The concept of accountability for one’s own behavior relies on the assumption that the person being held accountable had all the necessary information to make good choices. As everybody but hardcore libertarians seems to realize, that assumption is simply not valid for individual consumers in most unregulated economic transactions.
I thought k9bfriender was referring to a 0.5% reduction in the total growth over that period, not 0.5% per year.
Again it’s really not anywhere near that simple, not remotely. This, obviously, is a big problem with discussing this issue. And it doesn’t even touch on the trade off caused by regulation raising barriers to competition and thus favoring exist larger players, in any industry. Does this mean there should be no regulation? No, but it does mean an analogy to a child’s diet is quite useless.
And this is really off the rails in a discussion of regulation. Regulators make actual rules targeting actual metrics. A real discussion of bank regulation might for example start with basic metrics like capital ratio (the capital ratio’s of big US banks are now more than double those of Canadian banks, which were mentioned, on average and Canadian housing is seriously overvalued by many estimates…don’t know about that comparison*). But do bank capital ratio’s need to be higher? And it’s an international issue not of one country. But there’s definitely a growth trade off there. Anywayit’s a concrete discussion. Then even in the further details regulators adopt basic approaches like rules based (typical in the US, regulator and regulated bank argue whether that’s what the regulation says), or principals (the regulator has more latitude to say ‘that is what the regulation means, I say so’). And myriad other things shaping this practical relationship.
But a team of auditors showing up at a bank with the aim of making it unpleasant to work there so the bright people go somewhere else? That’s so far from the real world AFAIK it’s hard to even conceive of. That’s not even regulation, that’s some kind of industrial policy. And you don’t have to be anywhere remotely near a doctrinaire libertarian to think that’s a stupid idea, IMO. It’s one thing to make a social observation/commentary on stuff like ‘too many smart people work at banks’ (that is, when not calling the same people stupid for the 2008 crisis, though that ignores plenty of things beyond banks that contributed to it). It’s quite another to imagine you could implement some ‘remedy’ at a net gain to society. Anyway that’s way past a reasonable definition of regulation.
k9 can explain what was being referred to specifically, but in general if you enact regulation you’re going to have some cost basically forever, so what it costs per year is the appropriate estimate, and the appropriate consideration might be what it adds up to over many decades, not 5 yrs.
A simple example of that is a lot of rigmarole securities underwriters go through (not Glass Steagall itself, lots of other stuff) in the US based on rules written after the 1920’s perceived abuses perceived contribution to the Great Depression. Over that long a period a lot of such stuff must become obsolete, but it’s been done over and over again for 80 years with no real critical analysis of what it’s accomplishing. There’s no particular reason to consider just what it costs over 5 yrs.
Realistically we are not on the edge of another banking crisis caused by overvalued housing in the US and its effect on US banks. US bank capital ratio’s are significantly higher than they were, houses in the US (not necessarily elsewhere) are much less overvalued by historical measures than they were. Implying some regulatory legislation is going to immediately unleash a replay of 2008 is just political talking points, the usual question of whether the speaker is that ill informed or just thinks his or her audience is.
OTOH there almost surely will be a big banking/financial crisis sooner or later, starting somewhere on the globe in some set of asset classes or circumstances. And US (among countries’) banks and other financial institutions will be tested by it. What’s the optimal way to guard against that, knowing it absolutely does cost economic growth to do so? It’s a serious question, but grossly oversimplified politicized discussion doesn’t accomplish anything to finding that answer.
Huh, musta done my math wrong then, because I came up with a higher than 2.5% market correction in 2008.
Huh, so does forbes, they are saying it was a 20% drop.
Should probably let them know they got their math wrong, too.
Maybe you are talking about unemployment? No, most charts show that went up by more than 5%
GDP? No, that dropped by over 8%
What exactly are you talking about with the 2.5% loss?
I assume you are not talking about post-recovery, as we are above the levels in all those categories since the crash (Obama!!!), so I really have no idea where you pulled that number out of. I am not entirely discounting it, mind you, just saying that it needs to be put into a little bit of context before it can mean anything at all.
