Predetermined lessons

I think the financial meltdown teaches us that government interference in the economy is a very bad thing. Maybe this is a predetermined lesson, but at least I have specific reasons for believing this - such as, that the financial crisis is in large part a consequence of large numbers of people failing to repay loans which were foolishly made to them, and these loans were made at the insistence of politicians such as Barney Frank in order, essentially, to buy votes.

Meanwhile, Thomas Frank draws a different predetermined lesson (via Cafe Hayek). According to him:

The moguls whose exploits we used to follow with such fascination, it now seems, plowed the country into the ground precisely because of the fabulous rewards that were showered on them.

Massive inequality, we have learned, isn't the best way to run an economy after all. And when you think about it, it's also profoundly ugly.

Thomas Frank doesn't offer any reason aside from his own assertion for believing that "massive inequality" caused the financial meltdown. So, deleting the unsupported claims, we are left with:

Massive inequality [is] profoundly ugly.

Inequality, if it is profoundly ugly, has always been profoundly ugly. If Thomas Frank currently thinks that it is profoundly ugly, then he has, presumably, thought this for a long time. This ugliness has nothing to do with the financial meltdown. It appears, in fact, that the financial meltdown that Frank begins his essay with is no more than an excuse for him to write an essay about the supposed ugliness of inequality.

A woman named Alex Kuczynski hired a surrogate mother and then wrote about her own experience. Thomas Frank finds profound ugliness in that essay and uses this as evidence that inequality is profoundly ugly. Mr. Franks's specific examples of ugliness:

Ugliness 1) Ms. Kuczynski was a gossip columnist who eventually married a rich man. That Mr. Frank faults her for this (i.e. both for having been a gossip columnist and for marrying into wealth) is evident in the disdainful way he writes about it:

For years Ms. Kuczynski worked the plutocracy beat for the New York Times ...

Kuczynski's trademark concern for the moneyed ...

Ugliness 2) Ms. Kuczynski hired a surrogate mother. Mr. Frank faults her for this:

The story starts with Ms. Kuczynski's infertility, which is genuinely piteous, but quickly goes wrong, as she and her husband decide to hire a woman to carry their child and review applications from women with available wombs.

Strongly suggesting that it was wrong to hire a surrogate mother. Additionally Mr. Frank writes a long paragraph criticizing surrogate motherhood as immoral, victimizing the surrogate mother. He assigns this criticism to "some believe", but it is evident that he is among those "some". For instance, he offers no counterargument, except as something to jeer at.

Ugliness 3) Ms. Kuczynski is not appalled by the practice of surrogate motherhood, and is not convinced by the arguments against surrogate motherhood that he has outlined:

Ms. Kuczynski is not entirely oblivious to these issues; indeed, she considers them for several poignant paragraphs before inevitably brushing them off.

Ugliness 4) Ms. Kuczynski (with the willing assistance of the surrogate mother) prefers language which minimizes the relationship between the surrogate mother and the baby.

Ugliness 5) Ms. Kuczynski fails to understand that "how our system works" is the reason that college and surrogacy are available to people like Ms. Kuczynski and not to other people. It is also the reason that there is surrogate motherhood:

all this reproduction-for-hire was a product of her billionaire-centric world

Ugliness 6) Ms. Kuczynski lives the life of a rich, non-pregnant woman in the late stages of the surrogate mother's pregnancy.

Ugliness 7) Ms. Kuczynski, the author of the memoir, writes about her own experiences and only peripherally about the point of view of the surrogate mother, whom Mr. Frank calls a "remarkable woman", though he presents no reason for considering her remarkable apart from the fact that she is a surrogate mother. I will quote a short bit, to give a taste of Mr. Frank's disdain:

About Ms. Kuczynski's own feelings and fears and cravings we get paragraph after maudlin paragraph. The one who does the labor is almost completely silent.

Ugliness 8) Ms. Kuczynski is rich and the surrogate mother is not.

