Archive for September 22nd, 2008

says Quirky Indian.

I agree.

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I have never been a hardcore Ron Paul fan. Nonetheless, I found the video below touching, not just because it reminded me that I have much more in common with him than not, but also because it poignantly reflects the truth — more stark today than it has ever been — that truth-tellers can never be successful politicians.

(Hat Tip: Andrew Sullivan)

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This survey reveals everything that is wrong with the the state of freedom in the US. Some highlights:

42% believe that people should NOT be allowed to say things in public that are offensive to certain religious groups.

54% believe that people should NOT be allowed to say things in public that are offensive to certain racial groups.

38% believe that broadcasters should be required to report a certain amount of ‘positive news’ in return for using public airwaves.

66% believe that television broadcasters should be required to allot equal amount of time to liberal and conservative commentators.

62% believe that newspapers should be required to allot equal amount of time to liberal and conservative commentators.

PS: On the other hand, I am almost certain that the first two percentages would be even higher in other Western democracies.

(Hat Tip: The Volokh Conspiracy)

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“There are no atheists in foxholes and no idealogues in financial crises.”

Ben Bernanke

“There are no atheists in foxholes isn’t an argument against atheism, it’s an argument against foxholes.”

James Morrow

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Two predictions

McCain will never again hold the lead in either the Gallup or the Rasmussen daily tracking polls.

The election won’t even be that close — Obama will win by at least 30 EVs.

[Update, October 11]: My first prediction has held good so far. As for my second, I now think Obama will win by at least 100 EVs.

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In this post, I’ll defend a thesis that my libertarian friends will probably disagree strongly with — that the economic panic culminating in the $700 billion bailout isn’t all that bad for capitalist and libertarian ideals in the long run.

Don’t get me wrong. The bailout is a monstrosity, a tremendous allocation of power to competent but unaccountable (and unelected) officials like Paulson and Bernanke and will add an unbelievable $2500 per person to the national debt. It will tax the many and reward the few. It will use the power of the state to reward businesses that ought to fail and will nationalise a significant chunk of the banking sector. As a measure, the whole thing is as unlibertarian as it gets.

But my point is this: it could have been worse. Under the current circumstances, the bailout might be one of the better things that may have happened. Here’s why:

1. Capitalism, especially of the kind that we have currently, invariably produces booms and busts. Some businesses will fail and others will grow. In the long run, it is one of the best concepts man has ever come up with. Unfortunately, voters are more impatient than that. It is a fact that with the economic turmoil of the last week and with the housing market yet to bottom out, a diving stock market would bleaken the economic outlook of the country to the extent that a new administration, likely a democratic one, would be emboldened to enact far worse regulation that the bailout itself. Think of a socialistic counterpart of ‘disaster capitalism’. The bailout will reduce the chances of that happening.

2. Yes, there were other ways the government could have intervened instead of buying bad assets, such as partial debt forgiveness or infusion of capital. However the proposed prescription has the advantage of creating a strong backlash from the electorate about their tax money being used directly to rescue the fat cats of Wall Street. There is some evidence that this is already happening. In the long run, this sentiment may develop into a general mood against government intervention and corporate subsidy. And that would be a really good thing.

3. There have been many comparisons made between the present bail-out and the massive government intervention almost eighty years ago which ended up prolonging the Great Depression. However, such comparisons miss a crucial point. The fall of the money supply that happened then under the aegis of the Federal Reserve will not happen today. As Bernanke himself said in 2002, “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

4. The plan is a vague one. It is not clear that Paulson actually intends to spend the entire $700 billion, nor is it clear how the government will price these bad assets. The liberal economist Paul Krugman suspects that the whole thing “looks like an attempt to restore confidence in the financial system” rather than go to the root of the problem. From a libertarian perspective, this is not such a bad thing. Remember that Paulson and Bernanke, the architects of the bailout, are no socialists. I am hopeful that their vision of the plan centers not around massive spending but in giving investors enough confidence and the banks enough time so that they can recover. (As Paulson himself has remarked in the past, “If you’ve got a bazooka, and people know you’ve got it, you may not have to take it out.”) If the government does buy mortgage assets, I hope that they do so at a price that transfers a signicant burden upon those who made these bad decisions.

5. The events of the last week essentially kills the Glass Steagall Act, one of the lasting vestiges of Roosevelt’s policies. Essentially, that act separated the commercial and investment banking sectors, which was unfortunate because unified banking is now recognized to be much safer. The act was basically repealed during the Clinton era but BOA’s acquisition of Merrill last week was the final nail in the coffin. We are now back to the situation of the 1920s, when commercial banks could plunge into the market, and that’s a good thing.

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