The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve.
> The elephant in the room here is campaign financing. As long as a person* with great wealth can outweigh the desires of the majority of people we will get the government that we deserve.
The fix, making it impossible for ordinary people to contribute useful amounts of money to political causes in which they believe, makes things worse.
Note that we didn't actually have rich people buying elections before the various campaign finance restrictions. Out of fear of a then-imaginary problem, we set up a system where the problem actually occurs.
Malice or incompetence - either way, it's not much of a recommendation.
I don't think that ordinary people are the problem. If by ordinary people you mean natural persons* . In the US government, the elected officials should represent the will of the people who elected them. The problem is that special interests find that money is better spent through lobbying. This allows them to buy votes and even write laws. A massive amount of money is spent lobbying:
> I don't think that ordinary people are the problem.
I didn't say that they were. I said that they were the ones adversely affected by campaign finance restrictions.
The rubes think that that's an accident and that it could be fixed. The cynics think that that was the goal and know that it won't. The realists know that it was inevitable.
> The problem is that special interests find that money is better spent through lobbying.
That's because "we" keep voting for folks who set up programs "to do good". That always fails because regulatory capture always happens.
Either we're insane or we want to be fleeced.
The only way to stop being fleeced is to insist that govt stop doing things.
Yeah this is what I thought when reading this. He does, however, preface his statement that "nothing good happened" with "economically speaking", and he makes a good case from that perspective.
So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system.
What percentage of all this turned out to be true? Zero.
If SarBox applied to the government's own accounting, most Federal officials would be doing hard time. Meanwhile, the vast majority of corporations don't end up restating their earnings. It's one thing to say that people are flawed, and are dishonest when they can get away with it; but it's another idea entirely to imagine that government regulation does a better job. Madoff's competitors called him a scam artist before the SEC got involved; Paulson made a fortune by correctly betting that housing was overpriced; the Enron story was pushed by short sellers and journalists, to the point that the government didn't get involved until after the bankruptcy.
So why would we trust the government--which has failed miserably so far--to suddenly do a better job than the private sector?
There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks.
The only real problem we just suffered, was that certain institutions were allowed to become integral parts of our financial system and were allowed to play fast and loose with their own solvency.
If those banks weren't absurdly leveraged, the housing bubble would have just been another recession.
Lesser problems were the risk ratings that were tantamount to fraud and the short-sighted financial focus of your average corporate entity which lead to the over-leveraging.
But I'm comfortable conceding that ground to caveat emptor and letting the SEC sweep up the most egregious trouble-makers a day late, as usual. Because I honestly have no idea how you could actually _fix_ those problems without breaking something far more important.
> regulation prevents those mistakes from growing into systemic risks.
Regulation creates systemic risks.
Regulation is why all big US banks took a huge hit when Fannie and Freddie hit the skids. Regulation is also why banks were holding "insured" mortgage pools.
If those banks weren't absurdly leveraged, the housing bubble would have just been another recession.
And now we've gone from a situation where the banks were absurdly leveraged to a situation where the government is absurdly leveraged, most likely resulting in massive inflation unless a miracle happens. I can't really see how the public sector is doing any better than the private sector here. Nobody seems willing to exercise prudence anymore.
> There's a nice balance in there where the free market weeds out most problems, the government mops up mistakes that get by and regulation prevents those mistakes from growing into systemic risks.
You missed the largest problem - the Federal Reserve set the price of borrowing money artificially low, almost to the point of being free. Whenever you set the price of borrowing money (interest and fees) lower than the rate of inflation, you're going to get some sort of massive financial problem. It's in everyone's rational interest under that scenario to borrow as much as they can. Of course, that leads to catastrophe.
That plus the large tax cuts aimed pretty much exclusively at the rich -- give all of the asset holders a bunch of extra liquidity and remove ordinary T-notes as an option by setting rates lower than inflation even while borrowing a ton of money..
You're gonna get a bubble somewhere -- that money has to go somewhere.
But bubbles in and of themselves don't lead to the systemic crisis we just went through.
There were plenty of policies I disagreed with and plenty more that fueled the bubble. But I was talking specifically about the problems that lead to the credit crisis, paralyzed markets and generally gummed things up above and beyond a popped bubble.
I don't follow your argument. Are you saying the government's failure to prevent those three things from happening somehow proves regulation is worthless? Or are you just pointing out that individuals in the private sector were able to figure these things out before any government agencies?
It certainly doesn't appear that the private sector was able to prevent those three things from happening, so I can't see how your conclusion follows from your argument.
That's a silly assertion. Between the Freedom of Information Act and various federal, state and local procurement rules, the government never spends any money without making much more information available than Sarbox requires. That's part of why it's inefficient.
"Blah government is stupid" is not a sufficient answer to most questions.
How could someone possibly run a pension like social security? How could they run a health insurance system like Medicare?
Seriously. Can you tell me how anyone could do what those entities do, release the same financial statements, and not a) be in jail, and b) deserve it?
Medicare is more efficient than the overwhelming majority of private insurance companies.