I haven't really commented on this from my point of view. Here I'm mostly restricting myself to examining Mr. Frank's point of view.

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My own responses, briefly

Ugliness 1) Ms. Kuczynski was a gossip columnist who eventually married a rich man.

Gossip columns exist because a lot of people are interested in them. Call this keen interest in celebrities, the rich, royalty, and the like a failing of human nature if you like, but it is a widespread failing, which the surrogate mother may even share.

Ugliness 2) Ms. Kuczynski hired a surrogate mother.

Everyone benefits from a voluntary transaction. Why isn't this the overriding concern? How does one get past that? If one cares about the good of others, then how does one justify sneering at a transaction which benefits all participants? Not only are any concerns about "ugliness" surely trumped by very real benefits to all participants, but moreover, the fact that the transaction produces benefits all around should lead us to seriously question the mindset that leads someone to consider the transaction "ugly".

Ugliness 3) Ms. Kuczynski is not appalled by the practice of surrogate motherhood, and is not convinced by the arguments against surrogate motherhood that he has outlined.

The failure here is not Kuczynski's, it is the arguments'. It is not ugly to fail to be persuaded by bad arguments.

Ugliness 4) Ms. Kuczynski (with the willing assistance of the surrogate mother) prefers language which minimizes the relationship between the surrogate mother and the baby.

As well she should, considering that she wants to think of herself as the baby's mother. The surrogate mother, who offers this way of speaking, knows her own business. She knows the importance to her customer of minimizing her own link to the baby.

Ugliness 5) Ms. Kuczynski fails to understand that "how our system works" is the reason that college and surrogacy are available to people like Ms. Kuczynski and not to other people. It is also the reason that there is surrogate motherhood.

I am ready to grant that, in fact it is surely a tautology that, "how our system works" is the reason that things in "our system" happen the way they do. But I see no basis for the belief that Kuczynski is unaware of this tautology, nor do I see it as a fault that she fails to explicitly mention this in her memoir. My analysis of this point is that Mr. Frank is simply eager to bring this up. Mr. Frank wants to blame "the system" for stuff that he doesn't like, with the implication that an alternative system would (costlessly one presumes) avoid this supposedly bad stuff. He wanted to say that, and an easy excuse for saying that is to blame somebody else for having failed to say it.

Ugliness 6) Ms. Kuczynski lives the life of a rich, non-pregnant woman in the late stages of the surrogate mother's pregnancy.

It stands to reason that she does, given that she is a rich, non-pregnant woman. This is not wrong. She isn't hurting anyone. And given that she has the means, it is unrealistic to expect her to behave any differently. Pretty much all of us enjoy life to the extent that our own means allow.

Ugliness 7) Ms. Kuczynski, the author of the memoir, writes about her own experiences and only peripherally about the point of view of the surrogate mother, whom Mr. Frank calls a "remarkable woman", though he presents no reason for considering her remarkable apart from the fact that she is a surrogate mother.

It stands to reason that a memoir focuses on the person writing the memoir. Presumably a memoir written by a surrogate mother would focus primarily on the surrogate mother's experiences.

Ugliness 8) Ms. Kuczynski is rich and the surrogate mother is not.

Egalitarianism. This is a dead horse. Insert standard arguments against egailitarianism if you must.

Re: Ugliness 8 and egalitarianism

I read ugliness 8 the opposite way. If you consider yourself an egalitarian, banning or discouraging the transaction keeps the rich rich and the poor poor. The transaction itself, as you noted, enriches the lives of both parties ex ante (else they wouldn't voluntarily transact), and also leads to a more egalitarian outcome - the rich party gives up money for the pleasure of raising a child (which itself is a very costly enterprise), while the poorer party receives money for the service provided. What could be more egalitarian than that?

