The government and job creation

[Perpetual Change]

The way I see it, its the rise of opinion polls/focus groups, the 24 hour news cycle and public ignorance that have led developed world politics to where it is now; fragmented and populist. There is no incentive to do anything based on an underlying ideology, its all about appearances and survival.

Ideologies are for when times are good. Right now people are just trying to put the system back together!

Agree completely. Ron Paul's 'solution' just makes him look like a rich guy out of touch with reality, trying to get the support of other rich guys who aren't going through the same hardships as regular people are. Makes sense that he's got "1 percent" of the vote 

[Orthogonal]

The way I see it, its the rise of opinion polls/focus groups, the 24 hour news cycle and public ignorance that have led developed world politics to where it is now; fragmented and populist. There is no incentive to do anything based on an underlying ideology, its all about appearances and survival.

Ideologies are for when times are good. Right now people are just trying to put the system back together!

And when it was the ideology that put us in this predicament we are supposed to do what, just keep on doing it? No, the Libertarian proposal is to put us back on solid ground so that we can start to have real growth. Yes the proposal's will cause hardship at first but it will be over quickly. The point is the oversight and regulation is not allowing the liquidation process to occur, prices are not being reset. Historically, it has only taken 9-18 months for the economy to "hit bottom" and then recover when allowing the system to liquidate. We've been in this recession for 3 years now, and it looks like it's going to continue into the forseeable future and perhaps longer if we continue down the government driven path. Had we just done the Libertarian proposal to begin with, we'd already be out of it.

The whole thrust of the bailouts and the Fed pumping credit and low interest rates is to steer us out of "hitting bottom", thinking we can control the process. It may sound like a good idea on the surface, but the problem is that it doesn't address the root cause of the situation. Yes, companies have more cash flow and can be kept afloat, but they are just Zombies. Their balance sheets are still shitty because none of the bad debt is liquidated. So, all the bailouts and stimulus spending do is keep us in a tail spin.

[Rathma]

And when it was the ideology that put us in this predicament we are supposed to do what, just keep on doing it?

I was just making an observation that when times are good people claim that it is because a certain method is being enforced. In the case of the pre-financial crisis times (Clinton and Bush admins; economic ideologies of Alan Greenspan, Larry Summers, Robert Rubin, financial sector, etc.) it was the ideology that derivatives had brought us to a new age of prosperity, putting risk in the right places. Of course this turned out to be false, as Greenspan has now admitted.  You can't be overly dependent on application of theory in democratic economies. Ultimately, policies need to be pragmatic. The age where people put their faith in one ideology and hope that it will eventually lead to a best possible economy ended with the Cold War

the Libertarian proposal is to put us back on solid ground so that we can start to have real growth. Yes the proposal's will cause hardship at first but it will be over quickly.

How do you know that the hardships will end quick? I don't care what libertarian theory says, whether the hardship lasts long or not is something that will depend on economic conditions- it's an uncertainty. And would you still support a libertarian approach if you knew that the hardship would actually last a long time, that for example unemployment would be in double digits for more than 10 years?

[Orthogonal]

And when it was the ideology that put us in this predicament we are supposed to do what, just keep on doing it?

I was just making an observation that when times are good people claim that it is because a certain method is being enforced. In the case of the pre-financial crisis times (Clinton and Bush admins; economic ideologies of Alan Greenspan, Larry Summers, Robert Rubin, financial sector, etc.) it was the ideology that derivatives had brought us to a new age of prosperity, putting risk in the right places. Of course this turned out to be false, as Greenspan has now admitted.  You can't be overly dependent on application of theory in democratic economies. Ultimately, policies need to be pragmatic. The age where people put their faith in one ideology and hope that it will eventually lead to a best possible economy ended with the Cold War

the Libertarian proposal is to put us back on solid ground so that we can start to have real growth. Yes the proposal's will cause hardship at first but it will be over quickly.

How do you know that the hardships will end quick? I don't care what libertarian theory says, whether the hardship lasts long or not is something that will depend on economic conditions- it's an uncertainty. And would you still support a libertarian approach if you knew that the hardship would actually last a long time, that for example unemployment would be in double digits for more than 10 years?

Yes, there is going to be some uncertainty, and that always gives people pause or extra caution, and you are right, there is no guarantee that it will end quickly. However, it is the most sound solution. The reason we have economic downturns and recessions is because the goods that are being produced, and the way they are being produced is not in line the the overall needs of society at that time. In other words, the structure of production is not balanced with consumer preference on a very large scale. The only way to have a recovery is to liquidate the malinvestment and reallocate capital goods into productive uses that align with society's needs. The faster this process happens, the faster we have a recovery. The Libertarian proposal is to hurry this process along so that we can get to a real recovery, it will necessarily involve that business's cut back and reorganize. This is not a pleasant process, but it must happen. If someone is going to make a Utilitarian case to truly help rebuild the economy, they would propose government aggressively help business liquidate the bad debt. However, that is NEVER going to happen politically. No politician (except Ron Paul), would ever propose such a solution because it is not politically expedient to tell people that things are going to get worse, before they get better, but it is necessary to happen. Instead, they try to soothe people over by handing out stimulus and bailouts because it gives them the appearance of "doing something". The problem with stimulus and bailouts is two-fold. One, it slows down the liquidation process. It still occurs and there are some business's that quickly adapt, but for the most part, it is painfully slow and can last years. You talk about what if it lasts for 10 years, just ask Japan, they're economic policies have led them to a lost decade, going on two now. The second problem with stimulus and bailouts is that it is trying to prop up the current structure of production. The same structure that society has determined is not fitting their needs. This is why we end up with zombie companies and atrocious balance sheets and the process takes a long time.

