[MordinSolus]

Liberty produces far more equality than the pursuit of equality could ever achieve, if I may borrow a line from Milton Friedman.

It really is the fault of us citizens that we've allowed our government to grow so large and unaccountable. More accurately, we've allowed it to grow far outside its constitutional limits. And we accept this and deem it necessary. In fact, some of us still think it needs to be bigger to protect us from calamities like the housing crisis! Yet we don't realize that it was precisely the largeness of the government and its influence on the market and money that caused the crisis.

All of this really does have its roots in the Great Depression. At the time, people blamed the crash on capitalism when the real causes were anything but, and as a result people were more than willing to let the government become bigger so it could 'protect' them. It's unfortunate that we the people were, and still are, so shortsighted.

On a side note, robber barons are largely a myth. As well, blaming the fall of the middle class on globalization and technology is simply absurd; how would we afford iPhones and all of the miracles of modern technology without globalization and.. technology? You can't look only at one side of the equation (jobs moving to China) without considering the other (much cheaper products). While it may hurt certain workers when some kinds of labor leaving the U.S., consumers as a whole benefit. Not to mention that people elsewhere on the globe benefit from these jobs.

[phillmv]

1. What constitutional limit?

>Yet we don't realize that it was precisely the largeness of the government and its influence on the market and money that caused the crisis.

2. Just how was overregulation responsible for a massive price bubble?

>At the time, people blamed the crash on capitalism when the real causes were anything but

3. What part about your definition of capitalism excludes massive price bubbles, followed up by the government of the time constraining monetary conditions?

>how would we afford iPhones and all of the miracles of modern technology without globalization and.. technology?

Well, I'm not going to argue against global trade. It's pretty great, and the growth it's generated in China absolutely benefits the Chinese. Mass exploitation of the labour force, hopefully, is a transitionary stage.

That said, we'd still have iphones. They would be a bit more expensive but not that much more expensive.

[MordinSolus]

> 1. What constitutional limit?

The limits imposed by the Constitution. It's really not that mysterious of a document. The interstate commerce clause might seem ambiguous, but it certainly was never intended to be as abused as it is today. The existence 10th Amendment makes this even more obvious.

> 2. Just how was overregulation responsible for a massive price bubble?

I'll be a bit more clear: we either need much less regulation, or a whole lot more. Given how badly more regulation generally goes, I'd prefer less. We were stuck in this awkward middle ground as a result of the Gramm-Leach-Bliley act. It didn't get rid of the FDIC, but it got rid of certain regulations preventing commercial banks from being investment banks (simplification). So it basically encouraged risk taking by banks. Remove the FDIC, and you'll see much less risk taking. So we really need to get rid of ALL of the Glass-Steagal act. As well, we need to get rid of the SEC. By this sort of deregulating, you discourage risk by making banks much more accountable to their investors.

> 3. What part about your definition of capitalism excludes massive price bubbles, followed up by the government of the time constraining monetary conditions?

My definition of capitalism, ideally, would not include the Fed.

> They would be a bit more expensive but not that much more expensive.

But would the lower/middle classes be able to afford them? Or as readily? Given wages here, probably not.

[phillmv]

>But would the lower/middle classes be able to afford them? Or as readily?

I'm in favour of globalization. I agree with you that they'd be more expensive (it'd be interesting to determine what percentage of the iphone's cost is due to labour), I just don't think there's a moral argument to be made. Almost everyone could afford a car, in America, in 1968. In real terms of quality of life improvement in the grand scheme of things iPhones and computers are probably minor inventions next to plumbing, central heating and the first couple waves of mechanization.

>The limits imposed by the Constitution.

This assumes that a) the intent of the founding fathers was relevant to today's society and b) their intent was to have a limited size of government, both of which are pretty big assumptions. For more on the failings of constitutional originalism see here: http://www.economist.com/blogs/democracyinamerica/2011/09/eu...

>I'll be a bit more clear: we either need much less regulation, or a whole lot more.

Your conclusion does not follow from your premise. How would removing an unrelated insurance corporation promote healthier decision making amongst investment banks?

