Torture versus collateral damage; the bigger evil?

[carl]

You don't know what you don't know. My blog's reader stats shows that there are enough thick-skinned Americans who have not too much of a problem with my style.

I stand corrected. Your blog log is irrefutable proof that arch lectures about European superiority play well with American audiences. Who'd a thunk it?

You don't seem to have understood the meaning of ceteris paribus. It means you change one thing, and but one thing. Everything may change as a result, there's no problem with that.
Ceteris paribus is a necessary guideline for discussing the effect of one action. It's requires for clarity of thought and arguments in such a case.

It might be easier if you use English. You have great facility in that. I have none in Latin.

And the only one who places a "+" between both here is you.
Tax base * tax rate - deductions + (black box for other complicated exceptions) = revenue
or simplified,
Tax base * tax rate = revenue
Halved tax rate requires more than doubled tax base (income) to generate increased revenues.

Well no, you wrote in post 30 "income + tax rate = revenues." It is the first line you wrote. Honest. No wonder it didn't make any sense. It was a typo. I should have figured that.

This was funny. Read a bit about what Volcker did at the time, please.

I remember what Volcker did at the time, and I read a bunch of articles just today. He was Carter's second choice and started to try and beat inflation in Sept of 79 and nothing much worked. I remember that Reagan ran political interference for him and reappointed him. And I read that inflation started to go down in Oct of 81, which was when the first of those tax cuts hit.

So I figure that Reagan handled the 'stag' part and Reagan and Volcker probably did the 'flation' part.

Actually, you spend %GDP as well, and this is important. Growth in the economy yields growth in wages and public employees will get a (in the long term) corresponding raise, employees of contractors will get a raise, contractor shareholders will expect more profit. This means public expenditures will grow approximately proportional to GDP.
So you better keep your government revenue stable in %GDP terms in the ceteris paribus ('tax rate change and no other change') case.

What you spend may be viewed as %GDP but you actually spend dollars.

If your prime object is to please gov employees "you better keep your government revenue stable in %GDP terms". But I figure that the object of gov isn't to please gov employees, it is or should be to stay out of the way of the people and take from them as little as possible. So if you act on that, and reduce the burden public employees place upon the taxpayer, then reduction of revenue as %GDP is a good thing.

Anyway, I don't care now any more. I understand there are more than a hundred million people out there who actually fell for the ridiculous notion that cutting taxes increases revenues.

Perhaps more than a hundred million people disagree with you, not because they are gullible, but because you might, possibly, just maybe, be wrong.

There's no fun in discussing this. I actually spent hundreds of hours on learning fiscal theory stuff at the university, it was one of my specialisations. Your position qualifies as joke in-between, I simply cannot take you and the Laffer curve believers serious enough for a greater discussion effort.

Gee. Sorry about that. But be consoled that education is never wasted.

Your opinion is entrenched enough to withstand evidence anyway.

Ohhkkkay.

This depends on the marginal rate of utility of public and private spending and is an altogether different issue.

Yes it does. I figure the private individual is wiser at spending his money than a gov bureaucrat is at spending somebody else's. So it is best to let the private individual keep most of it.

[motorfirebox]

Yes it does. I figure the private individual is wiser at spending his money than a gov bureaucrat is at spending somebody else's. So it is best to let the private individual keep most of it.

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

[Surferbeetle]

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

Bridge to nowhere



Trabant, http://en.wikipedia.org/wiki/Trabant



Central bank, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Central_bank

The primary function of a central bank is to manage the nation's money supply (monetary policy), through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis. Central banks usually also have supervisory powers, intended to prevent bank runs and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behavior. Central banks in most developed nations are institutionally designed to be independent from political interference.

Monetary policy, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Monetary_policy

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.[1][2] The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values.

Supply and demand, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Supply_and_demand

The four basic laws of supply and demand are:[1]
If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.

[motorfirebox]

Are housing prices bubbling again? Maybe in Phoenix, but surely not in Detroit or Chicago.

Actually...

Home prices rising is not a bad thing, but it's not an indicator of economic health for those who aren't already well off. Renting a home is an economic burden, not an investment; home prices rising while median wages fall is how you continue to widen the already-growing wealth gap. The trickle of construction jobs derived from private equity scooping up these devalued homes doesn't go any significant distance towards reversing that.

None of that exists in a vacuum though. It is, after all, government policy to maintain very low interest rates to boost borrowing and there are many policies specifically designed to boost the housing sector.

Sure. But a high-risk mortgage in default is just a high-risk mortgage in default. It only becomes an economy-wrecking problem when the finance industry and the ratings agencies conspire to fraudulently make that high-risk mortgage appear low-risk, thereby attracting significant investment.