So in conclusion, will the Libertarian approach necessarily be quick? No, not necessarily, but it will ALWAYS be quicker than government intervention.

[Scheavo]

What if we agree that the banks should been allowed to fail, but don't think that means we should do away with all regulations, but rather reinstate the ones eroded to help pave the way for the catastrophe... is that just plain inconsistency to you?

[Orthogonal]

What if we agree that the banks should been allowed to fail, but don't think that means we should do away with all regulations, but rather reinstate the ones eroded to help pave the way for the catastrophe... is that just plain inconsistency to you?

No de-regulation played a role in the financial collapse. The regulation of interest rates by the Fed to increase credit was the catalyst which allowed other interventions like the Community Reinvestment Act to inflate the housing bubble.

[Rathma]

So in conclusion, will the Libertarian approach necessarily be quick? No, not necessarily, but it will ALWAYS be quicker than government intervention.

Absolutely baseless claim. Just shows how much you are stuck to your ideology.

No de-regulation played a role in the financial collapse.

Do you really think that regulations are the only thing that screw with the price/value discovery mechanism? You seriously think there would be no malinvestment in de-regulated environment? Collateralized debt obligations are financial instruments created in the market to do just that, cause malinvestment. Why? Because it's good for business and short-term profits.  Their complexity is intended to make the underlying assets (and therefore the inherit risk) non-transparent. Malinvestment is bad for the long-term but can lead to extreme profits in the short-term (that's why they will be promoted in the market). Too big to fail banks (which you have no problem with because you don't believe in regulating the size of banks) will invest in these assets popular in the market because they're making investors rich in the short-term. We don't even know what kind of insane financial tools there will be in the future, yet the only way you would suggest dealing with them is "don't regulate them" because you have faith in the free market. Lame and backwards.

[Orthogonal]

So in conclusion, will the Libertarian approach necessarily be quick? No, not necessarily, but it will ALWAYS be quicker than government intervention.

Absolutely baseless claim. Just shows how much you are stuck to your ideology.

It is not a baseless claim, it is a conclusion drawn from the argument that preceded it. If you want to take issue with the conclusion you must address the argument. Oh, and it's a philosophy, not an ideology. Big difference.

No de-regulation played a role in the financial collapse.

Do you really think that regulations are the only thing that screw with the price/value discovery mechanism? You seriously think there would be no malinvestment in de-regulated environment? Collateralized debt obligations are financial instruments created in the market to do just that, cause malinvestment. Why? Because it's good for business and short-term profits.  Their complexity is intended to make the underlying assets (and therefore the inherit risk) non-transparent. Malinvestment is bad for the long-term but can lead to extreme profits in the short-term (that's why they will be promoted in the market). Too big to fail banks (which you have no problem with because you don't believe in regulating the size of banks) will invest in these assets popular in the market because they're making investors rich in the short-term. We don't even know what kind of insane financial tools there will be in the future, yet the only way you would suggest dealing with them is "don't regulate them" because you have faith in the free market. Lame and backwards.

In an unregulated economy, malinvestment will certainly occur. People are still fallible and make poor entrepreneurial decisions. The difference however, is that if it is not regulated, the malinvestment cannot snow ball into a systemic problem. If poor decisions result in bad investments, the change in prices and the profit/loss mechanism will quickly weed it out. It's not about having "faith in the free market", it's about understanding how changes in supply/demand control prices and naturally regulate itself according to consumer preference.

[Rathma]

So in conclusion, will the Libertarian approach necessarily be quick? No, not necessarily, but it will ALWAYS be quicker than government intervention.

Absolutely baseless claim. Just shows how much you are stuck to your ideology.

It is not a baseless claim, it is a conclusion drawn from the argument that preceded it. If you want to take issue with the conclusion you must address the argument. Oh, and it's a philosophy, not an ideology. Big difference.

And which argument would that be? I even doubt that many laissez faire advocates would argue that the hardships of economic decline will ALWAYS end quicker with a libertarian approach as opposed to a government approach... just give me one quote and I'll shut up. 

[Rathma]

I mean, the appeal of the libertarian approach is not that it gets rid of the yucky stuff quickly, it's that it's supposed to encourage competition to the max so that eventually the benefits trickle down to all the other lazy people. The argument, if I understand correctly, should be that even if the government creates a bunch of jobs that this will not benefit the economy in the long run, though in the short-run it will benefit the unemployed and stimulate demand in the economy.