Poorly designed regulation does stifle innovation and thus growth. However, there are certain kinds of innovations that prove to be too dangerous to be handled without some safe guards.

It seems to me you possess a shaky understanding of 1) the events that led to the FDIC and SEC, and Glass-Steagal 2) the events that occurred from 2001-2007/08 and 3) the cognitive pitfalls and biases human beings suffer from when reasoning about risk.

[MordinSolus]

> a) the intent of the founding fathers was relevant to today's society and b) their intent was to have a limited size of government, both of which are pretty big assumptions.

Their intent for a limited size of _federal_ government is almost certain. And I don't see how it's not relevant: our federal government is huge and almost entirely unaccountable, and clearly is not functioning as it was intended. From Federalist 45:

The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.

The operations of the federal government will be most extensive and important in times of war and danger; those of the State governments, in times of peace and security. As the former periods will probably bear a small proportion to the latter, the State governments will here enjoy another advantage over the federal government. The more adequate, indeed, the federal powers may be rendered to the national defense, the less frequent will be those scenes of danger which might favor their ascendancy over the governments of the particular States.

> How would removing an unrelated insurance corporation promote healthier decision making amongst investment banks?

Not unrelated. Gramm-Leach-Bliley removed barriers allowing commercial banks to act as investment banks. That was my point: you can't remove these barriers without also removing the insurance. Having the FDIC encourages commercial banks to be much riskier.

> It seems to me you possess a shaky understanding of 1) the events that led to the FDIC and SEC, and Glass-Steagal 2) the events that occurred from 2001-2007/08 and 3) the cognitive pitfalls and biases human beings suffer from when reasoning about risk.

Feel free to correct me where I'm wrong. I think the housing bubble was entirely avoidable had the government taken different action. I'm not saying that it was ENTIRELY the fault of regulation. I do think that: deregulation (including removing the FDIC and SEC), much less Fed fiddling in attempts to 'fix' the dot com bubble, and no bailouts or any implicit guarantees of bailouts, and you wouldn't have seen the housing bubble.

[phillmv]

You're still making an originalist argument. Who cares what Alexander Hamilton had to say about anything? He's dead.

To steal a quote from the Economist article I linked to above, suppose we fast forward this conversation fifty years. Do we really care what James Madison might have thought about which privately cloned human-animal hybrids could use viral DNA material drawn from public health databanks?

No, of course not. This is a conversation to have amongst the living. How big should the government be? Is a complex question with many stakeholders.

> Having the FDIC encourages commercial banks to be much riskier.

No, it doesn't - because when a commercial bank became an investment bank, that insurance only applied to deposited accounts. If we define the risk holders to be the people with deposits, then sure.

However, most people would define the bank investors to be the ones willing to take risks. The shareholders, accordingly, were not protected by the FDIC and got wiped out when these banks failed or merged into larger banks.

>I think the housing bubble was entirely avoidable had the government taken different action.

Yes, but that's a tautology for a lot of things in the economy.

The financial crash was far too complex for me to try to recount here. There is a wide range of incentives that could have been tweaked; but the bottom line is people took far too many risks across far too many levels of the economy. The end result was not caused by an industry forced into bad decisions due to poor regulation. Investment banks were allowed to borrow too much money relative to their capital holdings, and they were allowed to pour their money into financial instruments that are computationally impossible to accurately judge.

Removing the FDIC and the SEC would exacerbate the problem.

Here's some very accessible reading material, that I think you ought to brush up on:

http://www.npr.org/series/124587240/planet-money-s-toxic-ass... http://www.thisamericanlife.org/radio-archives/episode/355/t... http://en.wikipedia.org/wiki/The_Big_Short

[natrius]

"1. What constitutional limit?"