Stuff

I'm not arguing that government oversight is a magic tonic that will always fix everything. I'm arguing against the idea that private investment is a magic tonic that will always fix everything.

[Dayuhan]

Actually...

Detroit's housing market may have shown a bounce but the base of the bounce was desperately low, and it's still a deeply distressed market that's not even conceivably near a bubble. What you're seeing there is less a matter of "home prices rising" than the removal of many the ultra-discounted foreclosure properties from the market. Removing that low-end bulge raises the average and makes the numbers look better, but it doesn't make that market healthy.

Home prices rising is not a bad thing, but it's not an indicator of economic health for those who aren't already well off. Renting a home is an economic burden, not an investment; home prices rising while median wages fall is how you continue to widen the already-growing wealth gap. The trickle of construction jobs derived from private equity scooping up these devalued homes doesn't go any significant distance towards reversing that.

Would you have the government tell private equity that houses shouldn't be bought until median wages rise (not likely for a long time, what with the baby boom generation passing the earnings peak and approaching retirement)? How would it help to have those potentially rentable homes sitting around vacant and deteriorating?

I'm not arguing that government oversight is a magic tonic that will always fix everything. I'm arguing against the idea that private investment is a magic tonic that will always fix everything.

Private investment is not a magic tonic, but it's a prerequisite to fixing anything. Government "oversight" is as likely to harm as to help. Government certainly played a role in the last recession, but it wasn't for lack of oversight, it was in the provision of perverse incentives. Intervening to flatten out the 2000/2001 recession, which should have been much deeper given the dimensions of the bubble preceding it, and most particularly intervening to prevent derivatives markets from failing (as they should have in 2001) effectively removed the perception of risk from the financial equation. Keeping interest rates way too low for way too long in an environment where the perception of risk was missing effectively guaranteed excessive speculation. The idea that you can create perverse incentives on that scale and then control the destructive effects with government oversight is an illusion. It can't be done. No amount of regulation or oversight will compensate for bad management of macro incentives. It's easy in retrospect to say that this or that gap could have been plugged, but another would have been found. Once the perverse incentive is in place the speculators will always be a step ahead of the regulators. The need is not for more regulation, it's for better management of incentives.

[Entropy]

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

None of that exists in a vacuum though. It is, after all, government policy to maintain very low interest rates to boost borrowing and there are many policies specifically designed to boost the housing sector.

[Dayuhan]

Private investment is currently allowing housing prices to bubble again even as median wage nosedives.

Are housing prices bubbling again? Maybe in Phoenix, but surely not in Detroit or Chicago. In any event, if private capital wants to buy up foreclosed single-family homes and convert them to rentals, why shouldn't they? Bit of a bandwagon, yes, but not much there in the way of collective liability. Rental stock is needed, the homes typically need a fair bit of work, and getting the work done puts people to work. Hard to see it as a terrible thing.

Speaking of a "nosedive" in median wages is a bit exaggerated. Inflation-adjusted median wages have held n a fairly narrow band between $50-55k since the early 90s, and the push toward the higher end of that bad from 2005-2008 was arguably driven by unsustainable bubble conditions, just like the similar push from 1998-2000. Demographics play a role here as well: income peaks at around age 50, a point the peak of the baby boom passed in 2007. I expect median incomes will decline noticeably as the boom moves past that peak and the leading edge of the boom starts retiring.

[carl]

Private investment allowed the housing bubble to expand beyond the simple, minimal losses of bad mortgages into the subprime crisis. Private investment is currently allowing housing prices to bubble again even as median wage nosedives. Private investment is a great engine, but a terrible steering wheel.

The first thing that popped into my head after reading this was an image of us private individuals as the sturdy draft horse pulling the plow under the wise direction of an experienced plowman, the career professional government bureaucrat. The next thing that popped into my head was the thought of the sturdy draft horse character in Animal Farm who was guided by the pigs. Old Boxer didn't do so hot.

When stripped to its essentials, the recent big economic crash was caused by a bunch of people who couldn't pay their mortgages. These were people who under normal circumstance would not have received mortgages because they were bad risks. Lenders established the criteria that marked them as bad risks because lenders don't like to lose money on loans and they had learned that people fitting those criteria were much less likely to pay back the loan. So why did the lenders lend money to people they knew were much less likely to pay it back? They lent it because is was government policy to strong arm them into making the loans. The gov did that in the pursuit of the political goal of expanding home ownership, and the wise gov figured the way to do that was to make sure more people were able to get home loans, and the way to do that was to force lenders to lower lending standards.

