"Also the problem is this crisis can't be managed. We need the free market. You've got these cronies in Washington. They're like little kids with a chemistry set, and they keep on throwing these chemicals together, trying one thing after another. They hope they're going to stumble on a miracle, but they're going to blow us all up."
- Peter Schiff
Though I am not entirely sure that this crisis cannot be at least partially managed, the broad brush used to paint the policy makers is quite accurate. When talking to undergraduates, I often describe Macroeconomics as "a field of study based on trial and error from the Great Depression." It seems that we are heading down that path of trial and error again, though this time I will be alive to watch them blow us all up*.
* I am not sure if the current path of the government involvement in the financial sector will lead to an explosion, but anytime the government finally decides to act on something (read: after lots of time spent debating and voting for pay raises) in the market, the market has usually started it's course correction mechanics**. At that point, government action usually impedes natural market corrections by not acting quick enough and overestimating the corrective action once implemented.
** Some believe that the current problem came from some serious over-consumption, where people have been consuming too much on credit, AND then not being able to pay the debt off. The subsequent tightening of the credit market would be a natural course correction, but that is not politically viable. Therefore, the government injecting more liquidity into the credit market is like putting up a big sign saying, "Hey. Don't stop borrowing money!! Keep that consumption going!!" I will exit my soapbox now.
Though I am not entirely sure that this crisis cannot be at least partially managed, the broad brush used to paint the policy makers is quite accurate. When talking to undergraduates, I often describe Macroeconomics as "a field of study based on trial and error from the Great Depression." It seems that we are heading down that path of trial and error again, though this time I will be alive to watch them blow us all up*.
* I am not sure if the current path of the government involvement in the financial sector will lead to an explosion, but anytime the government finally decides to act on something (read: after lots of time spent debating and voting for pay raises) in the market, the market has usually started it's course correction mechanics**. At that point, government action usually impedes natural market corrections by not acting quick enough and overestimating the corrective action once implemented.
** Some believe that the current problem came from some serious over-consumption, where people have been consuming too much on credit, AND then not being able to pay the debt off. The subsequent tightening of the credit market would be a natural course correction, but that is not politically viable. Therefore, the government injecting more liquidity into the credit market is like putting up a big sign saying, "Hey. Don't stop borrowing money!! Keep that consumption going!!" I will exit my soapbox now.
9 comments:
I agree with these sentiments.
Careful there, Fletch...you're starting to sound like a...wait for it now...libertarian! I'd like to claim some credit (or blame?) for these positive overtures...
I have always been a moderate advocate for free markets. Except for cases where natural monopolies exist, I say let the market work itself out. My rhetoric is on the same level (in tone, not quality) as what you would see in Mankiw's text about government intervention.
Why do you oppose markets in natural monopolies? Would you nationalize the DeBeer diamond mines?
(the word verification for this comment is "wumun"
I don't really oppose markets in Natural monopolies, it's just that competition in these cases is not very cost effective, classic example being utility provision. It doesn't make sense to have multiple companies erecting their own lines to serve scattered customers in a neighborhood.
DeBeer isn't a natural monopoly. It's just a monopoly that has vast swaths of property rights to the mines from which it gets it's diamonds.
Fair enough, w/respect to DeBeer. I got my definitions mixed up.
But, your critique of natural monopolies refers to competition, not to markets. My question was "Why do you oppose markets in natural monopolies?" not "Why do you oppose competition in natural monopolies?" These are very different questions.
Okay, here is the original quote:
"I have always been a moderate advocate for free markets. Except for cases where natural monopolies exist, I say let the market work itself out."
Now, what I am saying is that I am a moderate advocate of free markets, i.e., LIMITED government intervention. The only logical case for more intrusive government intervention would be a natural monopoly. Letting the market work itself out in a natural monopoly setting would result in multiple firms trying to lay cables, phone lines and what not, tearing up the street, and then when they have to pull out of the market, tearing up everything to get it out.
I love him. I bought his book "Crash Proof."
I disagree that your prediction is a must-happen; I think it's a could-happen. This is clearly a discussion that will take more than back-and-forth comments on your blog. Another day...
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