Is Capitalism the Root of Inequality?

[russ_watters]

I respectfully disagree. If you have cancer but no symptoms yet - would you say you are in good health?To clarify - and again you have misquoted me - I said that the crash of the real estate market was the disaster.

No, you didn't. You said "the last two decades [now three decades] of deregulated markets have been a disaster."

If you were only referring to the real estate market, you would have used a different timeframe that didn't include the S&L crisis and you wouldn't have said "markets" (plural) if you were referring only to one.

Most of the rest of your post is more dodges of your own claim/refusals to explain. You need to stop asking me questions and explain yourself (and provide evidence): its your claim to develop and prove, not mine.

- BTW: the word 'worthy" seems to be subjective. Again we are involved in semantics.

It is not necessary to argue over the word "worthy:" you made the comparison, not me. It is incumbent upon you to prove how the last 28 years was a "disaster" like the 1930s was.

- As far as regulation goes I grant you that I can not document all of it..

You haven't been asked to document ANY of it: you have been asked to show how the last 28 years was an economic "disaster"., comparable to the 1930s.

- BTW; I think it is fair to ask for documentation of the science on Human nature...

It is not fair to request anything of anyone else that you are unwilling to provide yourself. Did you even read the provided reference?

 

[russ_watters]

What long term gains ?

All of them. You tell me how you'd like to measure it: economic growth? Standard of living? Life expectancy? Several possible measures have already been cited in this thread. The bottom line is that essentially all of the advancement in the human condition has happened in the past 150 years and was driven by capitalist/democratic countries.

For example:

 

[russ_watters]

... but my benchmark is not how bad things were centuries ago, my benchmark is how much better it could have been ... and the opportunities we have lost.

Given that you are comparing against a hypothetical, that's probably inherently impossible to prove. Its basically just fantasy.

 

[lavinia]

It is not fair to request anything of anyone else that you are unwilling to provide yourself. Did you even read the provided reference?

For clarity - and I apologize if I misstated my point - The real estate crash was an economic disaster (or if you don''t like the word disaster use a different one) but in my opinion its seeds were planted much earlier. Plus similar phenomena led to disastrous crashes in at least one other country - namely Japan.

BTW: I would be interested to know how much the Japan crash affected views on the application of monetary policy in Central Banks generally. I will look for studies done at the Fed. It would not surprise me to find a study somewhere by Bernacke. My anecdotal impression is that Central Bankers took that crash very seriously. In the US there was at least one smaller crash afterwards, the Tech bubble although there was a mini-crash at the end of 1994 which may well have alarmed the Central Banks - not sure. As you remember this crash sank Orange County financially.

http://www.nytimes.com/1994/12/08/b...w-orange-county-crisis-jolts-bond-market.html

Alan Greenspan spoke of "irrational exuberance" of the markets and interestingly I think that he feared tightening monetary policy because it could crash the market so he tried to talk it down.

There was also the crash of some Hedge Funds like Long term Capital Management that required Central Bank intervention.

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

I personally ask what the new problems of monetary policy are in the face of unregulated leveraged markets.

As far as unfair goes, I take that as a subjective opinion since all demand for documentation can be viewed as fair in a scientific forum.

I will not document what I did not mean to say and I hope my explanation makes what I actually intended clear - but I still think documenting the history of economic growth and regulation is a worthy enterprise and will pursue it.

 

[Siv]

All of them. You tell me how you'd like to measure it: economic growth? Standard of living? Life expectancy? Several possible measures have already been cited in this thread. The bottom line is that essentially all of the advancement in the human condition has happened in the past 150 years and was driven by capitalist/democratic countries.

Life expectancy increase is a result of capitalism?? Thats a stretch.

Louis Pasteur discovered the benefit of washing hands with soap ... and then medicine became scientific ... until the profit motive caught up with it to seriously damage these benefits. Increasing life expectancy has brought a whole host of newer and bigger problems, too many old people living on and on, and being a burden to society and using up precious medical resources that could be used for younger and healthier people. Science was the reason for increased life expectancy, until capitalism caught up with it and spoilt the quality of this increased life span tremendously.

Agriculture is another so-called boon which has now turned into a bane. The kind of diet most people eat, full of grains, and worse, refined grains and sugars, has resulted in immense nutrition myths and horrible health for everyone. The burger/pizza culture imported from the West has pretty much destroyed the health of a lot of Eastern cultures. And what do we have to thank for that ?? Capitalism, of course !