I mean GDP. The growth rates I have found for the great recession are from the World Bank and they say the economy shrank 2.8% in 2009. Where did you get the 8% number?
I remember hearing a debate between a conservative economist and a more liberal one about the causes of the housing crisis, surprise surprise the causal mechanism was entirely different and they just HAPPENED to line up with each ones built in ideology. I left unsatisfied with the disagreement.
The liberal point of view was that the issues were a result of deregulation and derivatives where no one knew what was owned or the true worth. The conservative guy ignored all that and focused all his attention on the REAL culprit, GOVERNMENT housing policy that rewarded and compelled banks to lend to people that could not afford loans. An interesting note, the agency of the banks themselves was almost completely ignored in this narrative, they were mere victims of government run wild with its interference, the only agents in the universe that ever seem to warrant blame are governmental for too many conservatives, but I digress.
I assume it was some mix of both, but I suspect it was more caused by deregulation and derivatives run wild. Banks that did not deal with derivatives did better did they not?
Wow. I went away for a few days and the thread continued. Interesting.
I would never dispute information failure. I would dispute, however, that there is some mechanism that solves it, or solves a problem called “market failure”.
Information asymmetry is endemic and is present and is in every transaction you consummate, whether you realize or not. You are deluding yourself if you (1) believe it is not there, and (2) you believe a 3rd party actor can somehow “solve” the problem of information asymmetry.
The only person who can solve the problem of information asymmetry is you. Buy choosing to participate, or not participate, in a market transaction if the requisite information is not to your needs. That way, you are always in 100% control.
I would posit there is no such thing as “market failure”. All a market is, is a collection of voluntary decisions between consenting parties. If you have consented to participate in a transaction, there is nothing more to discuss. If you don’t have the information you need and you decide to not participate, you have controlled your own destiny in a similar manner. You control the market. Because you control your own decision to participate or not participate.
There is information asymmetry always present in
Deciding to order a taco from a taco stand
Asking a girl to go out on a date
Picking the movie in Studio A vs B at the local Cineplex
Buying a used car
…ad infinitum. By believing that somehow a Mexican food inspection authority, in whom
you have no idea how many resources are allocated
whether those resources are competent
whether those resources can be compromised, e.g. by a bribe
if those resources are accountable for performance in any way
will somehow resolve the “asymmetry” and protect you is a fantastic act of faith. There is no way any rational person can argue that is somehow the solution to information asymmetry relative to commonly used measures like
a friend’s recommendation
a trusted brand
a visual inspection of the facilities, which look like they have stood there for some time and look prosperous
a line of waiting customers, who seem to share a socio-economic status with the potential buyer
…etc
is superior is disingenious. And what’s more, the people arguing against me use those common measures every single day and don’t even realize it.
But yet, they argue that government regulation is somehow saving them.
That is why I refer to it as a religion, and their God of Government.
And the main reason one would come to such a conclusion is they worship on the altar of libertarianism and its many many dogmas. At the very least, it required a determined ignorance of comparisons of life before regulation and after regulation. Hint: the former has lots and lots of typhoid.
Which economists say the partial repeal of Glass Steagall caused the crisis. The only reason it’s even known is because leftists have literally no other tangentially relevant deregulation to point to.
You are deluding yourself if you think you are ever in 100% control.
There are (at least) two problems you seem to be overlooking. One is your ability to acquire and evaluate the requisite information, and the other is the entire concept of choosing to participate in the market.
For example, what happens if you obtain what you believe is the requisite information, but it turns out you really don’t have everything you need, or what you do have is tainted in ways you don’t detect, or you lack the ability to interpret what you are reading? Are you in 100% control of the other party’s efforts to defraud you?
What happens when you need to participate in the market but NOBODY is willing to provide you the requisite information? It’s all well and good to say, “well, I just won’t participate,” but if not participating means you or your kids don’t eat, or don’t have a place to live, or can’t obtain medical care, are you still “in 100% control”? I don’t think so.
Or posit a situation where you have been in an accident and require urgent medical assistance, but are currently unconscious. What level of choice and control do you have? (And would you rather be taken to a hospital where the doctors have satisfied a regulatory agency that they have graduated from a real medical school and have displayed at least minimal competence, or a “hospital” where some guy who never graduated high school and can’t tell a scapula from a scalpel is going to be trying to fix you up?)