8 refers to the bit about the photographs

This is what I was referring to with 8 (I didn't quote everything I summarized because I was feeling too close to the edge of "fair use"):

Then there are the photographs, already infamous: Ms. Kuczynski in a black sleeveless sheath and stiletto-heel pumps, posing next to the pregnant surrogate in khakis and a tousled pink flannel shirt. Ms. Kuczynski holding the baby on the lawn of her Southampton estate, with columns, topiary and servant. The surrogate sitting, barefoot and alone, on a beat-up porch of her house in Pennsylvania.

According to the Times's "Public Editor" column, Ms. Kuczynski objected to the pictures before the article was published. And who knows? Maybe the photographers and art directors were out to subvert her story all along. If so, they understood market relations far better than the author herself.

I may not have fully mined the quote for its meaning, but what I got from it is the idea that the contrast is itself "infamous" - the contrast between one woman pictured surrounded by her wealth and the other woman surrounded by her poverty. To consider the contrast between wealth and poverty as in itself "infamous" strikes me as straightforward egalitarianism. The charge here of "infamy" does not refer to the transaction itself, but to the static images of the women as they are in a slice of time.

He refers in the second paragraph to "market relations", and if you check the title of his essay you know he must be implying that market relations are bad. He does not actually state what the contrasting images show about market relations - he seems to feel that it is sufficiently self-evident that it does not need saying. It is not clear to me whether he is blaming the market for the difference in wealth, or blaming the market for taking their difference in wealth and producing a transaction of surrogacy. I'm not sure whether he himself knows or cares which he means.

I grant that the transaction in fact reduces inequality, and so an egalitarian might reasonably favor it. Nevertheless, his stance appears to be egalitarian. I might imagine his response as being something like, "you must be joking, the reduction in inequality is so minuscule that it is hardly worth considering, and meanwhile we have this vast gulf left over, and this gulf is self-evidently infamous." I know, not entirely logical (since the point remains that the surrogacy reduces the inequality, however slightly, and it's the surrogacy he's writing against). But it's how I read him.

If you consider yourself an egalitarian, banning or discouraging the transaction keeps the rich rich and the poor poor.

Actually, one can argue that banning economic relations impoverishes the rich as well as the poor. The point of having a lot of money is being able to buy stuff with it. The less you can buy with your money, the less rich you are for having a certain amount of money. Granted, if the rich have nothing to spend their money on they may on balance keep more of it, but the value of the money is reduced, so in real terms it is, in effect, as if it were less money.

Ms. Kuczynski fails to

Ms. Kuczynski fails to understand that "how our system works" is the reason that college and surrogacy are available to people like Ms. Kuczynski and not to other people

Implicitly it seems that everyone having access to surrogacy, as opposed to merely people like Ms. Kuczynski, would be a good thing. It follows that surrogacy cannot be intrinsically ugly. Therefore, the supposed ugliness of surrogacy must lie in the unequal access to surrogacy ?

In this case, Mr Frank should be equally appalled by such things as food, access to clean water, health care, etc.

Correction

The [politicians] whose exploits we used to follow with such fascination, it now seems, plowed the country into the ground precisely because of the fabulous rewards that were showered on them.

There, that's better.

Maybe this is a

Maybe this is a predetermined lesson, but at least I have specific reasons for believing this - such as, that the financial crisis is in large part a consequence of large numbers of people failing to repay loans which were foolishly made to them, and these loans were made at the insistence of politicians such as Barney Frank in order, essentially, to buy votes.

Good Republican talking points, but not reality.

1. Less than half of subprime loans were made under the CRA.

2. The financial crisis was caused by idiot capitalists betting money they didn't have on a bubble, backed with insurance underwritten by people with not nearly enough capital.

Take away the CRA, and you still have more than half of all subprime loans. And you still have the Wall Street idiots betting, insuring, and backing without the capital to do it.

The government's housing and monetary policies failed, but couldn't generate the crisis without the failures of Wall Street.

People are not idiots

People are not idiots most of the time.

If you want to argue the details, you can argue with James (he's also arguing this on Usenet). I just want to make a general point. My story doesn't require that anyone is an idiot. Yours requires that significant actors are idiots - you've even called them idiots.

