Paul Krugman on Ireland (New York Times op-ed)

SkepticOne · 08-03-2010 07:32PM

donegalfella wrote: »

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I addressed this point earlier. How do you deal with the fact that at the time bubbles aren't seen as bubbles by the market participants, therefore fear of failure doesn't come into the equation?

Sure once the thing collapses everyone realises that they've been foolish but by then it is too late. Then the whole process starts again. "This time it's different" etc.

That is what needs to be answered.

Laminations · 08-03-2010 07:43PM

donegalfella wrote: »

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Ok so how would a libertarian system deal with the current crisis? The developers owe the banks money they cannot pay, the contracts have limited liability. The banks dont get their money and go bust. Bond holders lose out and dont invest in irish banks. Our banking system fails and we all suffer the consequences.

Or do you think having this knowledge of consequences will regulate behaviour? was there not a knowledge of consequences already? I definitely knew if I failed to pay money, the bank comes a knocking and I'd guess everyone knows that - people still overborrowed. On the one hand you appeal to our human nature above any laws or ideals or aims for betterment.

donegalfella wrote: »

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but then you think mere awareness of consequence will change behaviour? Have a look at some addiction studies. You cant educate someone out of disordered behaviour and thats exactly what caused this mess, a load of disordered behaving

Permabear · 08-03-2010 08:07PM

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Laminations · 08-03-2010 08:16PM

donegalfella wrote: »

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In order to ensure that the taxpayer does not become liable for individual and institutional financial recklessness you need to change behaviour. The example you give is the way it is now, or at least how it is supposed to be - I borrow money, I owe the bank, the bank is answerable to its shareholders. So I cant pay, I have limited liability, the bank gets no money, everything goes bust and everyone suffers the consequences just like now, and I've used my borrowings for wealth creation for myself which is now untouchable, just like now. Why under a libertarian situation of 'real' consequences should I not borrow? Or is it that you really think its the case that the banks on their end, wont lend?

woodseb · 08-03-2010 08:17PM

donegalfella wrote: »

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the system above only works in small doses, when you have a systemic failure of the size of the credit crunch the courts and the free market are ineffectual in redressing the balance imho

for example;

bank knows that if it makes too many risky loans, it will be punished by its shareholders and depositors

a bank can only be punished by its depositors so far - a run on the bank will cause the collapse of a bank before all the depositors get their money out. Also, a bank be punished by its shareholders to a certain degree but when share prices really plummet to the extent they have in the last couple of years, its shareholders are the very ones punished by a lower stock price?

A libertarian society is indeed a utopia, i would like to live in one because i trust myself to live within norms, but i don't trust others to do the same;)

Laminations · 08-03-2010 08:28PM

You talk about incentives, interests, expectations. These are the tools of operant conditioning, a most explicit form of coercion. Dont pretend its not behaviour change you seek, your libertarianism aims to mould behaviour by heightening awareness of consequences. The unfortunate thing about humans is that we act irrationally even when we know the dire consequences involved - we smoke, we drink, we binge, we gamble and we borrow and lend money that we shouldn't. Libertarianism, like light-touch regulation would fail. I'm not advocating heavier regulation, just better enforced policies.

SkepticOne · 08-03-2010 08:43PM

donegalfella wrote: »

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But didn't great wall street mania of the 1920s happen during the gold standard?

SkepticOne · 08-03-2010 08:46PM

The libertarians solve the problem by not concerning themselves with it.

The advocates of better regulation have to deal with the problem that the regulator can get sucked in to the bubble. This creates the additional problem in that ordinary people think the market is being regulated when in fact it is not. The absence of regulation is better in such circumstances. At least people know they are on their own.

Sleepy · 08-03-2010 09:26PM

SkepticOne wrote: »

It is certainly one of the factors in kicking off the bubble but once the bubble has started how do you stop the regulators, bankers, politicians, etc. getting sucked in?

You take the regulatory power outside of the economy and place it somewhere else: e.g. Canadian regulatory body regulates our banks, we monitor Spains, Spain monitors Japan etc.

SkepticOne · 08-03-2010 09:31PM

Sleepy wrote: »

You take the regulatory power outside of the economy and place it somewhere else: e.g. Canadian regulatory body regulates our banks, we monitor Spains, Spain monitors Japan etc.

Or some sort of international body that countries can sign up to.