The purpose of the Constitution was to give the federal government limited, enumerated powers that benefited the individual states. Would you say that the federal government still has limited, enumerated powers? The interstate commerce and general welfare clauses have been used to justify pretty much everything (except for banning guns manufactured entirely within a single state from school zones[1]). The current interpretations of the Constitution have made the act of enumerating powers worthless. The Ninth and Tenth Amendments now mean nothing. The federal government can do anything, and that wasn't the idea. Even independent of what the Founders may have desired, this is clearly a negative development if you believe in self-government. Governments should have limits that are defined by their citizens. Ours does not.

[1] https://en.wikipedia.org/wiki/Gun-Free_School_Zones_Act_of_1...

[phillmv]

I'm not an American so I only have a passing knowledge of what you're referring to, BUT:

That depends on whether you believe in an originalist interpretation of the constitution. Like most legal theories, it's up for debate but I'm not in that camp.

[natrius]

My argument explicitly avoids a dependence on an originalist interpretation of the Constitution.

"Even independent of what the Founders may have desired, this is clearly a negative development if you believe in self-government. Governments should have limits that are defined by their citizens. Ours does not."

[maxerickson]

Fannie Mae and Freddie Mac buying 30 year mortgages for decades and decades almost certainly contributed some momentum to housing prices.

I haven't looked seriously for an analysis of it, but it would be interesting to see how quickly the greater affordability of homes (the lower monthly payment from the 30 year) started driving the prices.

[phillmv]

>but it would be interesting to see how quickly the greater affordability of homes started driving the prices.

This was probably one of the leading causes of it.

However, you know what contributed the most? Greenspan lowering interest rates to historical lows in the early aughts and keeping it there for the rest of the decade.

Freddie and Fannie were drops in the bucket. As you said, they bought mortgages for decades and decades without the same problem occurring.

Look up some of this history of the financial crisis. This American Life has a couple good primers.

[maxerickson]

I don't think it is obvious that decades and decades of appreciating home values were unrelated to a housing bubble.

It certainly wasn't the immediate cause, but I think it probably helped set the stage (it would be really interesting to have an alternate Earth where we could look and see what happened without that particular government meddling).

[hazov]

Reading too much from Mises Institute I presume.

I am really amazed anyone can take anything published there seriously, these guys always talk how mainstream economists always try to simplify human action in their models, such as when discussing the nature of money and how it came to exist, anthropologists are making the same points all the time.

But they certainly do love to forget this exact argument when they write their diatribes against ideas from people they disagree with them. Like you assuming what people in the past thought about an event without searching from some data to support your assertions.

Mind you I do not like the tone of the link and I thoroughly disagree with the premise of class struggle that those fond of Marx almost always take for granted.

[MordinSolus]

I don't read Mises, but thanks for the assumption. The causes of the housing crisis are and were, for lack of a better word, obvious. You don't need to read this or that, or even subscribe to a certain form of political thought to see why things happened as they did.

> Like you assuming what people in the past thought about an event without searching from some data to support your assertions.

They elected Roosevelt how many times in a row?

[hazov]

If it was obvious I would not see people discussing about causes of the crisis, right? Besides the fact that debt and the inability to pay for it was the main cause I do not saw something close to agreement in this area.

About Roosevelt, ok you're probably right about that, I am not American to say too much about that, but changes in office were not exclusive to the US, in some places some fringe parties got control of the government such as the Nazis.

For me this thread is over here but I would love if you can elucidate some points about your first paragraph.

[Spooky23]

You've swallowed the big lie of globalization -- that only by exporting labor to 3rd world serfs can we enjoy the standards of living that we enjoy.

The government is an enabler of bad economic activity, but the capitalists are always the catalysts. Government regulations did not force Countrywide Loans to give $1M mortgages to people who lacked the resources to repay. Government regulation did not force brokerages in 1929 to offer 50:1 margin loans.

Read some real history, not some cherry-picked analysis by economists. Travel to historical sites in places like Pennsylvania. Study the origins of the labor movement. Robber barons were/are very real.

[MordinSolus]

> You've swallowed the big lie of globalization -- that only by exporting labor to 3rd world serfs can we enjoy the standards of living that we enjoy.

At the prices we pay today, this is absolutely true. We would be paying much more for iPhones if they were manufactured here.

