Economics: more or less government intervention?

[sees_all1]

McDonalds have been advertising their chicken nuggets as 100% chicken forever, even though they contain something like 38 ingredients.

 

Alright, if we can't use common sense, post the claim.

[Omar]

I'm sorry, what?

[sees_all1]

I'm asking you to post McDonald's advertisements where they claim their chicken nuggets are 100% chicken.

[Omar]

I've been looking for ages, but I can't find any commercials. For some reason, they're referenced by a lot of articles, but impossible to find. Maybe they don't exist.

[obfuscator]

I seem to recall seeing that.

 

I'm curious to get some of the "less government" opinions on the big 3 auto bailout.

[Omar]

http://cafehayek.com/2012/11/walter-williams-on-the-morality-of-free-markets.html

Williams touches on that.

[Donnie]

I seem to recall seeing that.

 

I'm curious to get some of the "less government" opinions on the big 3 auto bailout.

 

I gave my response several times on this thread and the elections one.

[Randox]

If you addressed bailouts in particular, I think we both (me and obfuscator) missed it. Rather than repeat yourself, maybe you could link to a post where you did this (if not I'll actually look tomorrow, thread isn't that long and I'm actually not that lazy).

[Donnie]

well short answer is bubbles pop and the crash is meant to restructure the economy to where it should've been (before subsidies created a bubble) and bailouts are as bad as the original problem perhaps in ways worse. I didn't give a direct answer I just posted a video. But that is my direct answer.

[Range_This11]

I think the completely free market, when implemented, isn't stable. Any company can improve their position by, for example, not providing correct information or forming cartels. Hence, some ouside influence is required to keep the markets in check. It'd help if that influence wasn't corruptible. Transparency helps there. In the end, everybody's a stakeholder in the welfare of the economy, so it's not quite possible to have 100%-outside influence.

 

Free market as ideal as well as for example the "Industries regulate themselves because public perception is worth it." heavily depend on the rational, economically sensible person. Those people are very very rare indeed and it's not realistic to build your economy around 'rational' deciders. People still take detours to go to cheaper gas stations.

 

On the other hand, having all industry publicly-owned hasn't worked out much so far in the USSR etc..

 

So in the end, I trust my democratic goverment more than I trust a company whose primary or even only interest is making money.

 

I agree with everything in this post, especially the last line.

[Randox]

Except that subsidies didn't create the bubble...thinking money was unlimited (and poor regulations) did. If anything, I would think the housing bubble is a shining example of not more regulation, but smarter regulation, to keep people from doing incredibly stupid things (it's also not the first time in history that someone has made that mistake, I think it was actually the third. Both France and I think England did their best to destroy their economies doing pretty much exactly the same thing, and considering how it worked out for them, the States is taking it quite well).

[Omar]

According to that video Donnie posted, you could say money is a good. Its price is the interest rate. Subprime lending is subsidized lending financed through an inflation tax.

[sees_all1]

Except that subsidies didn't create the bubble...thinking money was unlimited (and poor regulations) did.

Pretending that free markets are to blame in the current economic mess is foolish. The federal government was involved at every step leading up to the crisis, and one could easily argue that the government was the cause of the bubble.

 

EDIT:

See Fannie Mae, Freddie Mac, Government Sponsored Entity, Housing and Urban Development.

[Donnie]

Except that subsidies didn't create the bubble...thinking money was unlimited (and poor regulations) did. If anything, I would think the housing bubble is a shining example of not more regulation, but smarter regulation, to keep people from doing incredibly stupid things (it's also not the first time in history that someone has made that mistake, I think it was actually the third. Both France and I think England did their best to destroy their economies doing pretty much exactly the same thing, and considering how it worked out for them, the States is taking it quite well).

http://en.wikipedia....and_Freddie_Mac

 

I dont know how you can call it lack of regulations when government sponsored enterprises were to blame.

 

1.) they borrow from the Fed at lower interest rates then anyone else on the economy

2.) they are able to take on riskier loans then anyone else (to fulfill the political goal for everyone to own a home even if they cant afford it)

3.) other banks join in and sell off the crap loans to the GSE's. Creating a big bubble. Because of the subside there is more homes being sold then are really in demand. Creating artifically high home values and artificially high numbers of home buyers.

4.) The GSE's fail bigtime.

5.) Every other bank risks going under because they joined in taking bad loans.

6.) They all get bailed out instead of paying for bad business practices.

7.) the cost of this bailout is inflation, however much the dollar has been deflated by the bailouts is the same as getting taxed for that much. Say the $10,000 = 100 pounds of copper. Post bailout $10,000 = 60 pounds of copper. Then everyone got a 40% tax increase through inflation.

[Randox]

Except that the government not stopping them from doing stupid things is pretty much the same thing as not being regulated at all. In both cases they are free to do as they please. The government doesn't tell a crown corporation what to do (often they literally do not have that authority). They set the mandate, and the corporation determines how to achieve their goals. As an example, the Federal Government of Canada can not set the prime interest rate issued by the Bank of Canada. The Bank is an independent corporation, owned entirely by the current finance minister, and it is their job to set that interest rate to manage our inflation (they have other duties, but this is their primary function). What the federal government does is give them a target inflation rate, and they will set the prime rate to whatever they think will achieve that target.