Liam Byrne · 08-03-2010 09:50PM

SkepticOne wrote: »

The advocates of better regulation have to deal with the problem that the regulator can get sucked in to the bubble. This creates the additional problem in that ordinary people think the market is being regulated when in fact it is not. The absence of regulation is better in such circumstances. At least people know they are on their own.

This is actually a very valid point.

Lots of people have castigated "the public" for exacerbating the problem, with some people taking out bigger loans than they should have, bearing in mind that property was already overpriced and was bound to stop increasing.

But when you had people like Ahern dismissing valid warnings about overheating, and banks using phrases like "property ladder", then you were obviously going to wonder whether you were being too cautious.

After all, Ahern was a previous Minister for Finance; surely he knew what he was talking about, right ?

After all, the banks wouldn't throw money away on risky ventures, now would they ?

And all those on-the-bus ads about "the Financial Regulator" meant that he existed and was working, right ?

Wrong. But we assumed that they did. And all 3 failed us.

SkepticOne has a point. If we had been aware that none of the above 3 were trustworthy - that they were effectively non-existent - then we would have been better off.

opinion guy · 08-03-2010 09:57PM

donegalfella wrote: »

This post has been deleted.

We had a deregulates free-market system. Not by design, but by the fact the regulator did nothing.

How do you explain canada which is more regulated but escaped disaster ? Kind of contradicts your ideas no ?

Valmont · 08-03-2010 10:33PM

Laminations wrote: »

You talk about incentives, interests, expectations. These are the tools of operant conditioning, a most explicit form of coercion.

Operant conditioning has nothing to do with coercion; it is simply a fundamental law about how humans and animals learn. People and animals tend to repeat certain behaviours that lead to rewards. Please don't try and twist this into an anti-capitalism rant.

ei.sdraob · 08-03-2010 10:36PM

opinion guy wrote: »

We had a deregulates free-market system. Not by design, but by the fact the regulator did nothing.

How do you explain canada which is more regulated but escaped disaster ? Kind of contradicts your ideas no ?

i posted in that earlier

there's a difference between some regulation and NO regulation

Liam Byrne · 08-03-2010 10:36PM

Valmont wrote: »

Operant conditioning has nothing to do with coercion; it is simply a fundamental law about how humans and animals learn.

But surely if someone is aware of "how humans and animals learn", they can manipulate that to achieve a desired result ?

Is that not an almost subliminal coercion ?

silverharp · 08-03-2010 10:58PM

SkepticOne wrote: »

But didn't great wall street mania of the 1920s happen during the gold standard?

you might find this interesting

http://www.bis.org/publ/work137.pdf

BIS Working Papers

No 137

The Great Depression as a

credit boom gone wrong

The Austrian view,
with roots in the work of Ludwig von Mises (1924) and Friedrich von Hayek (1925), focused on the divergence between the market rate of interest and the natural rate of interest.6 When the market rate fell below the natural rate, Mises and Hayek argued, prices rose and investment
boomed. The source of that divergence, according to Mises, was the banking system, freed from the disciplining influence of the classical gold standard. Excessive credit creation by banks, both central and commercial, encouraged asset price inflation, fueling consumption and
investment. The longer that asset-price inflation was allowed to run, the greater were the depletion of the stock of sound investment projects and the accumulated financial excesses Moreover, the more severe became the subsequent downturn. The credit boom thus contained
the seeds of the subsequent crisis. The policy implication was that countries should avoid monetary arrangements that allowed significant divergences between the market and natural rates of interest (in particular, a gold standard of the rigid prewar variety was preferable to the more malleable interwar vintage) and that they should allow the downturn to proceed in order to purge unviable firms and investment projects from the economy, thereby clearing the way for
sustainable recovery.

The definitive application of the Austrian model to the Great Depression was by Lionel Robbins (1934) in a book largely responsible for popularizing the name now attached to this episode. Robbins attributed the Depression of the 1930s to the unsustainable credit expansion of the 1920s. Blame for that credit expansion he in turn laid at the doorstep of the Federal Reserve System, which had kept interest rates below the natural rate for too long in the hope that low rates might help Britain surmount its balance-of-payments problems and thereby solidify the reconstructed gold exchange standard, and ultimately on the doorstep of the new gold standard itself, which gave central banks more leeway to manipulate policy. This divergence between market and natural rates stimulated the provision of bank credit, allowing the development of financial excesses which, when revealed, led unavoidably to the downturn, the financial crisis,and the Depression. Central banks were misled into inaction by the tendency for the credit boom to stimulate not just aggregate demand but also aggregate supply (through increased production of consumption goods and growing investment in capacity). But, according to Robbins, the quality of much of that additional capacity was inferior. The credit boom had the qualitative effect of providing a favourable atmosphere for the fraudulent operations of sharks and swindlers, which meant that neither the expansion of supply nor the high level of asset prices was sustainable and only set the stage for a disruptive crisis. Moving from diagnosis to prescription, Robbins recommended against monetary and fiscal measures to counter the downward spiral, insisting that the economy needed to be cleansed of financial and nonfinancial excesses to set the stage for a sustainable recovery.