> The government is an enabler of bad economic activity, but the capitalists are always the catalysts. Government regulations did not force Countrywide Loans to give $1M mortgages to people who lacked the resources to repay.

But that's exactly the point. They didn't 'force' banks to make bad decisions, but without the government's bad regulations, bad monetary policy, and bad fiscal policy, the housing crisis would have been much harder to come by.

I'm not saying the banks are not at fault for their poor decisions: I am saying that without the actions of the government, you would either have not seen the crisis at all or you would have seen a much smaller and less disastrous bubble and burst.

> Study the origins of the labor movement. Robber barons were/are very real.

It depends what you mean by robber barons.

Did certain businesses during the 19th century exploit workers and warrant the formation of certain labor unions in order to protect the workers? Yes. I'm not denying this.

Did the most successful capitalists in the 19th century make their money by exploiting workers, stealing from the poor, and adding nothing of value to society? Absolutely not. I'm not saying these men were angels, but these so-called 'robber barons' improved society by an incredible amount, far more than what unions have ever done, producing better and more goods at cheaper prices. The rising standards of living during the 19th and early 20th century were not a wholly a result of government intervention or labor unions, but instead _mostly_ because of technological progress and the ensuing gains in productivity.

And the labor movement is not without its fair share problems. Much of the violence in strikes during the 19th century was caused by the unions. As well, you had a great deal amount of racism.

[efuquen]

"On a side note, robber barons are largely a myth."

What exactly is mythological about robber barons? The term is widely used and I've never heard anyone question their existence.

[MordinSolus]

Perhaps this, and the related book, will explain it better: http://www.fee.org/nff/the-myth-of-the-robber-barons/

[aaronbrethorst]

You say you don't read Mises, but then you peddle literature from an organization that exists explicitly to spread his (and a handful of others') ideology.

http://news.ycombinator.com/item?id=4650573

[MordinSolus]

Whoops, I forgot that Mises is the only source of knowledge about economics. Silly me.

If you don't like my reading suggestions, then perhaps try a Milton Friedman youtube video:

http://www.youtube.com/watch?v=dmzZ8lCLhlk

[eli_gottlieb]

Great, so you don't do Mises, but you do Mises' academic son, Friedman. Same stuff, different packaging.

[MordinSolus]

Actually they have pretty different approaches to economics, yet they end up with similar conclusions (except for differences regarding the control of the supply).

And you say that like it's a bad thing, when in reality we could use a healthy dose of economic conservatism right now.

[ucee054]

Liberty produces far more equality than the pursuit of equality could ever achieve

Nonsense!

I know this code:

"pursuit of equality" = giving medicine, schooling to the poor

"liberty" = medieval scale deregulation + tax cuts for billionaires

And where people's freedom is actually destroyed, down the rathole of militarism and corporatism, well that's just "patriotism".

Tell you what buddy, why don't you first roll back the Pentagon budget, Homeland Security, asset securitisation and corporate personhood.

After that, we can talk about trading off equality or freedom.

[MordinSolus]

I don't think you understand what I mean by liberty. Try to not let your political goggles blind you here.

> "pursuit of equality" = giving medicine, schooling to the poor

I'm all for achieving the best results. I want to see more education and better healthcare for everyone. What we're doing, however, is not achieving the best results. Why is it that these areas with the most government involvement (education, healthcare, and banking) seem to have the most problems? We spend more on education than anywhere else in the world (http://mat.usc.edu/u-s-education-versus-the-world-infographi...) yet the results aren't there. Same with healthcare.

> "liberty" = medieval scale deregulation + tax cuts for billionaires

How about tax cuts for everyone? No more income tax, no more corporate tax, no more FICA? What about removing regulations that encourage the growth of monopolies and too-big-to-fail banks, removing subsidies, and removing tax breaks for everyone? How about no more bailouts?

> And where people's freedom is actually destroyed, down the rathole of militarism and corporatism, well that's just "patriotism".

Militarism / corporatism are products of big government. How about a much smaller federal government?