[sees_all1]

Except that the government not stopping them from doing stupid things is pretty much the same thing as not being regulated at all.

In a free market, there is no such thing as a GSE like Fannie Mae or Freddie Mac. There doesn't need to be regulations telling businesses not to do stupid things, because when businesses do stupid things they go bankrupt. When a GSE does stupid things, the government bails them out.

 

More rules and regulations isn't the solution, less government (in this case, GSEs) is.

[Omar]

sees_all, remember that argument you made for less taxes to reduce the deficit because of the Laffer curve? You really think we're past its maximum? US tax revenue/GDP is about 11% according to the World Bank. 27% according to the Heritage Foundation though.

[sees_all1]

The percentage of GDP would probably shrink but the absolute number would grow.

Tossing out a hypothetical - Say the tax revenue/GDP goes from 25% to 20% and GPD grows from 15T to 20T. Tax revenue increases from 3.75T to 4T

[Randox]

Those GSE's back mortgages from banks, allowing the banks to do other stuff with the money they would normally need to back up the mortgage. It doesn't matter if the firm backing everyones mortgages is a GSE or not. When a sub prime bubble ends, and everyone starts defaulting on the mortgage, the banks can't afford the losses, and neither can the backer. Quite simply, by the time they went out of buisness for being stupid, they would have taken your entire banking system with them, GSE or not.

 

That's why they weren't allowed to go under not because they are GSE's, but because every american bank involved in the sub prime buisness was in danger of going under, taking all their clients savings and investments with them. Even if they weren't GSE's, the government would have had to bail them out to prevent a mass run on the banks, and sending much of the country into extreme poverty.

[Donnie]

There is $175k-$200k federal insurance on your money in the bank. So a bank run didnt matter. But part of the reasons banks were so vulnerable is because of fractional reserve banking which once again is subsidized.

 

Plus if every bank in the country went under, where did BoA get their money? the federal reserve for a smaller interest rate then the national average. So if every bank went under people would form corporations again to fulfill the demands for banks. Again banks go under all the time Bank of America was the only one to survive paying out insurance on the Great San Fransisco earthquake I believe.

 

Again you make it seem like there would be anarchy if even EVERY major bank went under. No, in the weeks that happened someone else will enter the game and the few banks that survive will continue lending.

 

 

This is has happened all the time, where bad debts get cycled through with industries that were playing that game falling down too and new ones opening up in their place. INTERVENTIONS ON THIS PROCESS ALWAYS LEAD TO STAGNATION. See now, see the great depression, see Japan in recent times.

 

 

^

Went under in the recession too. Yet you can still buy them now. It seems a lot like these cookies were a good product with a bad company and some other company was willing to buy the recipe and keep producing. This is a good thing. Like a forest fire ends up making more trees then they destroy (especially pine).

 

Why did the company making the cookies go under? Too high of expenses to survive the crash. They likely were not reinvesting in their business enough, they likely over-hired (see the iron law of institutions), and likely had other waste too.

[W1nterW0lf]

Less, much less.

[Omar]

Go on... Name specifics.

[Randox]

I'll take another look at your counter argument again when I am more awake, but I would point out that at least for incomes in the 'middle class', by the time you are getting close to retirement the hope would be that you have a whole lot more than 200 grand saved away.

 

I would also like to point out that confidence is a major factor in the value of a currency. If all of a countries banks go under, the value of your currency is going to take a pounding, which is a big problem for any industry that imports goods.

 

 

And also a question, because either I missed this or this is one of the holes in my knowledge. Why would the banks need financial backing from the government in the first place. Why not just borrow from the federal reserve?

[sees_all1]

And also a question, because either I missed this or this is one of the holes in my knowledge. Why would the banks need financial backing from the government in the first place. Why not just borrow from the federal reserve?

The federal reserve is apart of the government...

 

 

The law of unintended legislative consequences:

http://www.dailymail.co.uk/news/article-2233221/Dennys-charge-5-Obamacare-surcharge-cut-employee-hours-deal-cost-legislation.html

[Randox]

Huh. Ours isn't (it's a crown corporation, making it an independent entity owned in this case, by the finance minister). Our governments used to borrow from them.

 

 

Anyway, I took a step back and honestly I am totally out of my depth on the whole should the government bail people out or not. About the most solid opinion I can form is you probably shouldn't half ass it. Do it or not, but don't pull out halfway through or all you've done is incur massive debt. The economy can probably sort it out either way. As best as I can tell, if you pull off a government sponsored bail out and kick start, your economy will recover faster, but you'll accumulate more debt. If you let it be, you'll probably recover slower.

 

Very difficult to say which is the better option I think, seeing as it's not exactly something we get to study often.