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Source link: http://archive.mises.org/16038/inside-job-a-look-at-the-heart-of-the-left/

Inside Job: A Look at the Heart of the Left

March 15, 2011 by

I really wanted to love Inside Job, the film that won the Academy award this year for best documentary. And it is a great film, but to see it that way you have to turn your brain “off” even as you push the “on” button on your DVD clicker. The interviews are personal and interesting. The footage of Wall Street and the offices of big players in the world of finance are absolutely gripping. The narrative has energy that pushes this two-hour film forward. It is easy to watch and tells a great story.

Sadly, the filmmakers themselves were hunting for something they did not find. And they did not find it because it is mostly not there. They had decided that the story of the boom of the 2000s and the bust of 2008 was a story of scandal and rampant criminality that purposely sucked away resources from the middle class and the poor to feed the lifestyles of the big shots in high finance. They wanted to find those white-collar criminals who made this whole thing happen and make a case for why they should all be rounded up and jailed.

What they found instead – though they apparently never realized this – was a bunch of interesting and smart people who had mastered the art of chasing prices and chasing paper up during the boom times and down again during the bust times. That’s what entrepreneurs do. If they aren’t going to do that, they could go into some other profession. This isn’t criminality. This riding the business-cycle wave. The problems they are looking for are deeply embedded in the system. They are structural, not personal. If criminals exist in this story, they are most likely to be found within the halls of government. But those people are rather inaccessible whereas the private traders are happy to go on camera.

The biggest problem was that the narrative never asked where all these paper profits were coming from. The monetary angle eluded them completely. The filmmakers missed this structural point because they decided at the outset to trace our problems all the way back to the “eighties.” Now, in the vocabulary of the left, the “eighties” is a curse word. It means Reagan, which means evil. It means capitalism, greed, the rich getting richer, and all the other political cliches we know so well. So rather than looking carefully at the monetary system that generated all this paper, they filmmakers looked to presidents and their great black beast of “deregulation.”

Contrast this point of view with the wonderful speech of David Stockman at the ASC the other day. He was just as passionate about the corruption generated by the system but he found the source in the end of the gold standard. He had a coherent theory that allowed him to see, understand, and explain the world coherently.

The makers of “Inside Job,” by contrast, were all over the place. They are against the boom. But they are against the bust too. They are against the bailouts. But they are against failing to bailout too. They are against housing subsidies. But they are against rationing housing too. They are against the government. But they are against private finance also. Most absurdly, they demand government controls over finance but their own film demonstrates that government is largely captured by private financial interests. They are reduced to looking for ghosts and wishing upon stars.

They end with a demand for people to be locked up, not people in government (I’m all ears on that) but rather people in investment banking, though it it not clear what they did wrong. The worst crime that the film can drag up is how traders were both denouncing certain kinds of commercial paper as junk even as they pushed it on buyers. But look: this shows you what is so wrong about inflated markets. They make junk profitable and depreciate quality as unprofitable. It’s an upside down world when the Fed and moral hazard take over. There really is not contradiction in seeing certain investment vehicles are pure trash even as you sincerely see them as good investments.

This film demonstrates all you need to know about the worldview of the American left, and it is completely barren of sound theory. They weave tales of demons all around, even as they lack the intellectual apparatus to understand events rationally. It really is pathetic. This film is a gigantic missed opportunity. They started to tell a good story and instead ended up chasing around ideological conventions and coming up empty handed. That said, if you can provide your own voice overs, Inside Job is worth an evening.

{ 75 comments }

Redmond March 15, 2011 at 11:24 am

And it is a great film, but to see it that way you have to turn your brain “off” even as you push the “on” button on your DVD clicker.

Apart from the “great film” bit, that is the way you need to watch “An Inconvenient Truth”

Concerned June 18, 2011 at 3:31 am

This review is nonsense. Austrian get confused between a framework that explains how the world is (the Austrian school) and the way the world should be (to be determined but not the Austrian School. Take away regulations and income tax and in short order you will end up with the robber barons against. Super extreme wealth of the few and grinding poverty for the masses. This is so blindingly obvious you clearly have to turn your brain “off” not to see it. I like the Austrian framework. I believe I understand the economic world better because of it. However, I am aware enough to know that civil society will not exist under it’s tenets. I hate to say this but it seems that white men have a superiority complex and love any system that gives them the chance to lord it over someone else. This is what drives you. IT IS NOT CIVIL OR CIVILISED. I ask you, if you grandparents are old and frail, do you say “tough” or do you help them. What is it was you neighbour grandparents and they were away? If your kids are threatened do you say “man up” or do you defend them. What if they weren’t your kids? If your sister is not as smart as you and doesn’t have your drive do you leave her behind or take her with you? I know because I injected race into this you’ll dismiss it, but I urge you to think about my questions before you do that. Why do you think Goldman Sachs et al lobby to have regulations removed? Don’t be blinded by the Harvard, Yale, Princeton nonsense – they are crooks! If you say “we’ll send them to jail” and “they’ll be no moral hazard with us” all they’ll do is try and corrupt the judicial system. Austrian tenets – low taxes, less government, low regulation, less defense spending (I agree with this one) will play into the hands of smart, well educated, well connected criminals. Think about it!!

Concerned June 18, 2011 at 3:39 am

With less typos…:-)

This review is nonsense. Austrians get confused between a framework that explains how the world is (the Austrian school) and the way the world should be (to be determined but not the Austrian School). Take away regulations and income tax and in short order you will end up with the robber barons again. Super extreme wealth of the few and grinding poverty for the masses. This is so blindingly obvious you clearly have to turn your brain “off” not to see it. I like the Austrian framework. I believe I understand the economic world better because of it. However, I am aware enough to know that civil society will not exist under it’s tenets. I hate to say this but it seems that white men have a superiority complex and love any system that gives them the chance to lord it over someone else. This is what drives you. IT IS NOT CIVIL OR CIVILISED. I ask you, if your grandparents are old and frail, do you say “tough” or do you help them? What if it were your neighbour’s grandparents and they were away? If your kids are threatened do you say “man up and defend yourselves” or do you defend them. What if they weren’t your kids? If your sister is not as smart as you and doesn’t have your drive do you leave her behind or take her with you? I know because I injected race into this you’ll dismiss it, but I urge you to think about my questions before you do that. Why do you think Goldman Sachs et al lobby to have regulations removed? Don’t be blinded by the Harvard, Yale, Princeton nonsense – they are crooks! If you say “we’ll send them to jail” and “they’ll be no moral hazard with us” all they’ll do is try and corrupt the judicial system. Austrian tenets – low taxes, less government, low regulation, less defense spending (I agree with this one) will play into the hands of smart, well educated, well connected criminals. The Rockefeller are still influencing the world now decades after John D. did his thing. Same with the Rothschilds. Read David Rockefeller’s biography. They are proud of it. The Austrian school can teach us much, but it is NOT the end game. Think about it!!

Colin Phillips June 18, 2011 at 6:01 am

Anyone who uses “Robber Barons” as a no-brain scare-tactic either does not know anything, or does not understand the things they think they know.

John James June 20, 2011 at 4:32 am

That’s great that you believe you have learned something from Austrian theory, but you obviously don’t understand it as well as you think you do.

And yes, it is hard to take someone seriously when they try to claim that race has anything to do with a predisposition to lust for power. You might as well go ahead and claim that blacks have an inferiority complex, Jews have a greed complex, and Irish Catholics have a “make babies” complex. As if none of those groups could just as easily fit into any of the other categories.

And as for your “robber baron” comment…

Applying economics to American history (Robber barons)
Milton Friedman – The Robber Baron Myth
The Truth About the “Robber Barons”

Colin Phillips June 20, 2011 at 5:07 am

John James,

I retract my comment above, your response is much better. Thanks.

Zachary A. June 24, 2011 at 11:32 am

John James, Sweet videos. Good lessons.

Concerned July 30, 2011 at 4:38 pm

John James, thanks for the response. You are right I am an Austrian beginner. I have however worked in Investment Banking in London and New York. I have seen up close and personal how little there is by way of ethics and morals in corporate decision making by those that should know better. How, to be tough in the boardroom you are not allowed to even mention the consequences of the decisions made on the people affected. I thank you for taking the time to respond. I will investigate the links you have given me. I still assert that people like yourself massively overrate entrepreneurs believing them to be the only people of real value in society. And I have still seen no explanation of how people without resources and without access to a good education and without connections are supposed to access this utopia you all speak of. I see no real effect to deal with the significant problems of moral hazard and externalities with even your God Milton Friedman admits are major problems. Please send me some links so I can investigate these issues.

I cannot help but think the Austrian School is just a middle class doctrine for middle class people. And you are right, it is not a racial issue. The black middle class do it. The indian middle class do it. Once people ‘make it’ they seem to like to forget they were once poor and they seem to forget that the majority of the planet is poor. Margaret Thatcher once attacked socialism by saying that it resulted in a fairer society but at a much lower standard of living. I believed her at the time. After 20 years of observing societies I now believe it is not as simple as that.

John James August 10, 2011 at 2:19 am

I still assert that people like yourself massively overrate entrepreneurs believing them to be the only people of real value in society.

I’m sorry, where did you get that impression? Please provide the supporting evidence that led you to make that drastic conclusion about someone you know virtually nothing about.

And I have still seen no explanation of how people without resources and without access to a good education and without connections are supposed to access this utopia you all speak of.

I spoke of utopia? Again, I would be interested to see where I said anything of the sort. And to your other point of how people aren’t getting good education and making connections, I would ask you…whose fault is that? Again, the only place you can look to is your government…as education is currently a government responsibility (and it has been for decades ever since the entire industry was taken over and monopolized…whether it should be or not.) You have absolutely no one to blame for the horrendous state of education in this country but the education monopolists themselves.

I see no real effect to deal with the significant problems of moral hazard and externalities with even your God Milton Friedman admits are major problems. Please send me some links so I can investigate these issues.

I would appreciate if you would stick to actual substance and refrain from continuously attempting to characterize me when you obviously have no idea what you’re talking about. Milton Friedman is not a god, and he is certainly not the god of any Austrian. Again you have a lot to learn. Perhaps your god Karl Marx didn’t teach you everything you need to know?

But to your question about how to deal with moral hazard, I would say it’s quite simple: don’t create the moral hazard in the first place. If you would read the rest of this thread you’ll find more discussion on this, as it doesn’t sound like you even understand what a moral hazard is. Moral hazard in this context is the removing of risk by artificial means, such that one stands to profit but has virtually zero chance of loss. As in government guarantees. As in bailouts. Obviously, if there wasn’t an implicit government safety net (i.e. government standing right there ready to take money from other people and hand it over to companies that make big bets and lose) then the moral hazard wouldn’t exist…as, that is the moral hazard. So again, the solution to the problem is get the government’s meddling, distorting hands out of it.

I cannot help but think the Austrian School is just a middle class doctrine for middle class people.

Again, a lot to learn.

And are you arguing that Thatcher’s statement is incorrect? That somehow socialism leads to a higher standard of living for everyone? I would love to see any evidence for this. All the evidence from history and across the world points to the opposite…it is freedom that leads to prosperity…not centralized planning and control.

For information on the current crisis and how it came about, see:
Meltdown by Thomas Woods
Crash Proof 2.0 by Peter Schiff
You can find them in any bookstore and probably any decent size library. (Or of course order at those links).

For information on the economy and economics in general, see:
Lessons for the Young Economist by Robert Murphy
How an Economy Grows and Why It Crashes by Peter Schiff
Basic Economics by Thomas Sowell

Concerned August 11, 2011 at 8:26 am

John James, again thanks for the response. For some reason I cannot reply directly to your comments so I am replying here.

First of all, my comments were not directed at you specifically but people who subscribe to Mises/Hayek/Rothbard type thinking. Don’t take it personally. Part of my thinking in asserting ‘your’ love for entrepreneurs is that I seldom read any criticism of them on this site and many others and when I do, their unethical behaviour is excused because ‘the government creating the moral hazard’. I happen to think that people should take responsibility for their actions and moral hazard or not the lack of character should be severely punished.

I watched the link you sent me regarding ‘Robber Barons’. I learnt the distinction between ‘political entrepreneurs’ and ‘market entrepreneurs’ which I agree with. I cannot help but think the two are related though. Market entrepreneurs turn into political entrepreneurs when their organisations get above a certain size and they have have the wealth to corrupt the political process. Hence, my feeling that market economics works best when companies do not have dominance over their industries. When one company dominates an industry, I don’t see the difference between this situation and the central planning you so abhor (…a JK Galbraith argument). It’s the competition that drives innovation and lowers cost. If you disagree with this argument then why are you against central planning? Therefore, even with my new education I am still against robber barons and what they did.

