Free The Memes Archive
November 2008
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4:35pm Wednesday November 26, 2008 (link)
For what it's worth, here's my quickie diagnosis of the economic situation:- The economy is fundamentally unstable - during booms, everyone pushes for more growth, until it breaks. During busts, everyone pulls back to avoid the pain. Completely natural, but the feedback is the reverse of what it should be. To properly control a system, you need to slow when you get too fast, and speed up when you get too slow. The idea of the government increasing spending during recessions is a nod to this idea, but since they never cut spending during booms, it doesn't work.
- Recessions clean out the excessively risky players. The longer you go without a recession, the more risks get taken. Go too long and you get a crash. Like forest fires, if you put them all out, you build up fuel and risk a conflagration that kills the trees instead of just singeing them. But no one wants forest fires, or recessions, so we continue to try and put them out. This crash is all the recessions we should have had from 1982 to 2007, all rolled into one.
- We keep forgetting that the damage is done during the bubble, when we make stupid investments. The crash is just waking up to realize all the money is gone. Your SF Bay Area 3 bed 2 bath isn't worth $700,000 and never was. Nothing can make it worth that much (in real dollars.) Get over it.
- Everyone talks about "greed", but overconfidence is the real culprit. Look at how many mortgage brokers giving out stupid loans also bought overpriced houses and nice cars. They've lost it all now, just like their customers. If they had just been crooks, they would have saved the money, knowing this was going to end in tears.
- The solution going forwards is more transparency. No, we can't control financial innovation (and it does have some benefits), but it was insane to let "too big to fail" banks make deals in secret and off balance sheet. I'd dump a lot of the regulation and just make all banks and financial institutions run naked -- every transaction published to the web ASAP. Dump officially sanctioned rating agencies too, and let any old accounting firm add up all the deals that have been published and come up with a rating. Let accounting firms come up with ways to guarantee their ratings.
- The best way to handle this now is to extend unemployment insurance and other welfare to people actually at risk of ending up on the street. Clean up the banking system by chartering new banks, giving them the good assets of failed banks, and letting the rest burn to the ground.
- What we are doing now with these endless bailouts is following the Japanese route, which will lead to 20 years of slump instead of a short, sharp recession.
- Along with the libertarians, I do believe government regulation will make the economy worse. For me, the free market is iPhones and Toyotas and stores full of products. Government is the post office, the DMV, the IRS and (increasingly) the medical system. Why anyone in their right mind would turn from one to the other is beyond me.
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