A government regulator who crams terrible regulatory policy down the throats of lenders is not an idiot, because he's buying votes and it's not his money that's being lost.

Lenders who comply with government regulation are not idiots, because they need to do that to keep the government regulators happy, and they calculate (correctly as it turns out) that they will be bailed out if things go south.

People with no assets to lose who take out absurd loans are not idiots, because for them the downside risk has been artificially lowered (the bank takes on the risk).

Voters who vote for the politicians who bring us this crap aren't idiots because voter ignorance is rational. (The votes are idiotic by a certain standard, but the voters not themselves idiots by the standard of a person failing to act rationally in his own interest, because it is rational to avoid the research and thought it takes to avoid voting idiotically.)

Those are the key players in my story, and everyone's acting rationally in his own interest. Your story relies on important players not acting rationally in their own interest.

You might try the economic-man-is-a-myth response (the one that faults economists for assuming flawless rationality), but (a) your story does not only require some departure from ideal rationality but specifically idiocy, (b) my story does not require ideal rationality but only reasonable self-interested behavior as we can reasonably expect from any human, and (c) the people-are-idiots move is a move that anybody can use to prove pretty much anything at all, since you can use it to fill in any explanatory gap in whatever half-baked account you might cook up. Reliance on idiocy to explain what happened is a sign that something is missing from your theory. I find that the charge of "idiocy" is often cover for an unmentioned environmental factor, an incentive producing the behavior, and that incentive, in the case of some economic trouble, regularly traces back to some government intervention or other. Consider the case of the Great Depression, which was initially blamed on market failure and on human irrationality (Keynes's term was 'animal spirits'), but which many economists now understand as a consequence of a series of government interventions and the reasonable reactions of people to those interventions.

There are, to be sure, people who genuinely deserve to be recipients of the Darwin awards. But to populate your account of events with these people at key points, where their idiocy just happens to take them in the direction your narrative needs in order to close its holes, does not inspire confidence.

This is a general point that applies not only to your explanation of events, but also to wretched movie scripts, in which characters do the thing which no one would really do but which is exactly what is needed in order shove the plot along the tracks of its genre.

"racist"

"A government regulator who crams terrible regulatory policy down the throats of lenders is not an idiot, because he's buying votes and it's not his money that's being lost."

In America, they call someone who objects to a popular policy that benefits large numbers of voters a "racist"

I am about to find out what they call them in Iceland.

"Good Republican talking

"Good Republican talking points, but not reality."

Good Republican talking points and reality, although there would have been a serious recession without the subprime loans. The main engine of which being the setting of interest rates below market.

"The financial crisis was caused by idiot capitalists betting money they didn't have on a bubble, backed with insurance underwritten by people with not nearly enough capital."

Actually they had the money which was being created out of thin air via the fractional reserve system. Fractional reserve money that was prone to rapid deflation. The insurance was underwritten with capital that had appreciated via fractional reserve inflation. So therefore all the bookkeeping works out. Unfortunately, prices are set at the margin and the fractional reserve bubble was not sustainable, and furthermore the CRA inflated the bubble even further on the margin.

The CRA took the bubble to heights it could not have achieved otherwise because it would have collapsed sooner with less buyers. Clearly the people being loaned to were even more marginal buyers than would have bought in with a normal interest rate caused bubble.

The politicians made every possible mistake they could. Republicans bought into Keynesianism and Democrats took it a step further with the CRA.

Where the Republicans get it wrong is in not understanding that the bubble mostly rests on non-marginal buyers. I am an example of that. I borrowed against the increase in value in my house because I knew that I would be paying back in deflated dollars in the coming inflationary period.

Yep, good economics, not Keynesianism, predicts that the political obsession with Keynsianism will result in inflation. It already has but the BLS is just underreporting inflation. It will get worse.