OK, you talk about blaming the government monopolists for the state of education. I would ask you if there would be an education system in the first place without the government? Why should it be left in the hands of private individuals who should, and should not, get an education. Again I cannot help but think those that think this way lack empathy or understanding of those who, by accident of birth, have no resources. Personally, I think basic education should be a right in a civilised society not a privilege. Now, we can have an argument about the best way to procure that education. I think teacher unions are too powerful and bad teachers need to be fired quickly. I think head teachers and their teams should be fired when they don’t get results and new management brought in. We certainly can discuss the management of the school system but I, personally, want education to be a government procured service.

I guess it seems to me that we have different views of what ‘government’ is or should be. A government should represent the vast majority of the people. Corporations are not people. No one individual should be able to donate more than a reasonable amount to a political campaign so that no one individual can have more than a reasonble influence over political parties or politicians themselves. Governments are not the problem or the enemy. They should be our partners.

Of course I know what moral hazard is. Regardless, it is not an excuse for bad behaviour.

The Thatcher quote: Yes, I was arguing that socialism (true socialism not the bastardised version many of you pedal) leads to higher standards of living for everyone and here’s why I think that. True socialism means that the people own the factors of production. This is not the government! The people. If you work in a factory you should own some of it. If you work in a shop you should own some of it. By definition, if you are an employee you are getting paid much less than you are worth and the difference is being accumulated by the entrepreneur. Why should this be the case? Again, is this not the central planning you hate? Management by committee? If the workers shared in the ownership of their companies, in my opinion, this would lead to a higher standard of living for everyone through higher productivity. Just to be clear I will repeat this: NOT THE GOVERNMENT, the people should share in the ownership of the factors of production.

Thanks for the books list. Believe it or not I have them all although I am yet to read Sowell’s book and am half way through Meltdown.

Can I say I appreciate you taking the time to respond.

John James August 12, 2011 at 9:40 pm

I’m sorry, your comments weren’t directed at me? “I still assert that people like yourself massively overrate entrepreneurs believing them to be the only people of real value in society.” “even your God Milton Friedman admits are major problems.” That’s what you said to me. I don’t mind idiotic, ignorant, condescending remarks pointed at me, but don’t sit there and try to claim you weren’t talking to me, or trying to insult me, or trying to get your digs in at my expense. If you’re going to say useless nonsense comments like that at least be man enough to own them.

That being said, again you are showing so clearly how little you know of what you’re talking about. Definitely keep reading and learning. First of all, I’m not quite sure what you mean by “Mises/Hayek/Rothbard type thinking”, as all three of those men differed in multiple areas. If you just mean people who believe in freedom, it is a straw man to claim free markets equals zero ethics. If you mean Austrians, they do not excuse unethical behavior. And they certainly do not look to Milton Friedman as a god. But they do tend to reject the notion that people should be criminalized and penalized for something that is not a violation of someone else’s rights. Your notion that people should be “severely punished” for simply having a “lack of character” is, I’m sorry to say quite naive…and actually quite dangerous.

Market entrepreneurs turn into political entrepreneurs when their organisations get above a certain size and they have have the wealth to corrupt the political process. Hence, my feeling that market economics works best when companies do not have dominance over their industries. When one company dominates an industry, I don’t see the difference between this situation and the central planning you so abhor (…a JK Galbraith argument). It’s the competition that drives innovation and lowers cost. If you disagree with this argument then why are you against central planning? Therefore, even with my new education I am still against robber barons and what they did.

A few things here. If Vanderbilt never took a government subsidy, provided better service at a lower cost, and made everyone wealthier because of it, not only without government help but in spite of their opposition, what exactly is it you are against? Is it the not taking government subsidy part? Or the providing a better product at a lower cost and making everyone richer part? I fail to see why someone would find fault with either of those things.

It sounds like you want to condemn him because he was successful. Because “oh well…yeah…maybe he didn’t cheat anyone…and maybe Rockefeller did bring the price of kerosene down 90%…but they could have gouged people. That’s bad.” Again this idea that people should be punished for something that doesn’t violate anyone’s rights (and in this case actually makes everyone better off) is just baffling to me.

But to your concern about the size of a firm allowing to “corrupt the political process”. First of all, I’m wondering what your solution might be. I’m guessing you want to place some legal restriction on how large a company can get, or how much money it can make, am I right? That’s quite a bit of power to be handing over…allowing people to literally seize someone else’s property for doing nothing other than being successful (which, again, if they aren’t cheating anyone, only means they are making the people better off). Have you really thought of the implications (both moral and consequential) of literally allowing a small elite to say “You have too much stuff. That means we can take it from you.”

And what’s more, I’m curious what makes you believe handing over that kind of power to a corrupt elite would make things better off? You already said they’re corrupt, or at least corruptible. So your solution is to give them more power? Your solution is to say: “company’s are dangerous when the get too large because then they can corrupt the government and wield its power to their advantage, and exploit the common man and flush out their competitors…that’s why we should give the government more power. If only the politicians in Washington had more power…then they could stop these companies before they get so large that the companies could corrupt them. Yes, if we just give the politicians in government enough power, by george we could make them darn near incorruptible.”

Does that make any sense to you? I thought the saying was “power corrupts”…not “power prevents corruption.” Think about what that is saying…you’re going to give politicians all this power to literally take other people’s stuff, tell them what they can and can’t do, and pick who wins and who loses…and you’re suggesting that they’re actually going to use it to prevent companies from growing large enough to pay them large sums of money? They’re going to be incorruptible because they have something everyone wants and is willing to do anything to get? I have to assume you really haven’t thought this through very far.

OK, you talk about blaming the government monopolists for the state of education. I would ask you if there would be an education system in the first place without the government?

(a) What does that have to do with the fact that it’s a failed system? And really, what’s the difference between a system of miseducation that actually dumbs people down, and creates breeding grounds for more crime and violence and the corruption of young people, and no system at all?

And (b), do you honestly believe that education and teaching just wouldn’t take place? It would just cease to exist? People wouldn’t teach anyone anything and no one would learn anything? We’d all just stagnate and die out. Yes, because man was on Earth for tens of thousands of years never learning anything, until just no one ever learned anything up until just 150 years ago when public schools started to become popular.

Why should it be left in the hands of private individuals who should, and should not, get an education.

Did you even think about this before you wrote it?

Again I cannot help but think those that think this way lack empathy or understanding of those who, by accident of birth, have no resources. Personally, I think basic education should be a right in a civilised society not a privilege.

I cannot help but think those that think that way lack respect or understanding of those who, by accident of birth, happen to be humans, and endowed with individual sovereignty. Personally, I think the right to not have your personal property taken from you at the point of a gun, and the right to not have to live under constant threat of coercion should be respected in any society, not ignored.

Now, we can have an argument about the best way to procure that education [...] but I, personally, want education to be a government procured service.

What if government procurement is not the best way to have an educated populace? I would like to assume your goal is an educated public. I would certainly hope your true concern is for the education of the people themselves…not in simply forwarding your ideology. It’s great to want everyone to have an education, but by insisting that people have to be coerced into setting up a system to make that happen, you’re basically saying (a) people don’t want their children to be educated (which translates to “they’re too dumb to know what’s good for them, and you know better”, or (b) that people actually are too lazy to do something they want…so, either way, you should be able to force them to do what you think they should do.

Not only do I believe that is morally incorrect, I think it is factually incorrect. The notion that people in general either don’t want children to be educated or are too lazy to make sure they get educated is just absurd. You would have to provide me with some very compelling evidence to begin to convince me that unless you forcibly took people’s money away from them and used to it to educate children that the children wouldn’t get educated.

And this notion that you can decide what is best for others…where does that power end? You can decide what they do with their own money…you can decide what exactly their children should be taught…can you decide what someone’s children can eat? How about how much exercise they should get? What about what television programs they can watch? Just how much of your child raising are you willing to leave up to government bureaucrats?

And again, it’s nice to want good things for people…food, education, a house, a car, a high-paying job…but since when does simply passing a law mandating that everyone shall have those things ever make it so? In Cuba housing is a right, not a commodity. Everyone has a “right” to a house. But there are homeless people all over Cuba. And the majority of homes people live in are in such poor condition, most here would consider the dwellers almost homeless anyway. How can this be? Housing is a right. As in, everyone is entitled to a house. If housing is a right? How can there be people who don’t have one? The point is, simply passing a law doesn’t make houses magically appear. As Tom Woods said in the lecture, that’s like passing a law against gravity and then assuming everyone can fly.

The truth is this doesn’t make people better off. In fact it does the opposite. You get poverty and stagnation…if not regression. And as a bonus, situations like this. The same goes for any physical good. Other things equal, more people, paradoxically, actually starve in societies where they believe people have a right to food than where they don’t. Which is more important to you?: people having rights to food plus having little or no food, or, no rights to food, but plenty of food?

I think this is where Leftists really miss the boat. They are so concerned about intentions that they almost never, even for a second, consider results. Because if they actually considered results, they wouldn’t continue to advocate policies that produce results exactly the opposite of what their stated objectives are. And so many are so dogmatic about their intentions, and so oblivious to results, it is almost as if the things they claim to care about (e.g. the poor, the sick, the starving, the environment, the whales, the children) don’t matter much at all to them…that those things are little more than bludgeons they can use to bash other people over the head with to themselves feel morally superior.

I guess it seems to me that we have different views of what ‘government’ is or should be. A government should represent the vast majority of the people.

And what if there is no “vast majority” of people? What if the population is so diverse that there is no possible way to get even a large number of people want they want? What is your solution?

Corporations are not people.

Right…they are associations of people. What’s your point?

No one individual should be able to donate more than a reasonable amount to a political campaign so that no one individual can have more than a reasonble influence over political parties or politicians themselves.

And what is a “reasonable amount”? And who gets to decide that? Why?

Governments are not the problem or the enemy. They should be our partners.

That’s funny. That sounds exactly like what they are. The politicians in government are partners with people in the private sector. They give each other jobs and favors. Virtually everyone in the executive branch came straight off Wall Street. Hank Paulson was CEO of Goldman Sachs before he was Treasury Secretary. Joshua B. Bolten, was a former Goldman executive before he was made President Bush’s chief of staff. Stephen Friedman, a former chairman of Goldman was chairman of the New York Fed until he resigned last year–He remained on the board of Goldman even as he was supposedly regulating Goldman.

In 2008, as part of its bailout, the government put Edward M. Liddy, then a Goldman director, in charge of A.I.G. (a company that owed Goldman a shitload of money). Who is president of the New York Fed now? William C. Dudley…the chief economist for Goldman Sachs since 1986, William C. Dudley. The list goes on and on.

This sounds like the public and private sector are even better than “partners.” So what is it you’re so CONCERNED about?

Of course I know what moral hazard is. Regardless, it is not an excuse for bad behaviour.

First of all you didn’t say anything about “bad behavior”. You said you saw “no real effect to deal with the significant problems of moral hazard”. And I told you how to deal with it: get rid of it. And you get rid of it by not creating it. It’s quite simple. If eating Chipotle gives you an upset stomach every time you go there, and you hate it and want it to stop, don’t fricking eat there. You don’t want moral hazard, don’t give people bailout guarantees.

And second, there’s those fuzzy words again. “Bad behavior”. “Lack of character”. “Should have known better.” What are you their mother? An Oprah Winfrey after school special? Either they violated someone’s rights or they didn’t. This fuzzy, non-specific language meant to demonize people without ever actually accusing them of anything is quite childish. Please tell me specifically who it is you are condemning and why.

And third, straw manning this issue does not help your case. Again, as mentioned throughout this thread, no one is defending fraud. No one is defending any sort of coercive behavior. Again, if anyone engaged in that, they should be dealt with accordingly. But you have provided absolutely no facts whatsoever in this matter. All you have done is make baldface assertions of myself and others “excusing” “lack of character” and “bad behavior” because we “love entrepreneurs”. Well allow me to do the same thing:

I still assert that people like yourself massively overrate teachers and public employees, believing them to be the only people of real value in society. And I have still seen no explanation of how people whose paychecks wouldn’t exist without production in the private sector are supposed to bring about this utopia you all speak of. I see no real effect to deal with the significant problems of moral hazard and externalities with even you and your God Karl Marx admits are major problems. Teachers and government employees are afforded benefits virtually no normal worker in the competitive sector get. They get better pensions, they get better overall compensation (many times for a lessor job and/or while being less qualified), and they have virtually unheard of job security, to a point a teacher can actually slap children across the face or write sexually explicit emails to students and not get fired…but instead, moved to another building where they do not have to teach or perform any of their job duties, but instead play card games and watch television with other teachers like themselves…while collecting their full salary.

