Fiatch

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“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:

• shout people down;
• loudly proclaim his own position of power;
• hide behind bureaucracy to disguise accountability;
• attack the decency of anyone who dares to disagree;
• falsely imply openness and benevolence while actually embodying their opposites;
• deny the legitimacy of opposition by counting only those who agree with him as constituents; and
• avoid answering the press.

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.

I admit this video made me laugh a little.  This series of botched misdirections shows the desperate situation faced by members of Congress confronted by calm, logical, yet unrelenting citizens.

US Representative David Scott (D, GA) failed all over the place.  It started with a simple question about his health-care-reform intentions, and it all fell apart for him as follows:

Fail #1: Constituency

US Rep. David Scott:

“I am listening to MY constituents.  These are people who LIVE in the 13th Congressional District, who VOTE in this district, and THAT’S who I’ve got to respond to…”

Scott’s Fail:

Crowd: [indistinct] informing their Congressman that they are from his district.

Reporter: “We caught up with Dr. Brian Hill, the doctor who asked about health care.  It turns out, he is one of Scott’s constituents.”

Dr. Hill: “I did not go to a meeting to create any problems.  I went to the meeting to literally ask a question that I thought was very, very important for my patients.”

His “Constituency” ploy having failed immediately, Rep. Scott then tried to duck under the agenda of the meeting, which leads to:

Fail #2: Agenda

Rep. Scott:

“Those of you who are here who have taken and came and HIJACKED this event…This IS NOT A HEALTH CARE EVENT! You made the choice to come here!”

Scott’s Fail:

Reporter: “The meeting was primarily about a highway project, but later it was opened up for any questions from the crowd.  Hill was one of two people who got to ask about health care.”

His Agenda ploy exposed as an obvious false front, Rep. Scott next attacked the decency of these “hijackers,” which produced:

Fail # 3: Personal Attack

Rep. Scott:

“Not a SINGLE ONE OF YOU HAD THE DECENCY to call my office and set up for a meeting.  Ok. Then DO THAT!  DO THAT!  But don’t DON’T  come and take advantage of what these individuals have done.  You want a meeting with me on health care?  I’ll GIVE it to you!”

Scott’s Fail:

Reporter: “Dr. Hill says he has called Scott’s office, several times.”

Dr. Hill: “I’ve asked, ‘Is he going to be having any health-care forums? Is he going to have an area where we can address his thoughts and express our ideas and our thoughts as well?’ and I was told, ‘No,’ and that’s why I said to myself, I then need to go to an area where I’ve got access to him.  We depend on our Congressman to do what’s right for us, and I just don’t see that happening.”

The report closes with:

Fail # 4: No comment

Reporter: “By the way, Congressman David Scott, we asked, and he refuses to comment about what happened.”

What builds trust?  What destroys it?

HT Instapundit

Please watch this outstanding rerun.   Polite and logical, plain-speaking and brilliant, convivial and unrelenting, inquisitive and steady — Milton Friedman was a wonderful champion of capitalism.

Let’s strive to follow his example.  The world swims in noise and would benefit from more calm and confident voices like his to defend liberty and free trade.

Listen to “The Canadian Health Care Experience” with Sally Pipes.

Health-care reform under President Obama will bring painful taxes, rationing of care, misallocation of resources, and diminished outcomes throughout the system primarily because it will also transfer yet more power to a central federal authority.

The good news is bad ideas such as these, if enacted, cannot remain in effect for long without eroding liberty and harming economy.  Maybe folks will notice, eventually.

“Many health-care reformers want to pattern reform after Medicare, a program riddled with waste that will take tens of trillions of dollars from taxpayers in the coming decades.”

“What’s not to love?”

Listen to “Medicare: A Model for Reform?”

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.

The Style Council sang for liberty and against both corrupt authority and fiat currency at, ironically enough, Live Aid (1985):

“Internationalist”

If you believe you have an equal share
In the whole wide world and all it bears,
And that your share is no less or more than
Your fellow sisters and brother man
Then take this knowledge and with it insist
Declare yourself - an internationalist!
If you lay no blame at the feet of next door
And realise this struggle is also yours
And that without the strength of us altogether
The world as it stands will remain forever,
Then take this challenge and make it exist!
Rise up as - an internationalist!

If your eyes see deeper than the colour of skin
Then you must also see we are the same within
And the rights you expect are the rights of all
Now its up to you to lead the call
That liberty must come at the top of the list
Stand proud as - an internationalist!

If you see the mistake in having bosses at all
You will also see how they all must fall
For under this system there is no such thing
As the democracy our leaders would have us sing
No time for lies now as only truth must persist
Rise up now and declare yourself - an internationalist!

“Walls Come Tumbling”

You don’t have to take this crap
You don’t have to sit back and relax
You can actually try changing it
I know we’ve always been taught to rely
Upon those in authority -
But you never know until you try
How things just might be -
If we came together so strongly

Are you gonna try to make this work
Or spend your days down in the dirt?
You see things can change -
Yes and walls can come tumbling down!

Governments crack and systems fall
‘cause unity is powerful -
Lights go out - walls come tumbling down!

The competition is a colour TV
We’re on still pause with the video machine
That keep you slave to the h.p.

Until the unity is threatened by
Those who have and who have not -
Those who are with and those who are without
And dangle jobs like a donkey’s carrot -
Until you don’t know where you are

Are you gonna realize
The class war’s real and not mythologized
And like Jericho - you see walls can come tumbling down!

Are you gonna be threatened by
The public enemy’s No. 10 -
Those who play the power game
They take the profits - you take the blame -
When they tell you there’s no rise in pay

Are you gonna try and make this work
Or spend your days down in the dirt -
You see things can change -
Yes and walls can come tumbling down!

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?

HT Robert Wenzel

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?

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…

Ad hominem.  Sigh.