Tuesday, April 15, 2008


Quote of Note: Allen Sinai

"What Milton Friedman said was that government should not interfere. It didn’t work. We now are looking at one of the greatest real estate busts of all time. The free market is not geared to take care of the casualties, because there’s no profit motive. There’s no market incentive to deal with the unemployed or those who have lost their homes."

Allen Sinai, quoted in the New York Times, A Fresh Look at the Apostle of Free Markets, 14 April 2008.

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Fed lowers interest rates, people buy houses who shouldn't, fed raises interest rates, people can't afford their houses.

And someone who wishes not to be considered an idiot blames this on free markets?

"There's no market incentive to deal with the unemployed"?? That's unutterably stupid. That's like saying "There's no market incentive to buy things which are cheaper and more plentiful". OF COURSE THERE IS -- they're CHEAPER and MORE PLENTIFUL. Sheesh. This is a person who doesn't even begin to understand economics.
Allen Sinai doesn't even begin to understand economics, and Russell does? ROTFL.

What Russell sees, "Deal with the unemloyed." does he think that means paying them according to Indian or Chinese standards . . . How do you think that'd go down with the American work force, Russell?
Stupid is as stupid does, David. I don't care how many degrees you've got in economics, or who employs you in a job position that contains the word "economist". If you think there's no market incentive to hire the unemployed, then you've either mis-spoken (always a possibility) or you're mis-taken. When the number of unemployed increase, their price goes down -- and that's the very DEFINITION of a market incentive.

Laugh if you want, but Allen Sinai deserves our scorn, not our laughter.

David, if somebody said that there are no stupid networks because a router has to be smart, what would YOU think of that person? *I* would think that the person is either dumb (and doesn't understand the difference between a stupid and a smart network) or has an agenda (and wants to confuse people into accepting a smart network).

When you see poor economics such as I have pointed out, expect the same thing: dumb or sly.
If we adhered to free market principles, then the Real Estate boom and it's inevitable bust never would have happened in the first place.
One reason that the free market didn't do a particularly good job in the credit markets recently is that too many people had financial incentives to obscure what they were selling.

Free markets work best when you know what you are buying or selling. Go back to Adam Smith and ask yourself "Why do free markets increase our wealth?" The answer is that if transactions are voluntary both sides are happy and both sides gain from the deal.

If person A buys something from B, and if they are both happy with the transaction, then it has added value on both sides. A preferred the thing to the money, and B preferred the money to the thing. Both sides win.

That works pretty well when A and B can really see and understand the deal. But, if the deal is hidden/obscured/misrepresented, who's to say that A and B won't regret it?
Suppose A buys the thing and it's not what he expected. He's not happy. You don't get a win-win situation anymore.

Adam Smith was thinking about buying and selling fairly obvious, material objects. Houses, shovels, carts, land. He wasn't (probably) imagining complicated transactions where one cannot easily perceive the thing that's being bought and sold.

So, if some company has an incentive to mis-rate bonds, or if some executive has an incentive to do long-term damage to his company to improve his short-term bonus, there will be trouble.

Now, the market will fix the situation eventually. People will learn not to buy securities that aren't transparent and understandable. However, the process of learning might well be somewhat painful.
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