Just because they have rigged the system so that they know they cannot be fired and created a moral hazard in which they know they can get away with anything, it doesn’t excuse bad behavior.

See how easy that is? The point is, I don’t really care that people do bad things. People are not perfect. They will never be perfect. And there is nothing you can do to make them perfect. But what you can do is not create a situation in which their actions do not have consequences. At least then people will be less likely to engage in “bad behavior”. What you are doing is committing a “Nirvana fallacy…you are talking as though it is conceivable to imagine that no one would engage in “bad behavior”. Again, if Barack Obama took you into a casino and said “whatever you win, you can keep. If you lose, it’s on me”…you’re telling me you wouldn’t bet differently? And who is really to blame for the fact that when you lost he made good on his word…except that he paid you with everyone else’s money?

I was arguing that socialism (true socialism not the bastardised version many of you pedal) leads to higher standards of living for everyone

I can assure you I do not, nor have I ever peddled any version of socialism.

True socialism means that the people own the factors of production. This is not the government! The people. If you work in a factory you should own some of it. If you work in a shop you should own some of it. By definition, if you are an employee you are getting paid much less than you are worth and the difference is being accumulated by the entrepreneur. Why should this be the case? Again, is this not the central planning you hate? Management by committee? If the workers shared in the ownership of their companies, in my opinion, this would lead to a higher standard of living for everyone through higher productivity. Just to be clear I will repeat this: NOT THE GOVERNMENT, the people should share in the ownership of the factors of production.

First of all, I’m not sure what you think other people think socialism is, but the way you defined it is quite literally the way most everyone else does.

Second, I assume that since you think all workers should share in the profits a business generates, you believe they should also share in the losses too, right? So when a company loses money one quarter, or maybe even for a number of years, a portion of their paycheck should go to cover those loses right?

Third, what’s stopping you from owning some of that factory? In fact, most workers own some of the business they work in. It’s called “stock“. More than half of ExxonMobil is owned by fund investors such as mutual and pension funds. And who owns those? Middle and lower class workers. That’s what their 401ks are made up of. All those factory workers, teachers, firemen…their retirement is in some degree directly related to the success of the oil giant. And yet I’m sure plenty of them didn’t even consider that as they demonized the company and said it’s money should be taken away by government.

And not only that, but employees of the business usually get better deals on equity. You may recall the opening like of the film Boiler Room, which stated that Microsoft employs more millionaire secretaries than any company in the world. They took stock options instead of Christmas bonuses.

By definition, if you are an employee you are getting paid much less than you are worth and the difference is being accumulated by the entrepreneur.

This is just false. First of all there are issues with this notion of “worth”, but we can get to that in a second. For now let’s just take what you’ve said. Let’s suppose you are productive enough to justify a wage of $10/hr. (In economics this is called “marginal revenue product”). If you are producing at $10/hr, and someone is only paying $5, it will be worth it for someone else to pay you more and steal you away from your current employer. So there is a constant movement toward an equilibrium between the prevailing wage rate and the marginal productivity of the labor…this is just supply and demand. See here for a detailed look.

It also appears you do not have an understand of what people mean by “central planning”. In this context when people use that term they are talking about economic planning…as in a central governing authority, using force to dictate actions throughout the economy. That is central planning. (Just look up that term on Wikipedia). There is absolutely nothing wrong with someone dictating what should be down with their own property. If you own a bunch of wood and tools, and you want to build a log cabin, all of that material is yours. You can do whatever you want with it. All the jobs that are to be done in making the house are yours. You can do whatever you want with those. You can do them all yourself, you can choose to hire someone to do some of them for you, or you could choose to do nothing at all. It’s your wood. There is nothing wrong with you deciding what should be done with your wood. How it should be cut, how it should be put together, everything. If you want it cut a certain way, that’s your choice. If the person you hire to do that job for you doesn’t do it the way you want it done, you have a right to hire someone else. Or do it yourself. It’s your wood.

The truth is, without this institution of private property everyone would be much poorer. The notion of everyone owning everything in common has been proven to be disasterous countless times throughout history. It even has a name “tragedy of the commons.”

Again, think about it. Everyone equally owned everything, there wouldn’t be anyone to organize anything. Sure companies can have multiple owners owning different size portions…but find me a company where everyone involved (including the workers) owns exactly the same amount as everyone else. It doesn’t work like that. And even if you made it that way, like saying “everyone has equal ownership” overnight…what happens when the guy on the manufacturing floor decides his job is too hard, and he should be a manager in the office upstairs? Who is to say he shouldn’t be? He’s just as much an owner as anyone else.

Oh, so then we’ll just vote on who should do what job. Everyone’s equal right? Even putting aside the obvious obstacles that would come with that, and assuming a concensus can be reached (which it probably never would)…how effecient of an arrangement are they going to come to? (As in, are they really going to have each person in the job he is best suited to doing? And let’s even leap farther and assume they come to the most effiecient arrangement possible and everyone is working in the exact position that maximizes productivity…What happens when someone decides he’s working harder than someone else? And what about all the other people who don’t work at the factory? Do they own it too? Or are we just talking about the people who work at the company?

Even if the claim is that “the factories will be owned by the workers who work in them” and we don’t go with the insane notion that everything is owned by everyone, you still run into problems that completely break the whole system.

And there’s another very important point: Where will new factories come from? If everyone owns everything equally, how the hell is it ever going to be decided what resources should be put to what use? How will anything ever get produced? And let’s suppose someone does bite the bullet and works hard and creates something new from some of the resources…what’s to stop one person from saying the guy “stole” from the collective by doing what he wanted and creating or consuming something for himself? And then what’s to stop someone from claiming the fruit of the first man’s labor is his own? After all, everyone owns everything equally…so whatever that guy made, I have a claim to. Like, suppose we’re on an island and you use some wood and thick leaves to make a net to catch fish. That took quite a bit of work for you to gather all the raw materials, figure out how to put them together so that they don’t fall apart, and then all the actual work making it. But if we all own all the factors of production, that means those leaves and wood are partially mine. That means you have to let me use the net an equal amount as you. It doesn’t matter that you figured out how to make it and did all the labor. All the factors of production are owned by everyone.

Or suppose someone else claims he was going to use that wood for something else. You took materials that were partially his and used them up…now he can’t use them the way he wanted to. Who is right? How do you settle that disagreement?

The notion that the world could exist without private property is quite possibly the most insane idea ever contrived. And notice how it stays alive…the proponants basically never get past stage 1. In fact, they don’t even get to stage 1…they stop at just the idea “everyone own’s everything equally.” They don’t even consider what that would look like…let alone how to get to that point or how it would operate or progress. Ideas this illogical always begin in the middle. They offer absolutely no explanation of how it would work or how a society could even get to that point.

Concerned August 15, 2011 at 10:51 pm

God Lord John James. That’s a great response. Let me ask you this. How would you deal with externalities? How would you deal with the agent-principal problem? What role do you think regulation should play in society? Would you trust unregulated food? Unregulated airlines? Unregulated medicine? If an airline flew poorly maintained planes and one fell out of the sky killing all the people, I think the CEO should go to jail. I suppose you think the future lack of business is punishment enough? If the CEO thought he/she could make more money in the short run flying defective planes don’t you think he/she would do this? It’s easy to criticise me, but what are your solutions?

For the record I have never read anything by Karl Marx. I don’t consider myself left or right wing. I find these labels pointless. I am ‘rightwing’ on some stuff (crime, education (competition is good), fiscal management, taxes, personal responsibility) and ‘progressive’ on other issues (poverty, education(everyone should have one), sexism, racism, homophobia). I’ve been poor and I’ve been rich. The people are the same; some good and some bad; some smart and some stupid. It’s my view that the differences between rich and poor is nothing to do with brains or smarts but access. Access to capital. Access to education. Access to power. You seem to think concentrated power is OK. I don’t.

Concerned August 16, 2011 at 3:19 am

John James, you seem to take a very theoretical approach to economics and society which often is not borne out in reality. I am very results oriented and that is why the imperfect world we live in requires imperfect solutions. Your country was set up on a constitution right? It hasn’t taken long for it to be completely undermined right? Gold and silver should be the only money. Presidents cannot declare war. That power is suppose to rest with the congress, no? The Fed is totally unconstitutional. What is your solution, to argue endlessly the THEORECTICAL remedies (end the fed, eliminate taxes etc)? It’s not going to happen. The people who benefit from your warped system are too powerful to let it change. You come with your theoretical remedies and accuse me of theories that start in the middle.

Whatever system is put in place in ANY society, an elite will emerge and try to accummulate all the wealth and power of that society for themselves. Doesn’t matter whether it is capitalist, socialist or communist. History tell us this also. The rest of us must fight to share in the wealth and if that means taxing the rich, and transferring some of their property to the rest of us, then so be it. They didn’t get rich in a vacuum. There were lots of institutions, inventions and infrastrutures that they benefited from but didn’t pay for along the way. It’s not perfect but it’s practical.

Oh, and your comment about employees. Again more useless theory with no practical use whatsoever.

“Let’s suppose you are productive enough to justify a wage of $10/hr. (In economics this is called “marginal revenue product”). If you are producing at $10/hr, and someone is only paying $5, it will be worth it for someone else to pay you more and steal you away from your current employer. So there is a constant movement toward an equilibrium between the prevailing wage rate and the marginal productivity of the labor…this is just supply and demand.”

First of all most employees have no idea what their “marginal revenue product” is? Secondly, neither do most competitors. Thirdly, there are so many other factors that go into taking a job and leaving a job that MRP may be useful in your mathematical world, but in the world most of us live in, it’s a useless concept. And what does the last 30 years tell us? Productivity of labour has gone up and wages to labour have stagnated. Call it whatever silly name you want, someone is getting shafted. Me, naive? No, I think you are the naive one. Take you head out of all these books and live a little. You might learn something.

Lastly, why is it that Cuba is the only socialist country worth studying? Why not have a look at Norway or Sweden? High taxes. Great public services (healthcare, transport). Less disparity of incomes (fairer – another ‘fuzzy’ term). High educational achievement. Better looking women. Sounds like nirvana to me.

John James August 20, 2011 at 10:17 pm

That’s very interesting. I’m wondering if you wrote the first response and then decided to enlist someone to craft a more combative one, or if someone just decided to do it on their own and use your handle. Either way, if you don’t mind, I’ll address you separately, as “Concerned 1″ and “Concerned 2″.

Concerned 1:
You raise multiple issues and have posed very general questions. They are not easily answered (at least in a way you would consider satisfactory) in a general context. I’d be happy to elaborate on specific things if you would name them. What externalities? What agent-principal problems (as in, in what context)? What kind of regulation? What do you mean by “unregulated food”? Does this just mean food that hasn’t been inspected by a government agent? I eat that all the time. I’ve got tomatoes I picked off a vine growing in my backyard. I ate those. I wasn’t afraid of dying from it either. I promise. Airlines, medicine…you need to define what you mean by “unregulated”.

You think if an airplane was poorly maintained and ended up hurting people, the head of the company should go to jail. What about the pilot? He was in control of the plane. What about the maintenance guy who worked on that specific area of the plane? Should he go to jail? What about the rest of the members of the ground crew who missed the malfunction or the broken component before the plane took off. Should they all go to jail? What about the CEO of the airplane manufacturing company? What about the factory workers who built that component? Should they go to jail? What about the government inspector who was in charge of that airport. Should he go to jail? After all, it is his responsibility, nay, his job to make sure everything is up to spec. What about his boss, who is in charge of the region and making sure that guy does his job? What about the head of that government department? Should he go to jail?

I’m just curious as to why you automatically go for the CEO of the airline and neglect to mention anyone else. Not a single person. And where does the liability end? (Especially criminal liability).

If the CEO thought he/she could make more money in the short run flying defective planes don’t you think he/she would do this? It’s easy to criticise me, but what are your solutions?

Again, do not fall victim to a Nirvana fallacy. No one ever suggested that any system would lead to a utopia where nothing bad ever happened. Do you really understand this? Because it seems like you (and many others) attempt to berate people who criticize the current system and try to offer an alternative they believe would yield better results…and your default position is basically “Oh you think that’s going to solve everything? How are you going to stop this? And what about that? Your proposal isn’t any good at all. People would still die, there would still be poor people, there would still be murders, and this would still be Earth instead of Heaven. So try again.”