Valmont · 08-03-2010 11:02PM

Liam Byrne wrote: »

But surely if someone is aware of "how humans and animals learn", they can manipulate that to achieve a desired result ?

Is that not an almost subliminal coercion ?

I believe it is called teaching in some circles.

Honestly, using a pejorative synonym for an otherwise benign term is intellectual dishonesty of the highest order.

Liam Byrne · 08-03-2010 11:08PM

Valmont wrote: »

I believe it is called teaching in some circles.

Honestly, using a pejorative synonym for an otherwise benign term is intellectual dishonesty of the highest order.

Teaching is OK, and I have no intention of misrepresenting that.

I'm just pointing out that it is possible to use knowledge about how things are "learnt" to teach in a biased or manipulative way.

And yes, there are varying degrees of this, some more socially acceptable than others.

So I was just pointing out that it was possible for it to be both benign and manipulative.....there's no dishonesty in that fact.

opinion guy · 08-03-2010 11:09PM

ei.sdraob wrote: »

i posted in that earlier

there's a difference between some regulation and NO regulation

Yes Ireland had effectively no regulation
Canada had some regulation.

Canada faired better. QED

Laminations · 08-03-2010 11:11PM

Valmont wrote: »

I believe it is called teaching in some circles.

Honestly, using a pejorative synonym for an otherwise benign term is intellectual dishonesty of the highest order.

I'd appreciate it if you didn't lecture me on what operant conditioning is. I'm quite sure i know more about it than you. Read Walden II or any of Skinners experiments or even the Wikipedia entry on the topic. As a type of conditioning it provides external motivation to engage in or desist from engaging in certain behaviours. I'm not anti capitalist, but suggesting that capitalism or facets of libertarianism don't aim to mould people into behaving a certain way is bullcrap.

Eliot Rosewater · 09-03-2010 12:08AM

Liam Byrne wrote: »

Wrong. But we assumed that they did. And all 3 failed us.

And no surprise. You were trusting:

a) Ahern: a politician, who by his nature is only looking at short-term gain (ie until the next election)
b) Banks who obviously reap short term gains by leveraging up the balance sheet and giving out more loans. When I go to buy a computer I don't pay attention to the salesman because he has a large vested interest in my purchase. Ditto for getting loans from banks.
c) The Regulator, that is, another arm of the government/politicians.

Whereas the last one has a little credibility, paying attention to the first two alone was being naive. People obviously wanted to buy into the boom. They really wanted to believe we had such an excellent economy and such bright prospects. So of course they listened to the advise of these people: they were telling them exactly what they wanted to hear.

Liam Byrne · 09-03-2010 12:14AM

Eliot Rosewater wrote: »

b) Banks who obviously reap short term gains by leveraging up the balance sheet and giving out more loans. When I go to buy a computer I don't pay attention to the salesman because he has a large vested interest in my purchase. Ditto for getting loans from banks.

That's a sign of just how much things did change, though. Once upon a time a bank manager was someone that you looked up to and respected.

So all 3 that you would traditionally have looked for guidance from and trusted let us down.

That's the biggest issue. One or two, then maybe it would have been our fault to an extent.....but all 3 ?

That's like your shutter, your lock and your alarm all malfunctioning at the exact same time.

Valmont · 09-03-2010 01:04AM

Laminations wrote: »

I'd appreciate it if you didn't lecture me on what operant conditioning is. I'm quite sure i know more about it than you.

I have a degree in psychology and I have read both Walden II and Beyond Freedom and Dignity.

I have already explained what operant conditioning is and I think you will find you are on your own in calling it a form of "explicit coercion", which makes absolutely no sense by the way. Take it to the psychology forum; I'm sure everyone there would love to hear you expert views on the subject.

