![“I expect there will be some failures” of smaller banks. “Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”
Federal Reserve Chairman Ben Bernanke, February 2008
Was the Fed Chairman lying or just totally wrong? In either case, should we make the financial system yet more fragile and inflexible by adding to the immense power held by this position?
Btw, have you noticed how often commentators mention that Bernanke is an “expert” on the Great Depression? If I had a dollar for every time I’ve heard that bit, I’d exchange all that paper for gold.
Do we not con ourselves with such talk? It is naturally somehow comforting to believe that our problems will lessen or disappear because some single expert can devise the solution to save us. As with all myths, though, reality differs from the tale.
While it is of course important that officials represent the best and the brightest, it is folly to believe that any central planners can be so smart as to know how to allocate scarce resources better than markets.
Hayek’s concept of “the fatal conceit” nails it:
The belief that one person or group, no matter how smart, can know how best to allocate resources is a classic example of what the Nobel Laureate economist F. A. Hayek called “the fatal conceit.”
In Hayek’s view, what enables businesspeople to make good decisions about the allocation of resources is not that they are smarter than other people. Instead, two other factors are key.
First, businesspeople have very detailed knowledge of their particular corners of the world. They know where resources are, where their customers are and what they want, and have the experience of knowing how to deliver it. This is not about being “smarter,” but about having local and contextual knowledge that others don’t have.
Second, entrepreneurs develop this knowledge by making use of the signals provided by prices, profits, and losses. Prices guide entrepreneurial decision-making by enabling them to formulate budgets and estimate the profitability of the various choices they might make.
Profits and losses provide information after the fact about how well they chose. Profits signal them to continue, while losses tell them that resources need to be reallocated. By acting on the basis of that information, each entrepreneur contributes to the overall improved allocation of resources.
The lesson from Hayek is that when the rules are right, markets are collectively much smarter than any individual or group within them. This is the lesson that the Obama administration has utterly missed.
Let us have new financial regulation. Let us have heath-care reform. With both, let us empower markets and reduce the role of command-and-control central authority.
[Chairman Bernanke photo and quote source]](http://24.media.tumblr.com/Anhohk1saqxgs2o5V4jWzrUio1_r1_500.jpg)
“I expect there will be some failures” of smaller banks. “Among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”
Federal Reserve Chairman Ben Bernanke, February 2008
Was the Fed Chairman lying or just totally wrong? In either case, should we make the financial system yet more fragile and inflexible by adding to the immense power held by this position?
Btw, have you noticed how often commentators mention that Bernanke is an “expert” on the Great Depression? If I had a dollar for every time I’ve heard that bit, I’d exchange all that paper for gold.
Do we not con ourselves with such talk? It is naturally somehow comforting to believe that our problems will lessen or disappear because some single expert can devise the solution to save us. As with all myths, though, reality differs from the tale.
While it is of course important that officials represent the best and the brightest, it is folly to believe that any central planners can be so smart as to know how to allocate scarce resources better than markets.
Hayek’s concept of “the fatal conceit” nails it:
The belief that one person or group, no matter how smart, can know how best to allocate resources is a classic example of what the Nobel Laureate economist F. A. Hayek called “the fatal conceit.”
In Hayek’s view, what enables businesspeople to make good decisions about the allocation of resources is not that they are smarter than other people. Instead, two other factors are key.
First, businesspeople have very detailed knowledge of their particular corners of the world. They know where resources are, where their customers are and what they want, and have the experience of knowing how to deliver it. This is not about being “smarter,” but about having local and contextual knowledge that others don’t have.
Second, entrepreneurs develop this knowledge by making use of the signals provided by prices, profits, and losses. Prices guide entrepreneurial decision-making by enabling them to formulate budgets and estimate the profitability of the various choices they might make.
Profits and losses provide information after the fact about how well they chose. Profits signal them to continue, while losses tell them that resources need to be reallocated. By acting on the basis of that information, each entrepreneur contributes to the overall improved allocation of resources.