As Thomas Sowell said, “there are no solutions, there are only tradeoffs. And whatever you do to deal with one of man’s flaws, it creates another problem…but you try to get the best tradeoff you can get, and that’s all you can hope for.”

So understand that simply pointing out that something human has imperfections, is not an argument. And it’s certainly not a justification for imposing restrictions on people wantonly.

But to get to the heart of your question…interestingly enough, Milton Friedman did address this very issue.

For the record I have never read anything by Karl Marx. I don’t consider myself left or right wing. I find these labels pointless. I am ‘rightwing’ on some stuff (crime, education (competition is good), fiscal management, taxes, personal responsibility) and ‘progressive’ on other issues (poverty, education(everyone should have one), sexism, racism, homophobia). I’ve been poor and I’ve been rich. The people are the same; some good and some bad; some smart and some stupid.

I wasn’t under the impression that you had read Marx. I was simply utilizing the posterboy for what you seem to espouse, as you attempted to do to me.

But labels (while never perfect) are nonetheless useful. They help people to organize their world and attempt to make sense of it. Sure, plenty of people over-do this and attempt to fit everyone into specific boxes, which obviously doesn’t work, but the point is labels can be helpful in facilitating conversation, and the exchange of ideas and concepts.

But if you’d like help determining where you fit in the political spectrum, that can easily be determined based on how you feel about certain things…which could in turn be (at least somewhat) determined by how you answer certain questions. Most people like to pretend to subscribe to this middle-of-the-road kind of position that you describe here, because it allows them to seem more reasoned or wise than others. They do what you do, and say things like “liberals say I’m too far right, conservatives say I’m too far left; I’ve been rich, I’ve been poor; my dad’s side is black, my mom’s side is white; see? You can’t accuse me of being partisan because I’m just a little mix of everything. I’m liberal on somethings, conservative on others.”

The truth is there is far too much exaltation for this idea of being “moderate.” This Goldie Locks “not too this, not too that, juuuuuust right in the middle” mentality is one of the most callow assessments perpetuated today. Everyone looks at ideology as some sort of simple spectrum where being “in the middle” is the most appropriate because that means you’re not a “crazy extremist”. It makes people feel safe in that they are “moderate”, which they like to think means they incorporate views from “both sides” to find a nice balance…as if they incorporate the “best of both worlds.”

This is just short of being complete nonsense. Most of the self-proclaimed “moderates” have no idea why they believe more than half the things they do. The policies and ideas they advocate are not rooted in any sort of principle, they are simply a product of almost baseless “feelings” and are determined, more than anything else, not by actual results or deep philosophical study, but by a simple interest in not being scapegoated as a “winger.”

While it may be true that many types of so-called extremists choose to ignore the facts, this does not automatically mean that self-proclaimed moderates have somehow reached “moderate” conclusions because of more intense study or careful consideration of information.

The reality is most of them are just so afraid of being labeled because they can’t defend their positions…either because they’re too ill-equipped or too inchoate in their own views. So they do their darnedest to be as politically and philosophically unidentifiable (or at least as ambiguous) as possible. And if they have to be labeled, they try to end up being labeled a “moderate”, because of course if you’re a “moderate” in the “middle”, you’re wiser and more evolved than people with actual principles because you “see the good and bad of both sides” and are “not an extremist”.

It’s my view that the differences between rich and poor is nothing to do with brains or smarts but access. Access to capital. Access to education. Access to power.

To a degree this is true. What you don’t seem to realize is that, ironically, the biggest impedance to that access is government.

You seem to think concentrated power is OK. I don’t.

That’s interesting. You’re the one who’s been arguing a small group of elites should be able to determine how much money one can make, what he can eat, where his children should be able to go to school, what those children should be taught…bascially who should get what, when, and how…all determined by what the small elite believes is “right” or “moral” or “fair”.

I would say you seem more than comfortable with concentration of power. In fact, it sounds like you are not only in favor of it, but you actually think we don’t have enough of it.

Concerned 2:

Your country was set up on a constitution right? It hasn’t taken long for it to be completely undermined right? Gold and silver should be the only money. Presidents cannot declare war. That power is suppose to rest with the congress, no? The Fed is totally unconstitutional.

K. So far, so good.

What is your solution, to argue endlessly the THEORECTICAL remedies (end the fed, eliminate taxes etc)? It’s not going to happen. The people who benefit from your warped system are too powerful to let it change. You come with your theoretical remedies and accuse me of theories that start in the middle.

Well, Concerned 1 did express debunked theories that start in the middle. You claim to be results oriented, yet you seem to be denying that socialist philosophy has been a complete and total disaster everywhere it’s been tried. And this notion that making changes to the current system is impossible…do you have some kind of conclusive proof of this? Again, I thought you were a results-oriented guy. I mean, this “it’s not going to happen, they’re too powerful, blah blah blah” sounds like just a lot of theory to me. Baseless theory, at that.

Whatever system is put in place in ANY society, an elite will emerge and try to accummulate all the wealth and power of that society for themselves. Doesn’t matter whether it is capitalist, socialist or communist. History tell us this also.

Again, so far, so good…humans are naturally greedy, power-grubbing creatures, and there is no Nirvana on Earth. Great. We agree. What’s your point?….

The rest of us must fight to share in the wealth and if that means taxing the rich, and transferring some of their property to the rest of us, then so be it. They didn’t get rich in a vacuum. There were lots of institutions, inventions and infrastrutures that they benefited from but didn’t pay for along the way.

Oh I see. No one gets rich legitimately, so people don’t have a right to their own stuff…you get to just take it when you feel they have too much and can convince enough people to agree with your definition of “too much.” Basically a tyranny of the majority is what you’re in favor of. Well, that’s nice. Insane, but kind of charming in a childish sort of way.

It’s not perfect but it’s practical.

Well isn’t that a nice, convenient phrase to justify whatever the hell you want to do.

First of all most employees have no idea what their “marginal revenue product” is? Secondly, neither do most competitors. Thirdly, there are so many other factors that go into taking a job and leaving a job that MRP may be useful in your mathematical world, but in the world most of us live in, it’s a useless concept.

*sigh* When you spend $3 on a cup of coffee, do you know exactly what the best possible alternative use of that $3 dollars is? Of course not. But just because you don’t know it doesn’t mean the concept of “opportunity cost” is “useless”. It is a way to describe the way the world works. When you spend that $3 you are giving up everything else you could have done with that money at that very moment. That is a silent “cost” of sorts. Whether you believe it or not, whether you think about it or not, it exists. Just like “marginal revenue product”. No one has to “know” what their productivity is. In fact, they don’t even determine it…the market does. The term is not referring to some number that people use to determine who to fire or how much they should take a job for. It is simply referring to the amount of physical goods or services the worker produces in a given time period—and the final price paid by consumers for those articles. Whether you, the worker, know what that level is or not, it exists.

But more importantly, how the hell does any of that change anything about what I said? Suppose you can make 10 origami flowers per hour. People will pay $1 dollar for one of them. This is not precise of course, but to illustrate the point we can say that essentially means your marginal revenue product in terms of the flowers is $10/hour. If someone is paying you $5/hr to make 10 flowers, another flower business that needed to replace an employee or wanted to expand, would see a profit in paying you $7/hr (again, we’re not concerned with the details of input costs and overhead, this is just an illustration of how it could work).

The point is, the more valuable (as determined by the market of course) your production is, the higher the wage you can command. Because, since people are greedy, you can be assured that in a free market, as Mises wrote (p. 592), “There will be people eager to take advantage of the margin between the prevailing wage rate and the marginal productivity of labor. Their demand for labor will bring wage rates back to the height conditioned by labor’s marginal productivity.” In other words, if someone can make a profit by hiring you, he’ll probably do it…regardless of how much he has to pay you.

And what does the last 30 years tell us? Productivity of labour has gone up and wages to labour have stagnated.

Really? Would you care to share the source of this information?

Lastly, why is it that Cuba is the only socialist country worth studying?

Who said it was? It was just a quick example off the top of my head of a place where something tangible is considered a “right.” We could talk about others…

Why not have a look at Norway or Sweden?

Sure, why not.

“How the Welfare State Corrupted Sweden”
“The Sweden Myth”
“Stagnating Socialist Sweden”
Swedish Myths and Realities

High taxes

Sweden Is a Tax Haven?!?
Sweden Repeals Wealth Tax

Great public services (healthcare, transport).

The Recycling Myth
The Welfare State Causes “Sickness”

Less disparity of incomes (fairer – another ‘fuzzy’ term).

Right…everyone’s equally poor…

“The Scandinavian-Welfare Myth Revisited”
“Sweden: Poorer Than You Think”

Sounds like nirvana to me.

For a “results oriented” guy you really seem to be lacking in facts.

Concerned August 28, 2011 at 2:57 pm

Nope, same person. I just realised I’m dealing with someone with no social skills but is obsessive about economics (Asperger’s syndrome?). As I said before, you clearly don’t get out much. Read E.F Schumacher “Small is beautiful”. The tag line will immediately put you off – “Economics as if people mattered”. I actually agree with quite a lot of what you say but you are such an arse to talk to that instead of a conversation we are having this childish back and forth which has progressed into boredom.

John James September 8, 2011 at 1:38 am

Aaaaand we’ve finally resorted to completely ignoring any of the topics being discussed and instead attacking the other person through accusations and name-calling. You should see my big surprised face.

I suppose it was only a matter of time, as we established in the very beginning you had no idea what you were talking about, and insults and accusations are a favorite among the ignorant who have nothing of value to say, yet have an enormous desire to speak.

Don’t forget to respond back with more useless invective remarks and characterizations and complete neglect of anything actually being discussed.

Concerned September 12, 2011 at 6:48 am

Anyone reading your rude and obnoxious comments on this blog to me and others will agree with my characterization of you John James. You have ignored the points I have made or chosen carefully which points to attack. Some of your arguments are nonsensical e.g. your argument about me advocating for concentrated power and your nonsense about marginal revenue product. Read a little Industrial Economic theory and you might get a little closer to the economic truth. You live in a fantasyland of academic economic theory. You have failed to understand how the world really is. Until you do you will never understand why some of the things the Austrian school of economics wants will be a massive step backwards for the majority of people.

Which leads me to the main point: the difference between us is simple, I want the majority of people to access some of what is good in life (education, healthcare, food, holidays) and you only want those with power to access those things. Life in your view should be a mad scramble for power. Darwinian society is what you want. Why don’t you admit it? Oh that’s right, you’d rather attack the arguments of others than put your own ideas forward for critisism. Pretty cowardly. Gutless. Come on you gutless wonder, let’s see how you would structure a society.

John James September 16, 2011 at 12:47 pm

More name calling, accusations, and complete neglect of any actual points being discussed. Nice. At least you can follow directions :)

The Anti-Gnostic March 15, 2011 at 11:31 am

The worst crime that the film can drag up is how traders were both denouncing certain kinds of commercial paper as junk even as they pushed it on buyers.

That’s known as fraud, and as fiduciaries entrusted with OPM they should have to satisfy the losses from their personal assets. And then there’s the interest-free money the Fed doled out, which got recycled into government bonds, which financed the Wall Street bonuses the very next year. In a just world Wall Street would be razed to the ground by angry mobs.

I’m reminded of some reviews I read on Oliver Stone’s Wall Street: Money Never Sleeps. Reportedly, a Wall Street insider was quoted in the film as saying, “Speculation is the root of all evil.” He told Stone the actual quote was, “Leverage is the root of all evil.” Stone ignored him.

The decisions made and actions taken by the real-life players were as diabolical and consequential as anything a director could dream up. But since it doesn’t fit into Hollywood’s stupid, shallow, New Deal-paradigm, the great movie on this subject remains unmade.

Ken March 15, 2011 at 11:51 am

The Anti-Gnostic has the right of it. Mr. Tucker’s analysis of the populist lens on economics is accurate, but though populists do tend to be philosophically incoherent, some of them (Karl Denninger comes to mind) are very good at identifying the problem, and the problem is fraud. Viewed from the outside, some of the subprime vehicles do look like asset-stripping schemes wherein the nominal appreciation in the property value is vacuumed away by the bank in fees, when the property owner refinances. Whether they were intended as such is a different question. Moving to MERS and documentation, the robo-signer issue isn’t just a nebulous question of moral hazard, it’s a violation of black-letter law. The original note is supposed to be conveyed in very specific ways, and it appears rather a lot of them were discarded/lost/destroyed instead. There is no benign explanation for that of which I am aware.