Correlation, by the way, is not causation. Lots of things happened in the last century or so, are they all to be thanked for any improvements during these years ??

 

[lavinia]

More DocumentationHere are two articles - one a detailed study of the S&L crisis - which document the effects of deregulation of that industry during the 1980s and sent the country into recession by the early 1990's and cost the US taxpayer large sums to resolve the ruined S&L industry. The FED, in order to stem the recession and finance the resolution of failed banks brought the overnight rate from over 8% to 3% by 1993.

https://www.fdic.gov/bank/historical/history/167_188.pdf

http://www.dailyfinance.com/2010/07/03/financial-meltdown-vs-savings-loan-crisis-recession.

The S&L crisis is parallel in many ways to the recent real estate crisis, particularly in the wide spread of speculation and fraudulent practices in the quest for high returns and in its effect upon the economies of several states. The crisis is commonly called the "S&L Debacle" .

 

[lavinia]

More Documentation

Here is a review of the history of deregulation of financial markets ending with a description of the recent real estate crisis.

http://www.cepr.net/documents/publications/dereg-timeline-2009-07.pdf

 

[lavinia]

More Documentation

Here are references on the speculative bubble in Japan during the 1980's that triggered an at least one decade recession (The Lost Decade) and some say two decades.

http://www.thebubblebubble.com/japan-bubble/

http://en.wikipedia.org/wiki/Lost_Decade_(Japan)

After World War 2 Japan instituted banking regulations that were stricter even than those in the United States. These regulations were part of a program to nurture the Japanese economy. The policy was considered to be successful but in the mid-1980's significantly because of pressure from the United States and Europe, Japan deregulated its banking system After 1985 the bubble took off.(See the referenced paper below).

There is an interesting paper written in 1992 by Kenusuke Hotta, a Managing Director at Sumitomo Bank, who strongly favors the deregulation. I could not figure out how to copy the link but it is called "Deregulation of Japanese Financial Markets and the Role of Japanese Banks" Occasional Paper no. 7 ,Occasional Paper Series
Center on Japanese Economy and Business Graduate School of Business Columbia University
February 1992

 

[lavinia]

More Documentation

https://www0.gsb.columbia.edu/faculty/fedwards/papers/Hedge_Funds_&_the_Collapse_of_LTCM.pdf

This paper reviews the collapse of Long Term Capital Management
It also has a review of Hedge Funds and their trading strategies.

It also covers the 1998 Russia default on a large amount of its Treasury debt and its cancellation of derivative contracts. This created a cascade of margin calls and asset devaluations. Basically, firms were forced to sell assets in order to meet margin calls thus causing a drop in prices which then triggered more margin calls and so on. Panic led to a flight to quality which widened yield spreads on risky assets generally for instance, B rated corporate bonds. Long Term Capital Management had huge leveraged bets on yields spreads. The spread widening destroyed it and I have heard nearly wiped others hedge funds like D.E. Shaw & Co. Here is a section of the article that discusses the "systemic risk" of its impending bankruptcy and the resulting bailout organized by the Federal Reserve Bank of New York.

" In early September 1998, LTCM advised the Federal Reserve Bank of New York of its impending difficulties. During the next few weeks, Federal Reserve representatives organized meetings of LTCM's creditors and met with LTCM partners to discuss the situation. On the evening of September 22, the president of the Federal Reserve Bank summoned more than a dozen top executives of the firms that had loaned money to LTCM to an 8 p.m. meeting and warned them that "systemic risk posed by LTCM going into default was 'very real'" (Siconolfi,1998). The next day a 16-member creditor consortium agreed to put in additional capital of $3.625 billion in exchange for 90 percent of the remaining equity in LTCM; ..."

 

[WWGD]

All of them. You tell me how you'd like to measure it: economic growth? Standard of living? Life expectancy? Several possible measures have already been cited in this thread. The bottom line is that essentially all of the advancement in the human condition has happened in the past 150 years and was driven by capitalist/democratic countries.

For example:

Correlation, Causation? Didn't socialist countries achieve a similar gain in life expectancy (during the years of communism)? I am not arguing in favor of communism, but, how do you explain, e.g. that Cuba's life expectancy is 80.7 years for female, 75.9 for males (World Almanac and Book of Facts, 2015, p.768), similar for former communist block countries (I assume life expectancy does not turn on a dime, that , if the economic system is changed, it may take a long time for the benefits/consequences of this change to take effect.) ?

