[CarlosFerreira]

Just a couple more points, I don't want to hold the discussion to environmental causes or instruments for too long.

Government should address, as we discussed, market failure. That might come from externalities, like I said, but also from monopolistic and mosopsonistic behaviour and from public goods. So, we need government creating and regulating stuff. Someone said in this thread, months ago, that the only real free market was in drug trafficking, and it passed by me back than. But I'd like to say that's preposterous! The fact that there's no regulation, property rights or enforceability of rules means it's just a failed market.

But there's also the danger of government failure. It means the government, either because of lack of information or misinformation (the innocent failure) or because of giving in to some influence groups instead of others, might produce something like this, politically, or this, terrible for the environment and to food prices.

Why am I pointing that a subsidy is bad? Everyone knows it. But it means that even the same instruments that can be used to save the environment can be used to destroy it. That's important, not just some well understood evidence. Every time you intervene, unexpected outcomes might arise, and your policies might come back to bite you. So, another case for free market there.

Governments: set the market, establish the ground rules and keep the possibility to intervene if prices either go through the roof or plunge into nothingness. Otherwise, hands off.

Big question: what's nothingness or through the roof here? I agree with the 300€ per ton view, at least in theory; haven't seen the numbers on that one yet. It is, indeed, a question of measurement. That's why we need to look at this stuff through analytic eyes, not just with a strong emotional view and looking for a supposed truth that won't be there anyway.

[pogoliamo]

$this->bbcode_second_pass_quote('ReverseEngineer', 'S')imilarly, I hardly see it likely any Capitalist ont he board would ever accept my concepts of a world without Money based on small tribal communities where all work for the good of the tribe rather than themselves.

[phaster]

Was just listening to a news report about the how some part of the 700 billion was being used by banks for mergers and acquisitions of banks lower on the food chain and some members of congress are kinda pissed off that the cash is not being used extend credit to business or to buy up real estate assets that are underwater.

After the real estate bubble burst, prices dropped, which caused credit markets to freeze up because because of the unknown size of the credit default swaps. and thats how the 700 billion dollar came about. So here is a question I thought about real estate prices and what's better in the long run, sudden shocks to the system or a long dragged out process.

In other words: is a good idea for government to try and set a floor for real estate prices to try and steady the economy or is it better think of falling prices as being akin to free speech that should be allowed to work its way out to find a natural sustainable equilibrium point.

The free market arguement I guess would be to let the market find a price floor on which to build on; BUT people who are suffering want instant relief, so they are asking the government for relief NOW!

Looking a few steps ahead I have to wonder if all the "credit" liquidity injected in the markets is not forming the basis of an unanticipated future problem of hyperinflation kinda like what happened in Germany prior to WW II.

I'm trying to look at the big bicture and right now we are seeing the commodities and stock market crash because of unwinding in positions and a de-leveraging process where people who bought stuff on margin have to sell assets to cover their bets. This selling off of assets is really driving prices down like oil is now about $60 down from a bubble high of $147.

I happen to fly airplanes and can easily envision something similar to
pilot induced oscillations

http://en.wikipedia.org/wiki/Pilot-induced_oscillation

happening in the economy. In other words a sudden cut in prices of
commodities such as oil will signal consumers to increase demand. BUT this will clash with oil producers who are cutting back production and spending on infrastructure because of falling prices caused by unwinding in positions and a de-leveraging process where people who bought stuff on margin have to sell assets to cover their bets.

So if you had the chance to play central banker or be an advisor to President Obama, what would your advise be on what to do about falling real estate prices...

[MrBill]

The price of real estate reflects its scarcity and its economic value. It has no intrinsic value, so there is no absolute value to defend. The value of a house can be measured based on its rental equivalent and/or the ability of its inhabitants to service their mortgage. That reflects disposable income. The value may also reflect is replacement cost. Replacement cost can be considered the true floor-price.

Keeping people in over-priced houses that they cannot afford is not helping anyone except those getting the direct taxpayer subsidy. It is certainly not helping renters who would like to own. It is certainly not helping taxpayers that are paying their own mortgages.

The fact that government has to borrow the money for the subsidy from foreign creditors means that money spent to keep homeowners in houses they cannot afford comes at the expense of other spending priorities. Government borrowing in turn crowds out other borrowing, and therefore investing, by businesses and individuals. So the housing subsidy comes at the expense of investment in the real economy as well.

It would be better public policy to ease the economic pain with rental tax credits, and direct help, to get defaulted borrowers out of their overpriced homes and into rentals. The rest is just an illusion. Stealing from Peter to pay Paul.

[ReverseEngineer]

$this->bbcode_second_pass_quote('pogoliamo', 'T')oo bad the Kibbutz movement is dead, you could join it, enjoy all happiness in life and leave the free markets alone.

[phaster]

$this->bbcode_second_pass_quote('MrBill', 'T')he price of real estate reflects its scarcity and its economic value. It has no intrinsic value, so there is no absolute value to defend. The value of a house can be measured based on its rental equivalent and/or the ability of its inhabitants to service their mortgage. That reflects disposable income. The value may also reflect is replacement cost. Replacement cost can be considered the true floor-price.

Keeping people in over-priced houses that they cannot afford is not helping anyone except those getting the direct taxpayer subsidy. It is certainly not helping renters who would like to own. It is certainly not helping taxpayers that are paying their own mortgages.

The fact that government has to borrow the money for the subsidy from foreign creditors means that money spent to keep homeowners in houses they cannot afford comes at the expense of other spending priorities. Government borrowing in turn crowds out other borrowing, and therefore investing, by businesses and individuals. So the housing subsidy comes at the expense of investment in the real economy as well.