Mr. Stockman is on certainly on the right track when it comes to the end of the gold standard; that enables a great many kinds of shenanigans by the state (and those advantaged by connections to those working the state’s levers). However, I think Mr. Tucker is trying to give the “schmott guys” a pass here. They weren’t just sitting around while “the Fed and moral hazard (took) over,” and then said, “Oh, looky what I found lying on the sidewalk; might as well seize this opportunity before someone else does.” They (or more accurately their bosses, their bosses’ buddies at the Fed, and — via the Miracle of Selective Enforcement — the SEC) were in there making it happen.

In the end, though, Mr. Tucker is right about the film being a missed opportunity.

Franklin March 15, 2011 at 12:54 pm

Anti-Gnostic: “….since it doesn’t fit into Hollywood’s stupid, shallow, New Deal-paradigm….”
Well said.
Ken follows nicely: “Populists….are very good at identifying the problem, and the problem is fraud.”

Indeed. So excuse my personification and generalization, but Hollywood’s and the Populists’ solution is to ignore the complicity of government policy-makers; aka, silent partners of the Wall Street players, and instead call for more of them.

Root cause analysis is hard to come by. Especially in today’s filmmaking circles.

Ken March 15, 2011 at 3:08 pm

Yeah, but learning is always possible. I did.

Matthew March 15, 2011 at 7:49 pm

@The Anti-Gnostic
I think you might be missing the precise point. Assets that are having their prices artificially inflated may be junk, but they can also be profitable junk. For example, some people profited from the housing boom even though they were buying overpriced houses because they were able to sell the houses at even higher prices. Therefore, it is possible for someone to have profited from the housing boom and even to have recommended others to do the same while he simultaneously called the investments junk.

babybell March 16, 2011 at 10:44 am

IMO, Counterfeiting by central banks is the primary source of fraud in financial markets.

Jason M. Varner March 15, 2011 at 11:36 am

Excellent review. My own take on “Inside Job” was similar, as throughout the film I kept asking, “Where did the money come from?” That question was not addressed, and the impression given was that all the cash thrown around in unsound investments came exclusively from the looting of middle-class America’s pension funds. The only mention of the Federal Reserve that I recall made it seem as if the Fed has to get the explicit authorization of Congress before it can ‘print’ more money (the $700 billion stimulus package segment). Missed opportunity indeed! The film maker(s) need to read Rothbard’s “Mystery of Banking”!

JOSE April 4, 2011 at 10:14 am

Or Paul Grignon’s “MONEY AS DEBT”

John James April 4, 2011 at 11:16 am

Unfortunately Money as Debt and its sequel are almost as misguided as the film in this critique. And the sad part is just as with Inside Job they are a missed opportunity. There’s a decent amount of accurate info about central banking and our current system, albeit with a few flaws, (such as notion of the Fed not creating enough money to cover the cost of interest on debt; and, therefore, the world must forever be in debt. G. Edward Griffin covered this in The Creature from Jekyll Island pp. 191-192.)

But worse than that, the conclusions the filmmaker reaches and his proposed solutions are no better than what he spends the entire film berating. He literally suggests that to fight inflation “the government could simply collect tax monies that it then takes out of use.” And then conversely “to control deflation” he suggests “the government would simply spend more money into existence.”

So, basically he is saying we should just eliminate the Fed and let the government print money out of nothing directly.

His whole issue is with the notion that money is created through debt. He sees nothing wrong with an all powerful central authority controlling the money supply, able to print money at will, backed by nothing.

Matt Whiseant March 15, 2011 at 11:47 am

This brings up the question of why are libertarians/fiscal conservatives/etc not doing work to put out a documentary arguing the case against the Fed? (I know “Money, Banking, and The Federal Reserve”, and “The Incredible Bread Machine” already exist, by the way.)The public might pay more attention if the argument was put into video form in an updated form with arguments being made by people with insider knowledge of the financial markets — people like Helio Beltrao, for instance.

I’d donate money to the creation of such a film if an enterprising and talented group of video makers with their heads and hearts in the right place were to embark upon it. Leftists dominate the video spectrum in documentaries. Everyone knows Michael Moore’s name and where he stands, and his films impact people. There needs to be an opposing force to this. The public do not read as much as they watch. If nothing gets out there to combat the falsities then we shouldn’t be surprised to see ourselves remain relegated to the background of public debate, with, as Tom Woods puts it, the spectrum of allowable opinion stuck between Joe Biden at one end and Mitch McConnell on the other. Lets get to work.

fundamentalist March 15, 2011 at 12:23 pm

Matt, I agree! The left and the public in general don’t read books on economics. They rarely will view a documentary, but more will watch a documentary than read a book on economics. But libertarians must learn to capture the emotions of events. PR research proves that you have to grab people by the emotions before they will listen to your reason. You can’t make a film that is an academic thesis paper!

Matt Whiseant March 15, 2011 at 12:41 pm

Perhaps the men who put together the Hayek v. Keynes music video could be the producers. They obviously have the know-how to create the requisite glitz and glamour to spark the interest of an otherwise uninterested onlooker. And also, all patronisation aside, people are much more likely to be willing to hear an argument that has real human faces behind it, for reasons you just stated. For better or worse, it is as much about emotional connection with an audience as it is factual analysis.

Nicholas Jones March 15, 2011 at 1:26 pm

I agree such a film needs to be made. It’s my intention to make it – but it is certainly an uphill struggle to explain Austrian economics, the Nixon shock and gold to people so I doubt my former colleagues at the BBC will be interested in funding it ! I’m a documentary maker in the UK who has also been writing the occasional piece for the national press about how corrupted accounting standards enabled the bonus gravy train to run on and on in London, Wall Street etc. But rest assured, there is at least one producer out there who despairs of the Left dominating documentary. Working in the field, I know better than most how they come to dominate that field.
Nicholas Jones

Hard Rain March 15, 2011 at 2:51 pm

Perhaps a more salient and coherent version of this: http://www.channel4.com/programmes/britains-trillion-pound-horror-story ?

Nicholas Jones March 15, 2011 at 3:45 pm

Watched this with interest. But it’s made by a producer who is very much part of the Uk documentary establishment, although he has set himself up as ‘court jester’ to knock down the Left’s received wisdoms (eg global wamring) in order to get a name for himself. His film here did not follow thins through to their logical conclusion.

fundamentalist March 15, 2011 at 3:01 pm

Good for you! But I wouldn’t try to explain Austrian econ. Knock down the greed explanation then explain what flooding the nation with money does.

If I were going to outline a documentary, it might go something like this: 1) Show the devastation caused by the crisis – retirement savings destroyed, families under pressure because someone lost a job, etc. 2) present the greed explanation. 3) knock down the greed explanation. 4) present the flood of money explanation and how it makes honest business people make bad investment decisions. 5) Introduce some Austrian writers for sound bites and mention their books. 6) recap with something like the imagery of a tsunami and the destruction it causes and compare with a tsunami of money.

Trent Emberson March 15, 2011 at 2:54 pm

I’m not so sure there’s enough time to make one before the Fed destroys itself. I do hope there are some documentary makers with their cameras ready once the wheels come off, though, like Pino Solanas in Argentina. The first 10 minutes of “Memoria del Saqeuo” brought tears to my eyes the first time I saw it. Our people should be the ones who make the American version of that.

Nielsio March 15, 2011 at 7:12 pm

There already exist a bunch of those.

‘Meltup’ is one example (1M views).
http://www.youtube.com/watch?v=eb1n1X0Oqdw

Just because you don’t know of them doesn’t mean they don’t exist and that people aren’t putting their creative time in making materials.

John James April 4, 2011 at 7:58 am

As Nielsio pointed out, there are a number of films arguing the case against the Fed.

Overdose: The Next Financial Crisis is well done, and based on Johan Norberg’s book Financial Fiasco.
The American Dream is a cartoon that focuses solely on the Fed and it’s history.
There is also Hyperinflation Nation and The Dollar Bubble.

Every one of these films present a look at the past, present, and future from more or less an Austrian perspective, and each has roughly 1 million views.

The films are out there. Find them and pass them around.

mstob March 15, 2011 at 12:06 pm

While it is true that the Fed is in the end responsible for the business cycle, can we not lay blame elsewhere as well? I have not seen the film in question but if there was any criticisms of big Wall Street investment bankers than I might be hesitant to discard them. Bankers are a highly privilliged group. They have a, virutual if not legal, monopoly on buying the government’s debt as well as creating credit out of nothing. They know this but they choose to enrich themselves at the expense of others anyway. As far as I can tell they may not be responsible for the actions of the Fed, but they are certainly complicit.

fundamentalist March 15, 2011 at 12:36 pm

Read “Slapped by the Invisible Hand” by Gorton. (I wish I had thought of that great title!) Gorton understands investment banking better than anyone else I have read. In essence, large institutions have no bank in which to deposit their cash with FDIC insurance as consumers do. They can deposit those funds in commercial banks, but they aren’t insured above $200k (?)

So investment banks started offering government bonds as collateral on deposits of cash from large institutions. The institution received a guarantee on its deposit while the investment bank got the greater interest on the bond. That worked fine until it became so popular with large institutions that there weren’t enough government bonds to meet the demand for collateralization of deposits.

So investment bankers collaterized other kinds of debt, mortgages being only one type. The mortgages were divided into categories called tranches so that the safest went into tranches that could be rated as AAA or AA and others as A or less. The AAA and AA-rated were used as collateral on deposits by institutions and the riskier ones were sold to other investors looking for higher returns.

The system worked very well for years, until the housing market collapsed due to higher interest rates and many subprime mortgages going bust. The collapse in house prices made the bonds used at collateral worth less than the cash they were used to guarantee.

But the real problem was lack of transparency. Only the riskiest mortgages were in trouble, but lack of transparency made every mortgage-backed security look suspect and the depositors started withdrawing their funds. As in other fractional reserve banks, the investment banks were forced to sell MBS’s in order to have the cash to give to depositors as they withdrew. It was an old-fashioned bank run.

In Gorton’s story, and he is not an Austrian economist by a long shot, I can see no wrong that the bankers did.

The ratings agencies rated the bonds on the basis of repayment risk, not on the total collapse of housing prices across the US, which hadn’t happened since the Great D.

Jeffrey Tucker March 15, 2011 at 12:39 pm

Well, I almost put this in my review, but look at the reality of marketing here. If this film had not demonized traders and set fire to Wall Street, but instead took on fiat money and explained the effects of artificially low interest, would it have garnered awards? Would it have been shown at all? I have my doubts. This red meat stuff sells in a way that rational analysis does not.

Franklin March 15, 2011 at 12:56 pm

I chimed in above without scrolling to your follow up.

“[If the film had] instead took on fiat money and explained the effects of artificially low interest, would it have garnered awards? Would it have been shown at all? I have my doubts.”

Have no doubts. We know the answer. :)

fundamentalist March 15, 2011 at 1:01 pm

Well you have to look at your market. You should target those in the middle and the young. The far left will never change their minds and libertarians don’t need their minds changed. But there are people in the middle still trying to make up their minds, mostly young people.

I worked for 15 years in PR and learned that film/video play different roles from books. The comparative advantage of video is in reaching the emotions; books reach the intellect. Most people need their emotions charged before they will even become interested in a subject. So videos should be seen not as teaching tools, but long ads capturing the emotions of the viewer. If you capture their emotions, then they will go looking for reason to support their emotion, and they’re more likely to read a book.

So a film/video documentary should 1) appeal to the emotions of the “choir” in order to earn enough money to pay for itself and 2) appeal to the emotions of the undecided and provide just enough evidence to encourage them to read books.

Without the film/videos promoting libertarianism, the left has the young and undecided all to themselves.

And a good technique for getting some socialists to view the film would be to address their concerns first. In other words, present the issues that they care about, greed and corruption, then dismantle them.

And don’t dump the whole school of Austrian economics on them in the video. Just whet their appetites.

Brian Drake March 15, 2011 at 4:00 pm

“video is in reaching the emotions; books reach the intellect”

While there’s some truth to this, let’s not forget that Glenn Beck has many best-selling books, as does Michael Moore. Are those sales really driven by “reaching the intellect” or just more emotion?

fundamentalist March 15, 2011 at 4:20 pm

There is solid research in PR for the comparative advantage of video in affecting emotions vs the intellect. Beck and Moore preach to the choir. They aren’t looking for converts as much. But if they have converts, those would be attracted to the TV/film media first, and then go for the books. There will be exceptions, but do you really want to build a strategy around the exceptions?