Your friends may not actually have any experience in the good or service you require, or their experience may be dangerously outdated. You have even less knowledge of the trustworthiness or competence of those other alleged waiting customers than you do in the health inspectors–you don’t even know whether they ARE in fact customers, or other employees who are part of the show being put on for your benefit. Without a regulatory apparatus, you have no reason to trust that the brand displayed on the wall bears any relation to the merchandise for sale, because without consequences I can put any name I want on anything I have. If you don’t know the establishment, you don’t know whether they’ve stood there for some time or moved into the place last week, co-opting the “prosperous” appearance of some other business. Even if some owner is willing for you to wander around in their back room, you have no idea where they obtained the food, and you sure can’t trace every ingredient back to the farm every time you need a meal. Moreover, on visual inspection you can’t tell whether the lettuce has salmonella, the beef comes from a cow that died of BSE, and the knife being used to dice the tomatoes was used last night to cut up raw chicken and never cleaned afterwards. You DON’T have the requisite information, even though you’ve deluded yourself into thinking you do.
Got something specific in mind? I was picturing regulations concerning water cleanliness and sewage treatment in urban centers, food cleanliness in stores and restaurants, etc. but I’m open to the idea that, for example, typhoid is less common now because of human evolution, though it would need some fairly remarkable evidence in support.
I must have composed my post badly since many seemed to think I was for lifting regulations because really bad things wouldn’t happen. My point was that I didn’t understand the inevitable race to the bottom. Unless your prices are outrageous for a given quality/level of service I don’t see why one restaurant “lowering their standards” forces all others to do so. I like fast food, I always ate at a certain one. Along comes another who charges less, even significantly less. I try it. The food is not as good. I do not stop going to the more expensive place. Claiming the more expensive place cannot compete is bullshit. Are restaurant owners truly in a dick measuring competition? If you make a reasonable profit and it can be maintained or even vacillates without too much variance, why should you give a shit that another restaurant serving crappier food gains some customers. That will NOT close your business down.
The analogy with children’s diet was not intended to be any exact fit. It was just an easy way to provide a gross assessment.
Wall St.'s need for regulation is not akin to a child who has a slightly wrong mix of vitamins and proteins. Wall Street is akin to the child who, without supervision, will gorge itself on nothing but raw sugar!
And present-day Wall Street banks are the on the verge of the problem that bright people are eager to leave and work elsewhere? ? :smack: Your understanding of the environment in these big banks is so divorced from reality, it’s no wonder you didn’t get the child’s diet analogy.
The concept of market failure is as central and unquestioned in economics as, say, the existence of molecules is important to chemisty. If you don’t believe there is such a thing you need to go back to your textbooks. “Market failure” is a defined term of art that has real life examples. It is not a matter of debate.
Going to try to generalize here, rather than hijacking over food service again.
You always have the race to the bottom. That is economics. In your restaurant example, what if the two taste exactly the same to the average customer, but one is cheaper. Do you now think that that one will get more of the business?
Or in the case that they taste exactly the same to the average palate, but one is using cheaper labor/ingredients, that means that that one profits more than the one that is using quality. This means that they can grow and expand, and serve more customers, while the first one, not participating in the race to the bottom, loses market share.
In either situation, they are faced with two choices, cut costs, or close the doors.
You may be thinking that we think that this is some overnight phenomenon, that the day after regulation are cut that people will go out and immediately lower their standards. This may be the case in some situations, especially the banking one, where this is much less inertia, and fiscal matters can be quickly adapted to any regulatory scheme, but mostly it is a slow progression of penny pinching and tolerance of lowering standards.
So, if regulations on banking are loosened, and one bank starts taking advantage of a new opportunity for revenue generation, do you have any reason at all to believe that every other bank will not jump in on making money? If it seems that the revenue stream is unsustainable, then that is all the more reason for the banks to move on it sooner, and more aggressively, so they get the profit before it crashes. If it seems taht crashing that