Meanwhile Republicans and especially Democrats are proposing "solutions" that will only make things worse. Like Obama's "invest in the infrastructure" plans, the financial bailout, and handing money over to the big 3.

The bubble did not cause the financial crisis:

"Where the Republicans get it wrong is in not understanding that the bubble mostly rests on non-marginal buyers."

The default, however, mostly rests on members of protected minorities.

Capitalism and free markets are prone to bubbles, and a great deal more prone to bubbles when speculators can expect that the government will print as much money as needed to keep the bubble going, but bubbles do not in themselves lead to massive financial defaults, because normally lenders only lend to people who are in a position to repay, even if the bubble pops.

Members of protected minorities, the beneficiaries of government mandated affirmative action lending, are not making payments on their loans.

In Palo Alto west of the freeway, there is one foreclosure. In Palo Alto east of the freeway, ninety nine foreclosures.

Main cause: Monetary Inflation

Financial bubbles are always associated with increased fraud and it is usually the fraud that pops them. Read the book "Fiat Money Inflation in France" and you will see the same dynamic. The increased money supply caused a broad segement of the population, including "the poor" to get involved in things like "stock jobbing", the equivalent of "house flipping".

Heck, look at the internet bubble.

These bubbles are also generally associated with political pressure to lower standards to keep the ball rolling. Like the pressure to do the bailout.

This is NOT a feature of free markets as you claim. This is a problem associated with fractional reserve banking and/or fiat currency.

The CRA is more a symptom than a cause. They always find an "good" excuse for monetary inflation. Read that book. It's only 66 pages long.

Does it surprise you that the most marginal buyers are getting creamed by the bubble? Do you blame minorities for the crash of the internet bubble?

The financial crisis is affirmative action lending - CRA.

". Less than half of subprime loans were made under the CRA."

Since 1999, all mortgage loans are made under CRA, every single one.

In that:

Starting in 1999, all mortgage lenders are required to report the race of the borrower, though forbidden to ask the race of the borrower.

Starting in 1999, all mortgage lenders were informed that their performance in these reports would be evaluated, and taken into account in *all* regulatory decisions - which sounds very much like a threat, that if you do not make your racial quota, they will make up something unrelated to racial quotas and charge you with it.

"The financial crisis was caused by idiot capitalists betting money they didn't have on a bubble, backed with insurance underwritten by people with not nearly enough capital."

If you check out foreclosures on sfgate.com it is perfectly obvious that what is causing the financial crisis is that members of protected minorities not making their payments.

As I point out in my blog post
Foreclosures in Palo Alto west of the freeway (white and some chinese, chinese being an unprotected minority):
One foreclosure at the time I made that post.

Foreclosures in Palo Alto east of the freeway (black and hispanic, all protected minority):
ninety eight foreclosures at the time I made that post.

Foreclosures in Gilroy (wholly hispanic, all protected minority)
two hundred and sixty three foreclosures at the time I made that post.

Obviously this is affirmative action lending. Affirmative action graduates do not know their stuff, affirmative action hires do not do their job, and affirmative action mortgages do not get repaid.

Dear Jim, The Steve Sailer

Dear Jim,

The Steve Sailer beat has already been taken. It isn't becoming of you.

Cry 'racism'

Government policy favoring protected groups is especially hard to criticize because people like you will attack those who attempt to shed light on the effects of those policies. Even now, after such a policy has left the taxpayer with a trillion dollar tab, people will still attack any and all who attempt to point out what has just happened.

Your response to James is a microcosm of a larger problem. This is one of the reasons it happened in the first place. People were reluctant to come out against it because they were afraid of being accused of racism. We are all now paying a heavy price for the intimidation and fear.

Cart before horse

>Thomas Frank doesn't offer any reason aside from his own assertion for believing that "massive inequality" caused the financial meltdown.

The purpose of the financial meltdown is to cause the destruction of the middle class and massive inequality. There can't be any financial meltdown when 80% of the population are serfs. How long did Russia survive in that state? Hundreds of years.