Comments on: IBG: Foundation of American Finance Capitalism?

By: Frank

Frank — Fri, 19 Dec 2008 19:26:22 +0000

Yes, Thomas, I’m totally ignoring the Democratic links to the scandals, what with my constant links/mentions in posts of Rubin, Schumer, bipartisan reliance on Wall Street donations, etc.

And yes, the Bush administration was a paradigm of regulatory vigor–constantly giving more authority and more support to the surveillance of the financial markets.

Maybe when you stop trying to score points on alleged peccadilloes in posts, you’ll start seeing the forest for the trees: namely, the utter discrediting of the wealth-worshipping, tax-cutting, wild-west deregulationism that got us into this mess.

By: Thomas

Thomas — Thu, 18 Dec 2008 22:41:11 +0000

Frank, if that’s your point, you can try to make it honestly, not by misleading readers about the SEC’s budget, which has increased dramatically during the Bush years. Unfortunately for you, neither of the two main politial parties in the US favored regulating what you call the “shadow financial system”, and it isn’t clear that regulation would have avoided the collapse. I think the world “deregulation” should refer to actual deregulation, i.e., removing regulations, and not just supposed failures to adopt optimal regulations. And I think you’ve misunderstood Taleb’s argument.

By: Daniel S. Goldberg

Daniel S. Goldberg — Thu, 18 Dec 2008 20:55:22 +0000

Though I am generally sympathetic to Frank’s perspective here, I do want to note that the notion of a value-neutral human endeavor of any kind is absurd and false, IMO. This is just as true for economics and social science as it is for the praxis of natural science.

The ubiquitous belief to the contrary is one of the more unfortunate legacies of modernity, I tend to think.

By: Matt

Matt — Thu, 18 Dec 2008 16:32:33 +0000

I have to admit, though, that in the Friedman column I was shocked by his claim that he had never been asked (or, apparently, though about) how corrupt America is. If that’s true (and he tends to put a lot of claims in his columns that are hard to believe are true) it says something quite shocking about both Friedman and the people he spends time around.

By: Frank

Frank — Thu, 18 Dec 2008 15:55:09 +0000

To Thomas: If the amount of money in the shadow financial system ballooned to be nearly as great (or greater) than that in the “regulated” financial system, and your preferred party opposed regulating that shadow financial system, wouldn’t you say that they were unduly deregulationist when big parts of that shadow financial system collapsed?

To Dave: My critique of “econ as a physical system” should have been developed more along the lines of my prior complaints about efforts to model the human sciences on the natural sciences; see, e.g., this:

http://www.concurringopinions.com/archives/2007/09/are_humans_atom.html

They key point here is Taleb’s in the Black Swan, about the limited extrapolability of mathematical models to human behavior, or Soros’s on reflexivity.

The immorality of the distributions that have resulted from an allegedly scientific economics is merely one pathology of the bankrupt aspiration to value-neutral social science here, not a direct critique of value-neutral social science itself.

By: Dave

Dave — Thu, 18 Dec 2008 09:14:35 +0000

Uh… it seems to me that it is perfectly fair to characterize as a “budget cut” an attempt to decrease a budget authorized in one piece of legislation by cutting it through subsequent legislation. Given the context of the post-Enron timeframe, it is a perfectly valid example to use to make the larger point that the Bush Administration was on the lax end of the scale when it came to regulation and enforcement of capital markets.

That being said, I have to agree with your (implied) point that this post is another in a series of curmodgeonly appeals to class warfare. Sophisms such as “[economists] may be making the same old mistakes they criticize when they try to address the crisis by reifying the economy as a physical system,” and “[i]f this crisis teaches us anything, it is that distributional questions are fundamentally moral” are a bit tired at this point, even to engage with. Though I am a liberal who would advocate for some serious reform of our economic policy, I find there are always those folks who think economics as a science has no more validity than the preposterous claims that humans are descended from apes or have walked on the moon. No amount of reason will work (and thus, I will avoid using it here!), as these folks are convinced that efforts to explain economic systems are nothing more than thievery on the part of the powerful (perhaps the work of Satan?).