Brian White March 15, 2011 at 12:46 pm

Three grammar and spelling mistakes at least. But thank you for the article as I no longer need to see this movie.

GSL March 15, 2011 at 1:29 pm

Nice review. I wrote my own yesterday, for the curious.

Franklin March 15, 2011 at 8:03 pm

Good review as well.

I’m not much of a Sandler fan. But one man’s tea…. :)

Walt D. March 15, 2011 at 1:34 pm

Has anyone watched “Waiting for Superman”? Many people said it should have won the Oscar.
Main Street
First they came and bailed out Wall Street.
I did not work on Wall Street, so I got nothing.
Then they came and bailed out the “too big to fail” banks.
I did not work for a “too big to fail” bank, so I got nothing.
Then the came and bailed out the Auto Industry.
I did not work in the Auto Industry, so I got nothing.
Then they came to bail out the Teachers Union.
I was not a teacher, so I got nothing.
When they came to bail me out, there was no money left.

Franklin March 15, 2011 at 7:27 pm

Yes, it’s very well done. Wonderful quote from Geoffrey Canada in that film:
“When you see a great teacher, you are seeing a work of art. You’re seeing a master and it is as, I think, unbelievable as seeing a great athlete or seeing a great musician.”

Amen to that. Pity what has happened throughout that profession. The movie is but another example that won’t enamor the NEA rank and file –err, never mind the rank and file but actually the NEA union heads.
The entrenched bureacrats and ivory tower academics on the left lambasted it.
I guess too much o’ that back-to-basics discipline, personal responsibility, and readin’, writin’ and ‘rithmetic stuff.

Iain March 15, 2011 at 2:39 pm

GSL-

Loved the Billy Madison reference.

GSL March 15, 2011 at 4:36 pm

Always happy to help.

K. Chris C. March 15, 2011 at 8:44 pm

I almost bought this with the mind that I might learn a few new facts or possibly learn a few new names of those involved.

In the store, I almost dropped it when I turned it over and saw Barney Frank’s photo on the backside, displayed as if he were a commentator and not one of the participants and facilitators. Geitner is also so displayed.

Needless to say, I left the store without said video, because if Frank and Geitner are commentators in the documentary, then it can’t be much of a documentary or have any intellectual value.

I have a opinion–more a feeling–that the creators of this sold themselves to the money people to get financing and therefore ended up with just a big pile of Agitprop.

Walt D. March 15, 2011 at 11:20 pm

Just been watching Judge Napolitano. Any idea who the handsome guy with the bow tie was?

Cynic March 16, 2011 at 11:26 am

Jeffrey Tucker makes some good points. However, you can count me in as a libertarian who thinks Ronald Reagan WAS evil. During his watch, working families lost jobs and watched their income halved. The concept of a two-income family was an option during the ’70s; it became a necessity during the 80s. During Ronald Reagan’s time, the US lost thousands of manufacturing jobs, but that was fine by Reagan, considering that those who worked in these jobs were only working-class slobs and Democrats, to boot. He was pleased that the US would become a “service economy.” Service as in flipping hamburgers for minimum wage. At the same time Reagan was telling us that government was the problem, he intensified the Drug War, turning thousands of non-violent “criminals” into prison inmates and encouraging all of us to pee in a bottle to keep our jobs. This was a man who spoke the words “civil liberties” with the same intonation as one would use when discussing manure. He enthusiastically spoke against welfare queens, while not worrying one bit about CORPORATE welfare queens. He handed the keys of the Treasury to the military (remember $600 toilet seats?).

This was a man who said that government was the problem, while at the same time asking “Are you better off now than 4 years ago?” As if government had anything to do with my improved economic circumstances. Maybe it was MY OWN EFFORT that did it? That and the fact that I was in my 30s and at last had the experience to go with my degree. This was a man on whose watch the national debt exploded. So much for smaller government! He was good at talking the talk; miserable at walking the walk. I hate smiling liars in the White House.

The Freedom movement will go NOWHERE as long as it keeps celebrating this evil man as some kind of hero. And as long as those within the movement refuse to feel the pain of the working class. And as long as those within the movement have organisms every time they think about the rich.

Tyrone Dell March 16, 2011 at 12:01 pm

Relax. We all hate Reagan here, too. We just don’t caricature him like so many other people like to do.

K. Chris C. March 16, 2011 at 12:46 pm

After reading “The Road to Serfdom,” especially the chapter on why the worst rise to the top, I only need to know one thing about Reagan–he’s a politician.

Any hopes, aspirations or faith in any politician is naive at best.

When I hear people discuss Reagan in glowing terms I find myself chuckling and sometimes laughing. When possible I ask them to explain their admiration to which I am usually bombarded with aphorisms of the the US and World saved from big government, the facts be damned.

I usually then ask them who signed the biggest tax increase in US history (TEFRA, 1982) or demonstrably grew government and the corresponding spending and deficits. I usually get blank stares to the obvious answer–Reagan.

I would enjoy doing this, except the ignorance and naivety demonstrated is sad.

See: http://mises.org/freemarket_detail.aspx?control=488

Julien March 19, 2011 at 10:20 pm

The movie is as Tucker says. For me, it stopped short every time it introduce a new lead or suspect, leaving me waiting for Why.
Why did investors buy risky assets as safe? Why did they trust rating agencies with no skin in the game? Why

Julien March 19, 2011 at 10:27 pm

The movie is as Tucker says. For me, it stopped short every time it introduce a new lead or suspect, leaving me waiting for Why.
Why did investors buy risky assets as safe? Why did they trust rating agencies with no skin in the game? Why did the shareholders not seek for CEOs to have incentives aligned with the risks? Why did the media trust economists at face value and now only question their integrity? Why are some banks so large in the first place?

The movie makes a assumption of lack of regulation, then provides innuendo instead of explanation, and seemingly concludes that obviously regulation is the solution…

tmb March 26, 2011 at 7:50 pm

It is truly painful to see that so many commenters here are willing to brush aside the moral character of individuals as insignificant or unimportant to the events that unfolded. It is one thing to recognized the deeper problem of the Federal Reserve and its enabling role. It is something else entirely to pretend as if the instrument of enablement is the only thing in the room.

If I place a handgun in a room in which a group of relatives of varying moral charater are disputing over an inheritance, and someone kills the other in order to get the inheritance for himself, would it be utterly LUDICROUS to ignore the evil inherent in that act and rant on and on about the gun being responsible for the murder? I sure hope so.

The whole reason there exists moral hazard is because there are people with imperfect MORALS. It is perfectly correct, if painfully incomplete, to point out how greed contributed to the destruction of the economy. Greed is NOT a virtue, or an attribute of a virtuous person. Making money honestly is not greed.

Julien Couvreur March 28, 2011 at 4:19 pm

@tmb,
I don’t understand how you equate greed with dishonesty. Per Encarta, greed is “an overwhelming desire to have more of something such as money than is actually needed”.

Further, since “need” is a subjective concept, such a definition of greed either includes nobody or includes everybody. So I’m not sure that “greed” is a useful concept.

Contrast greed with fraud. Fraud has meaning and helps classify different categories of actions. Most people are honest and their actions do not qualify as fraudulent.

mr3 April 4, 2011 at 2:37 pm

What they found instead – though they apparently never realized this – was a bunch of interesting and smart people who had mastered the art of chasing prices and chasing paper up during the boom times and down again during the bust times. That’s what entrepreneurs do. If they aren’t going to do that, they could go into some other profession. This isn’t criminality. This riding the business-cycle wave. The problems they are looking for are deeply embedded in the system. They are structural, not personal. If criminals exist in this story, they are most likely to be found within the halls of government. But those people are rather inaccessible whereas the private traders are happy to go on camera.

This seems to hit at the core of your view–that Wall Street is innocent and the government and moreso the imposed system is guilty. I agree that there was an elephant in the room that was ignored, but there’s only one problem I see: Wall Street and the system are now one and the same, which I think was obvious to most of us before, although the true impact may not have been. I can understand a desire to hold government more accountable since they should be “better than this”. I can also understand seeing a lack of fixed resource standard as increasing the speed of the problem’s impact (or at least inherently tempting the problem). But I think blaming everything on the government misses half of the problem and blame, and I don’t personally think staying on a gold standard would have even prevented the problem.

We’ll most likely agree that not being on a fixed value standard like gold paves the way for any number of monetary perversions, but I don’t think that’s the core problem here. It’s this fusing of our legislative branch and commerce for the inevitable goal (among others) of distorting, displacing, and outright removing risk from certain concentrated sectors of commerce. Ironically, it’s just another form of misregulation, just like being off of a value standard. And being on a gold standard doesn’t prevent this in smaller scale, and it doesn’t even prevent the eventual build up to the same level of damage potential if left unchecked. I mean, do you see an end to the continued fusing of government and commerce? Who’s to say how far it will go? Sure, maybe being on a gold standard and removing the Fed would have slowed the impact and bought more time for us to react earlier, but I don’t see an end to this shaping of law to allow commerce to misrepresent/distort/displace/transfer risk. That’s an equally grave danger in my eyes. I don’t see an end to the damage here, regardless of how money is valued. While people above and aside from us claim the bailout dodged Armageddon, no one is being held accountable for tempting the “end of times”. More to the point–a capitalistic system free of monetary manipulation policy can still fail if the necessary presence of a government providing it either allows or provides a means to misrepresent, distort, or displace risk.

Still, the fusing of government and commerce isn’t even the real moral infraction as I see it, and we may be in agreement there. The moral infraction was in WS/DC then knowingly using that altered system to satisfy greed at the expense of others. Most of the culprits here knew the full impact of their actions. It’s not like they failed Econ 101, most of these people knew the impact of their actions. They knew that they were pushing another bubble too far, and they knew that as a result innocent people were and would continue to suffer while they prospered. And so their infraction of morality ranged from complicity to enjoying the result in its totality: knowingly gaming the system and actively ignoring the negative consequence. That’s the moral crusade that the film is on, and I can’t personally disagree with it, regardless of how much self-contradiction it may or may not have had.

Here’s something frightening though. Even if you assume that it’s possible to convey the entire problem to everyone, what power do we as American citizens have now to reverse this? Our vote? How does that power even begin to compare?

John James April 5, 2011 at 1:31 am

This seems to hit at the core of your view–that Wall Street is innocent and the government and moreso the imposed system is guilty.

I don’t believe it’s Tucker’s position at all that Wall Street is “innocent” in the terms of there being no blame to be had there. The point is it was government power and intervention that allowed and promoted the whole thing in the first place.

I can understand a desire to hold government more accountable since they should be “better than this”.

Again I think that is a severe distortion of the argument being made. No one has even suggested “the government should be ‘better than this’”. That’s part of the point: No one expects the government to be “better than this”…it is made up of human beings. And human beings are generally greedy and power-hungry. The point is not to expect government to “do the right thing” or that we should have “the right people” in charge…the point is government shouldn’t have this power in the first place.

I don’t personally think staying on a gold standard would have even prevented the problem.

We’ll most likely agree that not being on a fixed value standard like gold paves the way for any number of monetary perversions, but I don’t think that’s the core problem here. It’s this fusing of our legislative branch and commerce for the inevitable goal (among others) of distorting, displacing, and outright removing risk from certain concentrated sectors of commerce. Ironically, it’s just another form of misregulation, just like being off of a value standard. And being on a gold standard doesn’t prevent this in smaller scale, and it doesn’t even prevent the eventual build up to the same level of damage potential if left unchecked.

Yes, corporatism is a problem. But how damaging would it really be for business to be in bed with government if the government didn’t have that much power to begin with? What incentive would there be for a company to have politicians in their pocket if the government was restricted to only upholding the Constitution (as their oath states is their #1 charge)? Again, that is the point. It is not a “there’s too much corruption in government” problem…it’s a “there’s too much power to be had through government” problem. No one ever said “corruption empowers”…the saying is “power corrupts.” As long as government is given this much power, there will always be proportional corruption. You want less corruption? Give away less power.

Sure, maybe being on a gold standard and removing the Fed would have slowed the impact and bought more time for us to react earlier, but I don’t see an end to this shaping of law to allow commerce to misrepresent/distort/displace/transfer risk. That’s an equally grave danger in my eyes. I don’t see an end to the damage here, regardless of how money is valued.

This illustrates your lack of understanding of the core issue as well as the economic fundamentals. The very cause of the business cycle is market distortion through manipulation of money supply and credit. Yes, as I agreed, corporatism is a large and dangerous issue…but if the money was sound, we wouldn’t have these problems. We would still have issues, to be sure, but without money created out of thin air, there would be no catalyst for the booms that inevitably lead to the busts.