What are you even getting at anyway? There was a novel about operant conditioning as a method of social control, therefore capitalists are trying to brainwash everyone? Is that it?

Liam Byrne · 09-03-2010 01:07AM

Valmont wrote: »

therefore capitalists are trying to brainwash everyone? Is that it?

Oh, there's no doubt in my mind whatsoever that they are.........how many times have you seen an ad that "you need this" or the premise that something is "a lifestyle choice", even though you no more "need" it than sand in the Sahara ?

I'll agree that people who fall for it are their own worst enemies, but it's definitely true.

Laminations · 09-03-2010 01:31AM

Valmont wrote: »

I have a degree in psychology and I have read both Walden II and Beyond Freedom and Dignity.

I have already explained what operant conditioning is and I think you will find you are on your own in calling it a form of "explicit coercion", which makes absolutely no sense by the way. Take it to the psychology forum; I'm sure everyone there would love to hear you expert views on the subject.

What are you even getting at anyway? There was a novel about operant conditioning as a method of social control, therefore capitalists are trying to brainwash everyone? Is that it?

Really and degree in psychology and you chose to waste your time reading walden two? Look DF suggested that the libertarian way, we would not have gotten into this mess as people would know there would be no state bailout, they would be aware of the dire consequences of behaving 'incorrectly'. Using the consequences of behaviour to modify that behaviour is the idea behind operant conditioning. DF was saying he had no wish to change behaviour, heightening the reality of certain consequences for certain behaviours is a method of behaviour modification, so i was pointing out that even if you want to deny that you are meddling in peoples motivations, using consequences as a deterrent or a promoter of behaviour is coercion- very different from intrinsic motivation. Operant conditioning is not simply a learning theory, hence the word conditioning, it is based on the associative learning theory however.

That last bit of your post- operant conditioning as a method of social control, does that not suggest it has coercive potential?

Valmont · 09-03-2010 02:39AM

Laminations wrote: »

Using the consequences of behaviour to modify that behaviour is the idea behind operant conditioning.

Operant conditioning isn't simply a method of changing behaviour; it is a law of nature. It exists independently of any explicit manipulation by some crazy scientist. If you can fix your broken television by kicking it then you are more likely to kick it the next time it breaks. There is no agent of control in this situation. No one is using anything. No one is explicitly modifying anything. It is simply a fact of human and animal behaviour that they will learn from the consequences of their actions. So there is no need for the nefarious mystique of some libertarian maniac consciously manipulating all of society to advance his own agenda. Allowing people to take responsibility for their actions is not coercive. Not as I understand the definition anyway.

According to your logic, any social or economic policy is 'coercive' simply because it uses the age old method of changing the consequences for certain actions. That renders the word completely meaningless.

ei.sdraob · 09-03-2010 09:12AM

Valmont wrote: »

some libertarian maniac consciously manipulating all of society to advance his own agenda

i have a problem with that sentence :cool:

libertarianism is all about respecting people and their property, manipulating society for own agenda would go against core principles

the word you need there is "authoritarian/totalitarian" maniac, and these are on the opposite end of the axis from libertarians, there are plenty of these people (Kim Jong, Stalin, Hitler)

ednwireland · 09-03-2010 10:39AM

when is the usa going to wke up to bush's legacy
http://www.brillig.com/debt_clock/

The estimated population of the United States is 307,975,108
so each citizen's share of this debt is $40,777.85.

ei.sdraob · 09-03-2010 10:50AM

ednwireland wrote: »

when is the usa going to wke up to bush's legacy
http://www.brillig.com/debt_clock/

The estimated population of the United States is 307,975,108
so each citizen's share of this debt is $40,777.85.

pfft thats nothing

http://www.thedebtpin.com/

€39,132 and counting :mad:

Liam Byrne · 09-03-2010 10:58AM

Valmont wrote: »

It is simply a fact of human and animal behaviour that they will learn from the consequences of their actions.....Allowing people to take responsibility for their actions is not coercive.

If it ensures that there's a dependency, it could be.

Passive-aggressive people use this all the time

Valmont wrote: »

According to your logic, any social or economic policy is 'coercive' simply because it uses the age old method of changing the consequences for certain actions. That renders the word completely meaningless.

The biggest issue isn't "changing the consquences", though, it's the fact that there seem to be no negative consequences, either for politicians or for bankers.

Paul Krugman on Ireland (New York Times op-ed)

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