Social Security also has super-low overhead, less than most funds (although lower returns than many funds as well).
The federal government is actually better at pure administration than the majority of private companies, because they're constantly under the threat of getting the axe and have a mandate to do their job rather than take paychecks home. The lower salaries don't hurt, either. (EDIT: by pure administration I mean simple administrations like SS -- money goes in, money goes out, the administration is a miniscule share of the budget. No way a private company provides a service like that without demanding a bigger chunk for themselves)
Lots of problems with the government.. if you're looking for wasted money, I'd suggest looking at military procurement. But pure administration of simple tasks, they actually do pretty well.
If you're ideologically opposed to the existence of even a perfectly run Medicare and SS, of course, that's a different story..
I haven't looked much at medicare from an accounting perspective, but Social Security is a textbook case of the sort of off-balance-sheet entity that blew up Enron earlier in the decade and some of the banks more recently. SS currently takes in more money than it spends, but the excess is then "borrowed" and spent by the rest of the government. It has tremendous future liabilities but the assets consist of IOUs from the Treasury. If I ran a pension fund like this, the administration could be perfectly efficient in terms of processing incoming and outgoing payments, but I'd still be guilty of conducting a Ponzi scheme. The difference between the government doing this and a private entity doing this is that the government will just change the rules to make the problem go away when they get into trouble, while the administrators of a private entity would go to jail.
"IOUs from the treasury", otherwise known as T-notes, are, according to everybody, including "everybody in the private sector", the safest interest-bearing investment on the planet.
Where do you think they should put their short term surplusses to offset the long term obligations? Cash under the mattress? Honest question -- where else should they keep that money?
They shouldn't keep the money, they should return the excess back to the taxpayers or they should convert it into on-balance-sheet debt to reflect the fact that an IOU to yourself does not really represent an asset.
Treasury debt is certainly the safest interest-bearing investment on the planet from the perspective that if the instrument says you will get X number of dollars every few months and Y dollars at maturity, then that is exactly what will happen. The problem comes in due to the fact that the Fed has a great deal of control over the real value of those future dollars and they might not be worth as much as you hoped when you eventually receive them. When it comes right down to it, the people in charge when the debt gets too big to manage would have to be galactically stupid to choose explicit default/repudiation over inflation.
Given that the government must already borrow from sources outside the Social Security trust fund in order to meet its expenses, what do you think will happen when social security outflows exceed payroll tax inflows? The following answers seem to cover all cases as far as I can tell:
1. Raise payroll taxes to cover the excess.
2. Raise general taxes and use the extra money to redeem the special treasury bonds from the trust fund.
3. Cut spending in the rest of the government and use the excess to redeem trust fund bonds.
4. Borrow money from external sources to redeem trust fund bonds.
5. Cut benefits down to a level at which they are covered by payroll tax inflows.
Any way you slice it, the trust fund is an accounting fiction and eventually taxes will need to be raised, more money borrowed, or spending or benefits cut.
What? It's not excess, it's future obligations. They're still projected to go broke in 40 years or whatever, they have obligations to people who've been paying into the system. Taxpayers.
Social Security, Medicare, and Federal discretionary spending are 3 entirely different things and you should think of them as different entities instead of one big thing called "government". They each maintain separate balance sheets. Social Security's being smart with their money.. the federal discretionary budget over the last 8 years or so, not so much. Hopefully we'll get back to that soon.
Ah, so this is where we disagree. As a taxpayer and consumer of government services, I do not view things this way. We have a government, and to this government I pay taxes, and from this government I receive services. I only care about the amount of taxes that I pay, not how they are apportioned between payroll vs. income vs. other. Since congress sets the rules for all three entities, I can't see how you can argue that "Social Security" is being smart and discretionary spending is not. The money all comes from the same place: taxes and debt. Frankly, and with no offense intended, you seem to be falling for what looks to me like accounting shenanigans.
Medicare is more efficient than the overwhelming majority of private insurance companies.
Insurance companies would operate very differently if they could charge prices based on what their customers would cost them. It would also help if employer-provided health plans didn't have such huge tax advantages. And Medicare provides a different set of services.
It would be as if the government mandated that 1) instead of buying meals, you had to buy the right to eat at a restaurant--but the restaurant could not charge different people different amounts based on how hungry they were or what they liked to eat, and 2) companies could buy food for employees at a tax-advantaged rate. If that were the case, food would suck, and one could imagine free government-run cafeterias that provided cheaper, better service.
Social Security also has super-low overhead, less than most funds (although lower returns than many funds as well).
Their return is zero, minus administrative costs. When you invest money in a mutual fund, they buy stocks with it; they don't use it to pay off the previous investors, and spend the rest on their pet projects. That's illegal.
The federal government is actually better at pure administration than the majority of private companies, because they're constantly under the threat of getting the axe and have a mandate to do their job rather than take paychecks home.
I would like to meet some of these government employees who actually fear losing their jobs. Where did you find them?
If you're ideologically opposed to the existence of any social welfare systems, then that's a philosophically consistent position -- one that about 80% of americans disagree with, but it's consist and you're entitled to your own opinions.