You claim no Fed and sound money would have “given us time to react sooner”…but what you don’t understand is that with no Fed and sound money there wouldn’t have been anything to have to react to in the first place.

mr3 April 5, 2011 at 3:32 am

It wasn’t my intent to distort what he said at all, but unless I’m missing something, I think that’s exactly what was said. He said what WS did isn’t criminality. He said it wasn’t personal on their part. Then he stated that the real problem is the government and the system. Those statements leave practically no room for blame on Wall Street. Maybe I misunderstood what he meant, but that appears to be what was said. As far as expecting government to be “better than this”, I wasn’t claiming that’s what he said, I was offering up possible sentiments behind that kind of stance that I could understand someone having. Sorry if there was confusion there, it wasn’t intended.

I won’t disagree that a too large/powerful system like ours operating on largely fabricated value and artificial controls is broken and can lead to damage this severe and worse, that’s obvious. I also won’t disagree that this problem has the potential to dwarf most others and is a large reason behind the magnitude of the damage we’re seeing. What I do disagree with (and what I disagreed with before) is a dismissal of what I see as another severe problem, along with the blame that goes with it: business allowed to effectively create law to govern itself and the exact form that this took leading up to our current state. Money can have sound backing ten ways from Sunday, but if companies are allowed to fuse with government and write their own rules to govern how they exchange it, then it seems that you can have the potential for the same levels of damage. Misrepresentation/distortion/deflection of risk is one result. It also allows companies to artificially defeat competition, among other things. In essence it completely breaks down the basic rules of capitalism. I think you assume I’m missing a basic understanding here. I don’t think I misunderstand the core issues and the economic fundamentals involved at all–I think I’m seeing legislative danger of equal magnitude on top of it.

You’re saying the problem is the government having too much power, and that if they were to stick to the Constitution then all of this would be prevented. Of course I agree, that’s a huge problem and the primary problem…but if you allow business to shape its own laws, then I see an ability to destroy the financial system largely without affecting the domain of power in the Constitution at all (although surely not its intent as most of us would see it). Maybe the problem is less severe, we are talking hypotheticals here. It’s just this notion of WS in bed with DC and no end in sight that has me seeing grave danger.

John James April 5, 2011 at 8:21 am

I’m not quite sure if any of that was meant as a refutation of anything I said.

Obviously we can try to argue about what someone else was meaning to say, but the overall point about Wall Street blame is that it’s a secondary case. If you want to point to specific instances of fraud or something like that, by all means. But to try to say that when someone loses and other people are forced to foot the bill, it’s his fault for gambling in the first place is misguided at best. The loser was acting in his best interest, given the circumstances. He was acting rationally.

When a guy can get paid more money from unemployment checks than he could from taking some job that is available…do you blame him for choosing to sit around instead of working 9hrs/day? I don’t. I’d probably do the same thing in that situation. And by the same token, if Ben Bernanke walks me into a casino and says “anything you win, you get to keep…if you lose, it’s on me,” you’d better believe I’m betting the farm.

Now you can debate the morality of the situation and claim “well, you should know better than that…that’s basically stealing. You shouldn’t do that.” And I suppose that’s a case that could be made. But the fact of the matter is all of the actions that led to the bubble and the corresponding bust were either created by, encouraged by, subsidized by, or forced by government intervention in one way or another.

When you present someone with a choice, of either “do this and get filthy rich, or don’t do this and lose your way of making a living”, I’m gonna go out on a limb and call that “an offer he can’t refuse” and label you the primary troublemaker.

What I do disagree with (and what I disagreed with before) is a dismissal of what I see as another severe problem, along with the blame that goes with it: business allowed to effectively create law to govern itself and the exact form that this took leading up to our current state.

Money can have sound backing ten ways from Sunday, but if companies are allowed to fuse with government and write their own rules to govern how they exchange it, then it seems that you can have the potential for the same levels of damage.

First of all, no one has dismissed corporatism as a serious issue. I did the exact opposite in my post. I have no idea what you’re talking about. Second, of course it depends on how you view “damage”, but there is an empirical mathematical case that can be made to refute your claim that a catastrophe of this magnitude (or the one that is coming) could have occurred in an environment free of a central bank and fiat currency.

You’re saying the problem is the government having too much power, and that if they were to stick to the Constitution then all of this would be prevented. Of course I agree, that’s a huge problem and the primary problem…but if you allow business to shape its own laws, then I see an ability to destroy the financial system largely without affecting the domain of power in the Constitution at all (although surely not its intent as most of us would see it).

Your premise is a false one. If the Constitution were abided by, “business” would not be able to “shape its own laws”. The only laws that give one business an unfair advantage over another are unconstitutional…and I seriously don’t see some “business” or industry ever being able to get any sort of amendment passed that the vast majority of the country wasn’t also in favor of.

And I’ll reiterate, if the role of government was strictly kept to protecting individual liberty and private property, there would be virtually no way exploit it. It is only through the movement of government into the role of social philosopher, paternal nanny, benevolent caregiver, bringer-of-egalitarianism, and messenger of fairness, that liberties are able to be infringed and certain people are able to benefit at the expense of others.

Again, if it is corruption of government power that worries you, reduce government power. Because you’re never going to prevent corruption.

mr3 April 5, 2011 at 11:50 am

I think we’re going to violently agree here again–I wasn’t trying to imply anything about assigning a relative greater or lesser blame to a broken system versus people taking advantage of it. I agree about human nature, and it’s the reason I’m adverse to sizable government to begin with. And I think we feel the same way about at least a significant partial remedy to what’s going on–keep the power out of government’s hands to begin with. I didn’t think you were outright dismissing any danger of business having the power to influence law and regulation to enable them to do what they’re doing, either–I realized as soon as you said it the first time that you recognize this, and I assumed the author felt the same way. I’m simply saying that I see it as a danger that can cause significant damage regardless of monetary policy. And the reason I’m saying this is to help convey what I see as a need to fully appreciate the potential danger. I believe law and regulation can be and has been manipulated to the point of rendering basic feedback mechanisms inherent in capitalism ineffectual. Multiple results of this were found in the specific form that the most recent burst manifested itself in. Can the *potential impact* of that versus our ill-advised monetary policy be mathematically or similarly proven to be significantly less? It *seems* to have had significantly less of an impact on the magnitude of what’s actually happened and happening now (and what we think will happen), but I don’t see how the relative potential for danger of the two problems can be compared. Don’t get me wrong–I don’t rate the two problems as equal in potential for damage, but I do think we see them differently…it seems as though I see more potential for danger there than you see and possibly the author sees, even as I come to understand how you feel about it.

I don’t think you brought up the Constitution to argue about what it covers and doesn’t–what I thought you were saying was that overhauling our monetary policy to align with powers enacted by the Constitution would prevent any significant impact of law compromised in part by business influence. I think your assertion that “business” couldn’t “shape its own laws” if the Constitution were abided to is missing something critical though. There’s nothing explicit enough in the Constitution to prevent it that I’m aware of…otherwise we’d have a great angle to combat all of this perverse law and broken monetary policy. If you know of anything explicit that I’m not seeing, by all means point it out to me. I’m definitely not an expert on the Constitution and I could stand to learn a lot there I bet. I’m not sure arguing interpretations of its *spirit and intent* would be a good idea, because I get the feeling we would violently agree on 90+% of it and what that would mean for the problems we’re seeing. Plus I think our time would be better spent arguing it with people that actually misinterpet it.

John James April 5, 2011 at 1:31 pm

“What I do disagree with (and what I disagreed with before) is a dismissal of what I see as another severe problem…”

That is what you said. And I said no one has dismissed it. And you admittedly don’t think I’m dismissing anything…so who exactly are you disagreeing with?

I believe law and regulation can be and has been manipulated to the point of rendering basic feedback mechanisms inherent in capitalism ineffectual. Multiple results of this were found in the specific form that the most recent burst manifested itself in.

And what is the most obvious and most damaging (by far) example of this? Fiat currency and the Federal Reserve System. It still seems that you are lacking a proficient enough understanding of the business cycle. I recommend looking into some of these resources.

And perhaps you could share some specific examples of the “multiple results” you’re talking about.

what I thought you were saying was that overhauling our monetary policy to align with powers enacted by the Constitution would prevent any significant impact of law compromised in part by business influence.

You keep using that term. “Monetary policy” implies a central authority wielding control over money supply and influencing interest rates. If the Constitution were abided by, no such authority would exist…and the boom/bust cycle as we know it would cease to exist…therefore (as I said) there would not have been anything for anyone to “react” to.

It appears you are under the impression that this most recent bust would still have occurred even in the absence of a central bank and fiat currency. It is there you are mistaken.

I think your assertion that “business” couldn’t “shape its own laws” if the Constitution were abided to is missing something critical though. There’s nothing explicit enough in the Constitution to prevent it that I’m aware of…otherwise we’d have a great angle to combat all of this perverse law and broken monetary policy.

It sounds like you don’t believe the Federal Reserve is unconstitutional.

Perhaps if you gave an explanation/example of what you mean by “allow business to shape its own laws” I could better explain. The Constitution is quite clear on outlining exactly what the federal government can do. (Hence the term “enumerated powers”.) It more or less restrains the federal government to protecting the citizens from foreign and domestic enemies, and handling disputes (i.e. a court system). Outside of a Constitutional amendment, virtually any law that would favor one business over another, or intervene in the market in any way would be unconstitutional.

And as I said, I seriously don’t see any feasible way some business or industry could get a self-favoring Constitutional amendment passed. (I guarantee it would have happened if they could.)

For more information on the U.S. Constitution I highly recommend this list.

mr3 April 5, 2011 at 10:05 pm

Are you honestly asking me who I’m disagreeing with? All you seem to have done during this entire exchange is misinterpret the essence of a single, very easy to understand initial observation/suspicion I made, and along the way you’ve introduced entirely new arguments to argue with me about. You seem to exhibit a pattern that when someone happens to think about things a little differently than you do that 1) you assume they know very little about what they’re talking about, 2) you use that assumption as fuel to argue ad nauseam, 3) you argue until you find perceived holes in someone’s logic that you can jump to prematurely argue over before you understand what’s being said, and 4) as a bonus you like to throw in slights and jabs along the way. The only thing more ironic than what you’re saying now is the fact that the irony appears to escape you.

The dismissal I was talking about was the dismissal of the degree of potential for damage that I personally see in the ability of companies to affect changes to the rules that govern how they do business. You have repeatedly dismissed the magnitude of potential for damage that I see here. I understand why you feel this way–you’ve explained why through various means, although I still can’t see anything in what you’re telling me that properly accounts for it, regardless of the great citings you mentioned (much of which I’ve already seen and have great respect for). I acknowledge that you do see a non-zero amount of danger in it and that you do not dismiss its existence. And you either know this or you’ve forgotten somewhere along your chain of additional but only loosely-related arguments. Yet you continue to discount the potential danger, which by itself would be fine with me if all we were talking about is different levels of danger attributed between us to the issue…except on top of it you distort the additional arguments you make to a point where you think you can claim I said something that I didn’t and then claim I’m contradicting myself and that I don’t know who I’m even arguing with. Your subtlety here is a little obvious, and it doesn’t flatter you.

Just one example of law and regulation manipulated to the point of rendering basic feedback mechanisms inherent in capitalism ineffectual is the means by which small groups of large banks shape regulation to make the ability for other banks to participate on equal footing with them in certain sectors of financial business practically impossible. They’ve created a cartel of banks in these sectors and effectively stifled new competition. That’s just one example, it’s an obvious one, and it has practically nothing to do with the monetary policy implemented by the Fed. Companies also have a means to misrepresent risk through tying together securities of wildly different levels of stability/risk, then increasing the degrees of correlation through subsequent transactions to the point of effectively tying together equity and debt securities of *vastly different advertised risk levels*, along w/the issuance of credit ratings to the various composite results along the way. Not only did the degree to which this occurred *misrepresent* risk, it also *displaced* undisclosed risk onto other parties, and in ways they couldn’t possibly be expected to be privvy to…to the point of sheer fraud. I have no personal issue with the basic notion of building composites of investment, as long as their true nature is properly disclosed to people and the risk is not allowed to leak into pre-existing investments in as direct a way as was allowed. Ironically the film focused on many (not all) of those issues, and the resultant distortions of risk and competition are at the core of the problem that the film narrowly pointed at. While the Fed and its monetary policy is as I said the elephant in the room when you look at the entire problem space, these problems also have an impact, and it’s *definitely* not small. Is the impact magnified immensely by artificial booms and busts caused by monetary policy, among other larger-scale damage monetary policy is causing? That’s obvious. Is the presence of booms and busts required for severe damage potential to still be there due to manipulation of legislation and regulation? I don’t think *that’s* obvious (especially when looking at longer time tables), and I think that’s where we disagree (although I think we do agree that the magnitude of the current bust was more attributable to monetary policy, as I said before). Tell someone who lost their shirt near retirement that the undisclosed distortion of initial risk in their investments played little part in their losses compared to the Fed’s monetary policy and I think that particular someone would tend to disagree with you. Tell even a roughly pure capitalist what manipulations of business regulations and legislation are occuring right now in our financial system and I think they would tell you that large sectors of the system are not exhibiting basic aspects of capitalism. I see basic mechanisms of capitalism being circumvented here, and I see no end to it, and this tells me that the potential for damage is very large. By the way, that suspicion on my part has zero to do with the Constitution: of course there exist possible grounds to eliminate rules that circumvent capitalism, but that doesn’t detract from the potential for danger when they are actually allowed to exist.