So that is it. Regardless of all the shenanigans that went on with lack of oversight, impunity, sharp practice etc., there would have been no crisis if all those uncreditworthy borrowers had repaid their loans as reliably as the credit worthy borrowers had been doing for years and years. But they didn't because home ownership doesn't confer financial responsibility upon a person, a person who is financially responsible is able to own a home. Those gov types couldn't figure that out.

George Orwell was a very bright guy.

[Fuchs]

When stripped to its essentials, the recent big economic crash was caused by a bunch of people who couldn't pay their mortgages.

No, that was a mere symptom.
That was (a) the grand scale resource misallocation away from (re)investment in production capacity and infrastructure into consumption.
The banks were (b) incompetent enough to fail entirely in their (systemic) risk management as a system. They believed to have managed their risks with diversion, but the diversion was nil at the aggregate level of the entire banking sector and on top of that they were connected to each other enough (with pointless reciprocal lending) that they turned into dominoes.

So the big story was the gross incompetence of the banking sector and the lack of effective government oversight.

To blame it on lenders is disingenuous.

[davidbfpo]

This thread started as 'Torture versus collateral damage; the bigger evil?', a valid exchange has followed, although now it appears to more of a debate on economics. I can discern links earlier on, not so much now.

Now please carry on.

One day I will try to separate out the diversion.

[carl]

This thread started as 'Torture versus collateral damage; the bigger evil?', a valid exchange has followed, although now it appears to more of a debate on economics. I can discern links earlier on, not so much now.

What more can you say about torture beyond it being a tool of the weak and the twisted?

[carl]

So the big story was the gross incompetence of the banking sector and the lack of effective government oversight.

The entities that made the bad loans did so because they were forced to by the gov. Gov oversight made sure that they made the gov imposed quotas of loans to people who were poor risks. So the big story was the gross incompetence of the gov.

To blame it on lenders is disingenuous.

Your right, and I didn't.

[Fuchs]

The entities that made the bad loans did so because they were forced to by the gov. Gov oversight made sure that they made the gov imposed quotas of loans to people who were poor risks. So the big story was the gross incompetence of the gov.

AFAIK you're writing about two agencies/entities/organisations here. This doesn't explain why the entire banking sector got involved. To them, it was incompetence on many levels.

There's much style, yet very little substance in banking.
I've come to the conclusion that banks are likely inherently incompetent. My professional experience with banks is that there's no correlation between quality of a credit application and it being approved. They could just as well employ monkeys for approving or disapproving applications: Nobody would notice if they don't tell anyone.
The personal highlight experience of mine was a 99.9% crap credit application being approved. The only good thing about the application was the passport photo of the young blonde asking for the credit!

[motorfirebox]

So that is it. Regardless of all the shenanigans that went on with lack of oversight, impunity, sharp practice etc., there would have been no crisis if all those uncreditworthy borrowers had repaid their loans as reliably as the credit worthy borrowers had been doing for years and years. But they didn't because home ownership doesn't confer financial responsibility upon a person, a person who is financially responsible is able to own a home. Those gov types couldn't figure that out.

False. The financial shenanigans played by the financial sector could begin with any widely-replicated form of debt. You could do it with school loans. You're blaming the matches for burning down the house, when in reality the landlord stripped out the sprinkler system and fireproofing to sell for a quick buck--and left the renters to burn.

I honestly don't know what any of this has to do with torture, but the factual misrepresentations here are too much to ignore.

[carl]

Fuchs:

Like I said, the whole thing boils down to bad home loans. Everybody piled in but if those loans had been repaid at the rates good home loans were, the problems would not have happened.

So your professional experience with banks is there is no correlation between the quality of a credit application and it being approved. Have you made home loan applications in the United States with some frequency in the past 20 or so years?

[carl]

False. The financial shenanigans played by the financial sector could begin with any widely-replicated form of debt. You could do it with school loans. You're blaming the matches for burning down the house, when in reality the landlord stripped out the sprinkler system and fireproofing to sell for a quick buck--and left the renters to burn.

I honestly don't know what any of this has to do with torture, but the factual misrepresentations here are too much to ignore.

Pushed beyond your limits you were, sort of like Cincinnatus leaving his plow. Well maybe not exactly but I had to work a Latin word in here somehow.

Nope not false, true. Regardless of the things that were done, those loans were bad and the would not have been made if the gov hadn't forced them to be made. So that is it. Bad loans made under duress that eventually went bad. Some surprise that that led to trouble.

Note: regarding all the games that were played with those bad loans that the gov forced to be made-see Dayuhan's last paragraph in post 53.