It would be better public policy to ease the economic pain with rental tax credits, and direct help, to get defaulted borrowers out of their overpriced homes and into rentals. The rest is just an illusion. Stealing from Peter to pay Paul.

[Quinny]

Everybody seems to think that the 'Free Market' (like communism) doesn't exist. I agree with this, but even if it did, the imbalances in power, luck, prudence would lead to situation where over generations certain groups/families would come to own everything. A bit like's happened in the real world actually. In the free market the value of something then becomes determined by a democratic system where the rich have a hell of a lot more votes than everyone else. Thats why so little value is currently attached to basic food and farmers struggle to compete, because the rich have more power than everyone else.

Too often the values of the Free Market are extolled by looking at individual transactions without taking account of the long term effects of wealth accumulation in the hands of a few.

Paradoxically those who are in favour are often not those with significant wealth just those with aspirations to gain wealth.

$this->bbcode_second_pass_quote('CarlosFerreira', '')$this->bbcode_second_pass_quote('criticalmass', 'F')alconfury is right. The free market does theoretically work without lies. These lies include everything from withheld knowledge to poor substitutes, to collusion and made-up scarcity. Now take away any sort of accountability (via bailouts) and we've created some real problems. We no longer have a free-market economy.

[mgibbons19]

$this->bbcode_second_pass_quote('Quinny', 'E')verybody seems to think that the 'Free Market' (like communism) doesn't exist. I agree with this, but even if it did, the imbalances in power, luck, prudence would lead to situation where over generations certain groups/families would come to own everything. A bit like's happened in the real world actually. ...

[MrBill]

Economics and finance are objective. The importance we attach to them is subjective. It is ideology to say whether the means of production should be in private or public hands. It is objective to measure which generates the most output for the least input. Which generates the most wealth. Which is the most sustainable. Sustainable or unsustainable is also an objective measurement. State ownership can be unsustainable. Unfettered capitalism can be unsustainable. Wealth taxed from private production can also be redistibuted for the greater public good or simply to reduce income disparities. Why do we have to keep going over the same ground again, again and again? It is not efficient. It wastes resources.

[Nickel]

$this->bbcode_second_pass_quote('mgibbons19', '')$this->bbcode_second_pass_quote('Quinny', 'E')verybody seems to think that the 'Free Market' (like communism) doesn't exist. I agree with this, but even if it did, the imbalances in power, luck, prudence would lead to situation where over generations certain groups/families would come to own everything. A bit like's happened in the real world actually. ...

[CarlosFerreira]

$this->bbcode_second_pass_quote('phaster', 'm')r bill,

thanks for the succinct banker description of housing prices, your comment about housing subsidy comes at the expense of investment in the real economy made logical sense to me because basically so far I'm not too concerned about drop in market value of my real estate holdings or end of month value of my brokers statement because I save up reserves to fall back upon during the boom times for the inevitable down turn that always happens after a boom.

On one hand I'm all for the idea of "Survival of the Fittest" and to a great extent believe the old biblical adage "you reap what you soe" and I have little pitty for people crying about falling home prices, in my mind that would be akin to me asking the government to compensate me for losses in value for various holdings.

[phaster]

Just thought I'd mention there was an interesting pod cast that explores the historical and psychological origins of money, the importance of religious beliefs and practices for the emergence of markets, and the unexpected role of religion and art in the classical understanding of economics.

http://www.financialsense.com/Experts/2008/Taylor.html

[loveandrage]

$this->bbcode_second_pass_quote('neocone', 'C')apitalism is about concentrating resources from places where they are left idle to make them work and multiply their reach...

[CarlosFerreira]

Just yesterday I had a big argument with a colleague who says the current crisis is the proof Capitalism is a failure.

I asked if, in that case, the current (until January 2009) American President could be viewed as the proof Democracy is a failure.

Still waiting for the reply...

[MrBean]

$this->bbcode_second_pass_quote('CarlosFerreira', 'J')ust yesterday I had a big argument with a colleague who says the current crisis is the proof Capitalism is a failure.

I asked if, in that case, the current (until January 2009) American President could be viewed as the proof Democracy is a failure.

[Concerned]

$this->bbcode_second_pass_quote('loveandrage', '')$this->bbcode_second_pass_quote('neocone', 'C')apitalism is about concentrating resources from places where they are left idle to make them work and multiply their reach...

[phaster]

a corporation IMHO is an organized state with "hierarchical structure," and an economic entity that has a powerful influence on people and the environment.

a corporation is also like a nation state in that it can make money in terms of creating its own credit, but unlike a nation state that is formally recognized by the UN, it does not have the explicit power to create or enforce laws (but a corporation does lobby, or beg as is the case with auto makers which I was watching on the news today).





$this->bbcode_second_pass_quote('Concerned', '')$this->bbcode_second_pass_quote('loveandrage', '')$this->bbcode_second_pass_quote('neocone', 'C')apitalism is about concentrating resources from places where they are left idle to make them work and multiply their reach...

[Quinny]

Capitalism spoils Democracy!

$this->bbcode_second_pass_quote('CarlosFerreira', 'J')ust yesterday I had a big argument with a colleague who says the current crisis is the proof Capitalism is a failure.

I asked if, in that case, the current (until January 2009) American President could be viewed as the proof Democracy is a failure.

Still waiting for the reply...

[CarlosFerreira]

$this->bbcode_second_pass_quote('Quinny', 'C')apitalism spoils Democracy!

[ReverseEngineer]

$this->bbcode_second_pass_quote('CarlosFerreira', '')$this->bbcode_second_pass_quote('Quinny', 'C')apitalism spoils Democracy!