I do believe I understand the impact of current monetary policy, at least to a degree to be able to properly put it in context (despite your assumptions). I understand the impact of artificial adjustments of interest rates. I understand the result when it “works” in terms of the actual impact on large scale assumption of risk, artificial promotion of long-term production, and other adverse factors leading to artificially high and then resultant low swings in economic activity in insanely large levels of magnitude. And believe me, I understand the impact of effectively fabricating money with no value backing. I also recognize the fact that the Fed’s policy is in effect slowing the system’s reaction to its artificial stimuli to the point where common people have not only absorbed an initial amount of damage through losses at the start of the current bust but are also continuing to absorb in an ongoing basis a non-trivial amount of the damage through lower wages, longer hours, and other factors that are making value generation cheaper during this downturn (not to mention the damage due to misspent tax revenue and other damage we continue to sustain on the average individual level). I can have an intimate knowledge of these things and still see grave danger in other places that you just happen to discount in terms of damage potential to the point of hilarity. I think you’re limiting your thinking to the most obvious source of problems most often talked about (in circles outside the one this film obviously came from) and assuming that all other problems are under subsurvient control and are insignificant. If anyone is showing signs that they don’t understand the relation of the business cycle to monetary policy, legislation, regulation, and their impacts on our economy it’s you–all I’m hearing from you is in essence parroted sentiment. I still hear no evidence of deep insight that tells me you’re willing to even envision what I’m saying, only repeated observations I’ve already researched or heard before.

Once again I agree that if you follow a perfectly strict interpretation of the Constitution, then none of these things occur, but that’s the key–it would have to be a strict interpretation applied to vastly more of the rules governing business than it is currently applied to. The sheer amount of financial regulation out there is a great example of this. Do I think this lack of active application is wrong? Of course–I think we should have minimal, effective, and *not adversely effective* regulation as much in line with the spirit of the foundation of this country as possible. But the huge lack of current application like this is the reality that I see. Even with new full-blown legislation (not necessarily financial legislation) placed directly in the public eye by Congress itself, we routinely see flagrant misinterpretations of the Constitution actually cited as backing for their passage. Let me be explicit here. I think a strict interpretation of the Constitution obviously precludes an existence of something like a Federal Reserve System. It’s obvious, and we’ve been in agreement there. The Fed is an immensely powerful entity exerting its will over our economy, and it enjoys its own separation of power to the point that it’s arguably the most severe violation of the original spirit of the Constitution ever devised, at least as seen by most rational minds that are actually aware of the totality of its power. The problem is, I don’t think the founding fathers were able to properly account for the presence of commerce and an economy of a magnitude that we see today, and definitely not in such a way as to account for it in what I see as an *effective* way. Of course I don’t slight them–I don’t have a clue how they could have better guaranteed a remedy aside from using now-current knowledge to provide a more explicit mechanism to strictly enforce it across vast areas of the rules governing business that it currently isn’t enforced on. Enumeration of powers is obviously not enough in today’s America, although of course I recognize that it may have been the best they could do at the time. And while a rational interpretation of the Constitution suggests that many of these current powers shouldn’t exist, it also says nothing about any presence of regulation *at all* beyond basic provisions to guarantee federal power to enforce things like the free flow of trade between states. If we truly believe in what we say we do–that if allowed to, people will act in their own best interest–then we have to account for the necessary need of *some* form of regulation. The key there though is in not only accounting for the need, but also accounting for the high probability of adverse impact. And again, the power to do this isn’t exactly guaranteed by a strict interpretation of the Constitution. I’m not trying to put words in your mouth here, I’m just trying to convey the challenge inherent in the huge gap that strict application faces as I see it. You brought up the Constitution, so this is my current take on it in relation to what we were talking about.

John James April 6, 2011 at 3:36 am

Statement 1:

What I do disagree with (and what I disagreed with before) is a dismissal of what I see as another severe problem, along with the blame that goes with it: business allowed to effectively create law to govern itself and the exact form that this took leading up to our current state.

Statement 2:

[...] I didn’t think you were outright dismissing any danger of business having the power to influence law and regulation to enable them to do what they’re doing…

Statement 3:

[...] The dismissal I was talking about was the dismissal of the degree of potential for damage that I personally see in the ability of companies to affect changes to the rules that govern how they do business. You have repeatedly dismissed the magnitude of potential for damage that I see here.

So I dismissed the danger of the problem, I didn’t dismiss any danger of the problem, and now I did dismiss the “magnitude of potential for damage” [some people call that "danger"] of the problem. Do you really wonder why I’m confused by what you’re arguing?

How could something be a “problem” if there was a “non-zero amount of danger” or “potential for damage” associated with it? And I’m misrepresenting what you’ve said?

Everything I’ve stated has been a direct response to exactly what you’ve said. I even quoted you and directly responded to each piece. I have not introduced new arguments. The points I’ve made have been consistent throughout:

You stated that you felt there was no blame put on Wall Street. I disagreed. Perhaps you don’t feel there was enough blame, but I disagree that WS was held completely innocent.

You stated you disagree with the “dismissal of business being allowed to effectively create law to govern itself [as a problem]“, and I responded that corporatism is a serious problem and no one has dismissed it. Then you stated that you didn’t think I was outright dismissing any danger of that. So I asked who exactly you were disagreeing with in the first place, and now you come back telling me you disagree with me, not because I dismiss corporatism as a problem, but because I (apparently) dismiss it as a problem that can cause any damage…which, again, I have not done. *shrug*

You also stated fiat currency is not the core of the problem, and that “maybe being on a gold standard and removing the Fed would have slowed the impact and bought more time for us to react earlier” but that it wouldn’t have actually prevented anything that happened, and you actually used the phrase “regardless of how money is valued.” This is what led me to believe you had no understanding of the business cycle. “How money is valued” has nothing to do with it. I’m not even quite sure what that is supposed to mean. But to claim that the removal of fiat currency and the Federal Reserve System (and thereby all it’s powers of regulation and distortion) would have only “slowed the impact and bought more time” I think would make anyone familiar with Austrian theory question how well you really understand the situation.

Then, in an interesting turn, when I asked you to provide an example of the “multiple results of law and regulation being manipulated to the point of rendering basic feedback mechanisms inherent in capitalism ineffectual,” your primary example essentially was the Federal Reserve System. So first you’re arguing that even if it didn’t exist, the only difference would have been we would have had more time to react to the bust…and in your very next post you’re calling it a primary and obvious example of the very thing you’re arguing is most dangerous and that you’re most afraid of.

So it would appear you agree that the Federal Reserve and all it’s powers are the primary cause of the problem, whether you realize you do or not. And that has been my point from the very beginning…that if the government were actually held to its limited role and legitimate expressed powers, we wouldn’t have these issues of corporatism (or these problems that stem from it). There would be no way to “distort, displace, and outright remove risk from certain concentrated sectors of commerce,” as you put it. That’s what I said in my very first post:

“It is not a ‘there’s too much corruption in government’ problem…it’s a ‘there’s too much power to be had through government’ problem. No one ever said ‘corruption empowers’…the saying is ‘power corrupts.’ As long as government is given this much power, there will always be proportional corruption. You want less corruption? Give away less power.”

Your response to this was that you agree not only that that is a huge problem, but the primary problem…but that you believed it was possible for “business to shape its own laws”, and for the corporatism to still occur without violating the Constitution. You even asked me if there was anything explicit in the Constitution that prevented business from writing such laws. And it was for this reason that I turned you to the resources on the nature of the document…because like so many others, you make the mistake of assuming if there’s nothing in the Constitution that prevents it, it is okay for the federal government to do it…when in fact the truth is it is the exact opposite. If it doesn’t say the government can do it, then it can’t.

And that is why business (or anyone else) could not write favorable laws that would exploit others and distort the market…because outside of a Constitutional amendment, any law that would be proposed that would do such a thing would be unconstitutional. And any law that is unconstitutional is no law at all.

Enumeration of powers is obviously not enough in today’s America, although of course I recognize that it may have been the best they could do at the time.

I know you’re not trying to slight the Fathers, but the way that is worded kind of does. You make it sound as though there were some more effective way of limiting government power than expressly listing exactly the few things it was allowed to do, and explicitly saying anything not listed is left up to the states or to the people. I don’t care what time period you’re from, I don’t know any more direct, efficient or easily understood way. The problem is not with the document (which of course is not perfect, but I would argue pretty darn close)…the problem rests in the minds of the people, and what they have been convinced the role of government should be.

No matter what forms the basis of your government, whether it’s a constitution outlining specific and limited powers, or the whims of a tyrant who charmed enough people who had guns, it is the will of the people that dictates the nature of their governance. As the Declaration says: “Governments are instituted among Men, deriving their just powers from the consent of the governed.”

If the people don’t want to enforce the Constitution, they won’t…regardless of how explicit it is.

TokyoTom June 18, 2011 at 9:26 am

Jeffrey:

The biggest problem was that the narrative never asked where all these paper profits were coming from. The monetary angle eluded them completely.

This film is a gigantic missed opportunity. They started to tell a good story and instead ended up chasing around ideological conventions and coming up empty handed. This film is a gigantic missed opportunity. They started to tell a good story and instead ended up chasing around ideological conventions and coming up empty handed.

Well said. Now where is it again where you used this review to explain how government, by introducing deposit insurance to ‘protect’ depositors, created a house of cards of ‘prudential’ bank regulations that generated massive moral hazard in banks and in the investment banks and rating agencies that made hay off the business of finding way6s to help bank traders ad executives to pump up short-term returns while minimizing capital requirements?

Shall we help the Left understand, or just be disappointed with their lack of understanding?

And shall we understand that we should refrain from making any moral judgments about the behavior of those ‘entrpreneurial’ corporate statists who profitted by finding ways to shift risks to taxpayers and shareholders?

I’m scratching my head here.

Regards,

Tom

NY Cowboy October 20, 2011 at 12:12 pm

John james & Concerned…very interesting discussion.

Just curious if you would both be willing to provide your professional credentials?

Brad G October 27, 2011 at 3:47 pm

I thought it was interesting too…but I’m curious…why is that relevant?

NY Cowboy November 10, 2011 at 2:57 pm

I believe that a persons professional (I should have said educational as well) background tells you a lot about where the root of their argument originates from.

Not to credit or discredit a point of view, but to understand it better.

Jobs NSW October 22, 2011 at 9:16 am

Great review. Somehow it helps.

Dhawal December 8, 2011 at 2:28 pm

I agree to many of the arguments made in the movie.There were severe conflicts of interest between the these financial institutions and their customers.Not disclosing them to clients,reporting money paid to prostitutes as operating expenses,paying your analysts to come up with positive reports are all heinous activities and should be punished.This review is rife with financial inaccuracies.The author says and i quote,” There really is not contradiction in seeing certain investment vehicles are pure trash even as you sincerely see them as good investments.” it’s almost hilarious.It is one thing to hedge your investment against risk and selling them short just before you know the company is going to file for bankruptcy.This is essentially using nonpublic material information to your advantage such insider trading is punishable by law.There were many other points like credit rating agencies making huge profits and not coming up with the ratings which presented a fair and accurate position of a company.And as a student of finance i know there’s no way they could have just missed these inaccuracies in the financial statements of these institutions.Though I’m still not pro regulation.If the financial industry really wants to gain the trust of investors back there’s only one way self-regulation.

El Tonno August 16, 2011 at 1:29 am

Who is in charge of linkspam here?

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