You are not, however, entitled to your own facts.
FACT: Medicare's payout rates have nothing to do with their administrative costs. You're thinking balance sheet. Administrative costs for Medicare and the VA are far, far lower than any insurance company. It's a fact. And that's before you consider that the insurance companies are taking out profits on top of that. This isn't an indictment of the ideas of markets in general -- this is more a statement that insurance companies aren't in anything resembling 'markets' and have no accountability to anyone. Who else gets away with 15-20% yearly rate hikes for a decade? They're getting less efficient.
Similar story for SS. Per dollar managed, they're orders of magnitude lower in fees than any organization on the planet, because they process a ton of money through a dead-simple operation. Any inherent differences between "public and private" are noise compared to those fundamentals. It's not about public and private. If you want, you can argue that they should be doing more complicated things instead.. but then I think about my parents' impending retirement, their 401k recently, and am pretty glad that they kept it simple.
So anyways -- you're entitled to your own philosophical opinions about whether things like medicare and SS should exist -- but factually, they're much more efficient at what they do than any private sector equivalent. Also, what they do would most likely never be done by the private sector on it's own. If you think it just shouldn't be done, that's a coherent position of course.
- Do you think people should receive necessary medical treatment based on ability to pay? That's the alternative universe where health insurance companies charge based on cost.
- Should the government should try to hire younger, less educated, part-time employees to bring pay down? Your chart links to an actual explanation:
"In 2008, only 14 percent of federal workers were on part-time schedules, compared to 26 percent in the private sector. Federal workers were far older on average: 55 percent were between the ages of 45 and 64, compared to 36 percent of private-sector workers. Furthermore, 45 percent of federal workers held a college degree or higher educational credential, compared to 29 percent of private-sector workers.
Federal workers are more likely to receive employer-paid health benefits than private sector workers — 77 percent compared to 56 percent."
...
"The biggest difference between private and federal employment, illustrated in the graph above, lies in the proportion of jobs paying less than $25,000 a year. In 2008 more than 43 percent of private-sector workers earned less than $25,000 a year. Most federal employees fell squarely in the middle earnings brackets, making $25,000 to $75,000 a year."
Not hard to argue at all. This narrative is worn out. The populist belief that Corporate America was a down-home hoe down where good guys get together and make deals with a handshake is revisionist at best.
Summers perfectly illustrates that the financial system is a nepotistic web of USG, banks, and investors which is heavily regulated to maximize profits at all endpoints. The fact that it only comes crashing down every few decades is a testimony to the small remnants of capitalism one might find in the edifice.
In 1999, I was 16 and thought the world was run mostly by idiots, scumbags, and criminals, and that it was going to fall to pieces within a few years. Everyone thought I was just expressing "teenage angst" and that I'd be proven wrong by maturity. By 2008, these sentiments-- established to be largely true-- were common knowledge.
Even the liberals of the time (e.g. Clinton) had a steadfast belief in corporate benevolence as a general principle. You were seen as a whiner and a loser (envious, insecure) if you suggested otherwise. Now? Turns out the "whiners" were right.
I think it's more 'by definition' than 'by coincidence': the world has always been run by idiots, scumbags and criminals and it falls to pieces every decade or two like clockwork.
Youthful angst is just a condition where you think no-one else notices and that the problem is solvable.
Maturity is when you realize that anyone paying attention has always known and simply decided that playing along leaves more time to get on with life than railing against the game.
There’s a wonderful line in a Matt Groenig comic strip that goes something like this: “The jocks, bullies, and tattletales that tormented you all through your school years grow up to be the people who turn you down for jobs, explain why your broken products are no longer covered by their warranties, and announce that your country has just declared war.” Only he said it much much better.
I didn't mean to suggest that every person 'running things' was accurately described by each label. I meant "idiots, scumbags and criminals" as a domain.
I wouldn't even rule out that an exception or two might not fit into any of those labels. I just don't think they're statistically significant.
I just mean that I don't see that he was right by definition. That would mean that the world is run by idiots by definition, which is obviously false (that fact, if it is a fact, doesn't follow from the definitions of any of those words).
Fair enough. I was expressing teenage angst, in part, because I knew things were going wrong. The angst might have been there even if society had been in a better state. It certainly was better than it is now.
The good news is that there is only one way to go once you hit rock bottom. The bad news may be that I don't think that we've hit bottom. And, we don't necessarily know what the bottom is. The Big Zero is a nice round number, but I think we've been borrowing towards an unpayable debt for longer than ten years, and we are only falling further. Planes, both figuratively and literally, continue to keep dropping out of the sky. If it was left up to me, I would get right to the bottom of it.
Basically the decade involved a ridiculous penetration of cheap phones, cameras, and texting, along with vastly improved TV and monitor technology. Along with this came an extreme social change towards being plugged into a social and media network at all times, toward where this is now near its logical conclusion of the devaluation and death of individual thought.
*By person I mean a legal person http://en.wikipedia.org/wiki/Legal_person