[Orthogonal]

So in conclusion, will the Libertarian approach necessarily be quick? No, not necessarily, but it will ALWAYS be quicker than government intervention.

Absolutely baseless claim. Just shows how much you are stuck to your ideology.

It is not a baseless claim, it is a conclusion drawn from the argument that preceded it. If you want to take issue with the conclusion you must address the argument. Oh, and it's a philosophy, not an ideology. Big difference.

And which argument would that be? I even doubt that many laissez faire advocates would argue that the hardships of economic decline will ALWAYS end quicker with a libertarian approach as opposed to a government approach... just give me one quote and I'll shut up.

There is an additional caveat that must be addressed since I did not make the delineation in my original argument. There are two forms that a recovery could take. A Nominal recovery, or a Real recovery. A Real recovery is just what it sounds like, we hit bottom by completely liquidating the malinvestment and begin growing anew. My argument was based on us achieving a real recovery. A Nominal recovery could mean that things appear to improve, but it is not because bad investments were purged from the system, but instead because new credit or debt has entered the system and increased aggregate demand. This typically takes the form of creating a new bubble.

For example, during the dot com bust in the early 2000's the economy had started the liquidation process of purging all the ridiculous tech companies that had no real value. However, before the economy could finish this process, the Federal reserve dropped and held interest rates at 1.25% to try to boost the economy. It just happened to be that the Community Reinvestment Act was put in place at the same time and much of the credit was pushed into housing. What we experienced from 2001 through 2008 was a Nominal recovery because all the "growth" was in a bubble. Now that the bubble has run its course, we are reeling from the effects of the prior credit injection.

Had Congress not pushed the Community Reinvestment Act, we would not have had the Nominal recovery through a bubble in housing, however, all the additional credit would have gone somewhere else and created bubbles in other industries. Since the housing bubble has mostly run its course and the Fed has continued to pump more credit into the economy, we have seen some positive signs of growth again. We could very well be starting to see signs of recovery, but this would again be a Nominal recovery.

To have a Real recovery we must go through the painful process of reorganization. Something we have been putting off for decades.

[Rathma]

Still waiting for that one quote.

[Orthogonal]

I mean, the appeal of the libertarian approach is not that it gets rid of the yucky stuff quickly, it's that it's supposed to encourage competition to the max so that eventually the benefits trickle down to all the other lazy people. The argument, if I understand correctly, should be that even if the government creates a bunch of jobs that this will not benefit the economy in the long run, though in the short-run it will benefit the unemployed and stimulate demand in the economy.

Close, the unemployed will certainly benefit in the short-term, but it will not necessarily stimulate demand in the economy. When the government trys to create jobs. It must take money from some other part of the economy to pay for the new ones. So, any additional productivity by the new jobs (if there is any, sometimes they are paid to dig and refill holes), will be offset by a decline in productivity in other sectors of the economy. To make matters worse, the new jobs created are in an industry chosen by fiat, and not by consumer demand so whatever it is those jobs are producing may not have any relation to what society demands at the time.

Still waiting for that one quote.

I'm not going to humor you. You have access to Google, look it up yourself. There are thousands of articles and books on the subject.

[Rathma]

Still waiting for that one quote.

I'm not going to humor you. You have access to Google, look it up yourself. There are thousands of articles and books on the subject.

There are definitely not thousands of articles arguing that the libertarian solution ends depressions quicker than a government solution in all cases. I have never even heard a libertarian argue that before you. If you have time to type all these paragraphs you have time to link me to one of these articles, if there are indeed they abound in the thousands.

[Orthogonal]

Still waiting for that one quote.

I'm not going to humor you. You have access to Google, look it up yourself. There are thousands of articles and books on the subject.

There are definitely not thousands of articles arguing that the libertarian solution ends depressions quicker than a government solution in all cases. I have never even heard a libertarian argue that before you. If you have time to type all these paragraphs you have time to link me to one of these articles, if there are indeed they abound in the thousands.

Technically, they would not be Libertarians, but Austrian Economists. If you are reading the CATO Institute or something from the Beltway Libertarians, you aren't going to find this kind of analysis. Austrian Economics isn't necessarily Libertarian either, but due to very similar basic principles, nearly all Austrian Economists are Libertarian.

I'll keep an eye out for a quote, but it will probably be in different terms.

[jsem]

CATO has a strong monetarist base, and monetarists have differing opinions on business cycles - they don't think the roaring 20's was unsustainable, but rather the crash came about through bad management at the FED.

I suppose it's better to look at empirical evidence to see which system deals with a crash faster. The depression of 1920-1921 is one example. The markets had to reallocate after the war because of all the production gone into the military sector - and the deflationary process ran its course. The recession lasted for 18 months, not too long at all - and there were very few actions taken at a federal level to stop it.

Also, there is no "one" libertarian solution. As Orthogonal already posted, you're going to find conflicting views. Especially between monetarists and Austrians as it relates to how monetary policy causes or solves economic problems.