of them think it is to not know most of what they're signing. This is the most expensive debt they will likely ever live down, and most of them just figuratively nod along with what complete strangers tell them to do - is that not the proverbial wide open barn door?

[bascule]

So when you suddenly deregulate something, you're going to see that natural check get exercised. That's what the housing crisis is - the sting that's supposed to marginalize the risky practice of subprime loans.

 

Yes, that's exactly what happened, the regulatory safety net was removed, housing prices skyrocketed, then the bubble burst, and now the economy is in the toilet.

 

And we did that... why? How is that better than regulation?

[Aardvark]

Well, the S&L crisis was another example of deregulation blowing up in the country's collective face. The California electricity crisis at the beginning of the decade was also caused by deregulation, exploited by vindictive plant managers trying to cash in by purposely lowering the energy supply to drive up the cost of electricity. The result was rolling blackouts.

 

 

I love how certain false ideas get established in the narrative.

 

Things go wrong and people run to blame deregulation, then invent fairy stories to back up the idea.

 

For the record, the California electricity market was highly regulated. It failed because the regulator imposed a price for electricity that was below the market rate. This then led to less electricity being produced (obviously). It had nothing to do with 'vindictive' plant managers purposely lowing production in a conspiracy to raise prices. It was a case of bad regulation not deregulation causing the electricity problems.

 

But hey, the political meme is that the California electricity crisis was caused by deregulation and 'vindictive' plant managers, so just repeat that and you'll get by just fine. It's so much easier to go with a false narrative that actually look for the truth isn't it?

[bascule]

I love how certain false ideas get established in the narrative.

 

Things go wrong and people run to blame deregulation, then invent fairy stories to back up the idea.

 

For the record, the California electricity market was highly regulated. It failed because the regulator imposed a price for electricity that was below the market rate.

 

If you really want to argue this it probably deserves its own thread.

[Aardvark]

If you really want to argue this it probably deserves its own thread.

 

It really doesn't need any debating. The facts are clear cut.

 

The California electricity market was highly regulated, the very price of electricity was set by the State. That price was set too low and so supply dried up.

 

How could anyone consider a market where the very price is set by the State to not be highly regulated?:confused:

[bascule]

It really doesn't need any debating. The facts are clear cut.

 

I feel differently. Perhaps you'd like me to start a thread?