The lesson from Hayek is that when the rules are right, markets are collectively much smarter than any individual or group within them. This is the lesson that the Obama administration has utterly missed.
Let us have new financial regulation. Let us have heath-care reform. With both, let us empower markets and reduce the role of command-and-control central authority.
[Chairman Bernanke photo and quote source]
Congressman David Scott’s high-profile fail yesterday is but the tip of an iceberg. These officials are only beginning to feel the strain. They are, by design, setting themselves (and us) up for inevitable, ceaseless FAIL.
His response is almost understandable. Given that government cannot fairly (so-called) allocate scarce resources across the entire health-care system, of course it would make his life easier to:
The Fatal Conceit is real and unavoidable. This tiny group of government bureaucrats cannot possibly hope to manage the health-care economy. Clearly, some things that should not have been forgotten were lost. They are going to fail, and it is going to hurt.
Also understand — health-care reform characterized by market allocation instead of central command would bring many benefits. Within such an effort, there would naturally be many failures. Competition and free trade, though, would sift among alternatives to uncover successes, further innovations, and yield progress.
That’s how it works.
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Read “Paulson’s Calls to Goldman Tested Ethics During Crisis” in the NYT.
Let markets allocate. Centralizing this level of authority is a bad plan.
[video]
President Obama has opened a Snitch Line.
What builds trust? What destroys it? What happens next? What are you prepared to do?
Reuters reports:
U.S. Treasury Secretary Timothy Geithner formally requested that Congress raise the $12.1 trillion statutory debt limit on Friday, saying that it could be breached as early as mid-October.
“It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations,” Geithner said in a letter to Senate Majority Leader Harry Reid that was obtained by Reuters.
Robert Murphy posted a decent question in response:
When somebody owes you money, do you feel reassured when they say, “It’s fine, I’ll pay you back. I just got a new credit card?”
What builds trust? What destroys it? What store of value is safe?
Why do we still pretend?
Robert Murphy linked to this nugget:
Small businesses that received $682 million in IOUs from the state say California expects them to pay taxes on the worthless scraps of paper, but refuses to accept its own IOUs to pay debts or taxes. The vendors’ federal class action claims the state is trying to balance its budget on their backs.
Lead plaintiff Nancy Baird filled her contract with California to provide embroidered polo shirts to a youth camp run by the National Guard, but never was paid the $27,000 she was owed. She says California “paid” her with an IOU that two banks refused to accept - yet she had to pay California sales tax on the so-called “sale” of the uniforms.
California, well past flat broke, squeezes its productive citizens even more. As the walls come tumbling down, why do we still pretend?
"Why Default on U.S. Treasuries is Likely" via Jeffrey Rogers Hummel -
When the walls come tumbling…
Cities and counties are tumbling to states for funds. States are tumbling to the federal government. Seemingly without reservation, The Feds are running the presses as fast as they can.
For now, “It’s good to be the [reserve currency].”
See Mish’s”Pension Crisis Hits Critical Mass in West Virginia.”
Comstock Partners via NC:
We are in the process of deleveraging the most leveraged economy in history….this deleveraging as a major negative that will weigh on the economy for years to come and we could wind up with a lost couple of decades just as Japan experienced over the past 20 years. It is true that Japan didn’t act as quickly as we did but our debt ratio presently is much worse than Japan’s debt ratios throughout their deleveraging process…
This seems to us to be a “mini bubble” of stocks reacting to an abundance of “money printing” by governments all over the world since stocks are rising worldwide. Of course, if the U.S. doesn’t recover there will be no worldwide recovery since the rest of the world is still dependent upon the U.S. consumers’ appetite for their goods and services (despite the so called growth of domestic consumption in China and India). We, however, don’t believe that the U.S. massive stimulus programs and money printing can solve a problem of excess debt generation that resulted from greed and living way beyond our means. If this were the answer Argentina would be one of the most prosperous countries in the world…
"Terrorist!" is the new "Hitler!" -
Ad hominem. Sigh.