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September 25, 2008


Just because this seems to be the core point upon which we disagree:

In, short, given enough time, markets will sort this out, at far less expense to us all.

I know precious little about economics and still less about South American economics, but I do know this: The history of South America is nothing but big booms (during which South American countries grow more rapidly than any mature economy) followed by profound busts -- depressions, basically.

(At least until the modern era, anyway. Based on past performance, I'm skeptical that South America is finally on some sort of healthy economic trajectory, but I suppose there's always the hope that this time the boom and bust cycle is over.)

Is it really true that the "markets sort out depressions and panics" more efficiently than would be had by Big Footing Government Intervention?

Is it really true that it's rational (and healthy) to have six or eight years of 10% growth followed by four or six years of severe economic contraction of 10% and unemployment reaching, who knows (I don't), 30%?

I don't believe that. I believe the boom-times are irrational and "artificial," in the sense that they're not based on any reasonable estimation of future economic growth, and the massive busts are even more irrational and artificial.

They are "natural," however, in the sense that that's how people behave, and will keep on behaving, forever, until the end of time.

And even if that's "natural" (which I concede it is), I cannot concede it's healthy or desirable. Nor can I concede this represents the best, most efficient growth trajectory possible. I do not believe that South American economies are healthier for the fact they essentially start out again from zero, almost as if they're rebuilding after a Road Warrior scale apocalypse, every fifteen years.

Anyway, on to my hypothetical: If an intervention were proposed in 1929 which would have had a (let us say) 50% chance of stabilizing the markets and ending the panic, and turning a grueling depression into a three year recession, would the US government have been justified in doing so?

I realize that many do not want to concede the premises of the hypothetical and will say that interventions can't work. I would direct their attention to the Mexican bailout, where a big foot investor (the US government) did in fact arrest the panic and get the markets functioning again. So even if you resist the notion this works, well, you have to at least concede it has worked on occasion, and in the near past.

Is it our Constitutional right to suffer the miseries caused by utterly irrational panics and market dysfunctions?

I don't know how precious that right is to me.

It is decidedly true that markets -- when functional and rational -- sort these things out better than any government every could.

When they're functional and rational. Key words. We know they often aren't. Once every five, ten, fifteen years... they're not. That's a historic and economic fact which doctrine cannot challenge.

So, yes, functional markets filled with rational actors will sort these things out better than the government.

I do not believe that rule applies when they are dysfunctional or irrational.

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posted by Ace at 03:17 PM

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