Besides, capitalism as we know it today has not been in effect for 150 years. Weren't many of the main discoveries made before today's capitalism was in effect? Vaccination, much of the medicine used to prevent childhood death, etc.? How about the scientific discoveries. And there is the additional fact that most of the people who have ever lived, have lived in the last 150 years, so it makes sense that the more people that are alive (living longer), the more discoveries you have. And there were 100's of important scientific discoveries before the 1900's. And the Soviet Union had some of the best scientists in the world. You may even reasonably argue that a critical mass of discoveries had been reached by the time today's capitalism went into effect.

 

[WWGD]

What's a good example of where that's happened? Venezuela has largely dumped capitalism, with the result that they've run out of toilet paper long with other more critical equipment like medical devices, and have brutally oppressed descent.

How is the oppression of descent the result of abandoning capitalism? Despite the repeated mantra by the far right that freedom, capitalism and economic growth go together, the examples of China and India belie that very clearly. Same with South Korea, which was under repressive regimes for a long time.

I think part of the problem with communist countries is that they educated many of their people too well, and the educated tend to ask the difficult questions. Of course, it is also true that there were no jobs for them. Still, capitalism as we know it today has less than 100 years in effect; too soon to decide whether it works in a sustainable way.

 

[lavinia]

More Documentation

This 2012 Business Insider piece quotes Bill Gross, CEO of PIMCO which is one of the largest bond funds in America, who says that the economy is at risk of a Japan style "Lost Decade" by which he seems to mean an extended period of "slow growth" despite signs finally of some recovery in the housing market and resumption of bank lending. His arguments focus on the shape of the yield curve and the record low interest rate policy of the Fed which he says has been in place in order to bring down long term yields to stimulate the housing market. His arguments underscore the severity of the current slowdown and also the risk that ensues when possibly unsound attempts at stimulating recovery are implemented. I found his arguments interesting.

http://www.businessinsider.com/bill...ed-is-taking-us-on-the-course-of-japan-2012-2

 

[lavinia]

More Documentation

The 1987 Stock Market crash

While the 1987 stock market crash had a relatively mild after affect, it is one of the early examples of the risk of the new unregulated leveraged markets that took off in the 1980's Here are two articles that discuss it, one by a contributor to Forbes Magazine, the other a Federal Reserve Discussion Paper.

http://www.thebubblebubble.com/1987-crash/
http://www.federalreserve.gov/pubs/feds/2007/200713/200713pap.pdf

Both of these papers discuss how leveraged trading strategies - in particular Portfolio Insurance and Index Arbitrage - catalyzed the largest one day drop ever in the market.
They also indicate how the stock market - during the vaunted Reagan recovery - was bolstered by low interest rates, leveraged buyouts, IPO's, mergers, hostile takeovers, and a general investment euphoria. These were the days of junk bonds, Michael Millikan's $500 million dollar a year bonus, soaring P/E ratios and the advent of computerized trading of equities.

I have included a page of financial data history such as market prices, bond yields. P/E ratios etc for reference.

http://www.sniper.at/stock-market-crash-of-1987.htm

The crash seems to be attributed to panic that ensued after several things happened. Here is the description in the Fedeal Reserve Paper.

First, news organizations reported that the Ways and Means Committee of the U.S. House of Representatives had filed legislation to eliminate tax benefits associated with financing mergers (Securities and Exchange Commission (SEC) Report 1988,p.3-10). Stocks’values were reassessed as investors reduced the odds that certain companies would be take-over targets. Second, the Commerce Department’s announcement of the trade deficit for August was notably above expectations. On this news, the dollar declined and expectations that the Federal Reserve would tighten policy increased (Wall Street Journal 1987b). Interest rates rose, putting further downward pressure on equity prices (see Figure 2).

On Thursday, equity markets continued to decline. Some of this decrease was attributed to anxiety among institutions, especially pension funds, and among individual investors, which led to a movement of funds from stocks into the relative safety of bonds (Wall Street Journal 1987c). There was also heavy selling during the last half hour of the day amid heavier-than-usual activity by portfolio insurers (Brady Report 1988, p. 21).

Markets continued to decline on Friday, as ongoing anxiety was augmented by some technical factors. A variety of stock index options expired on Friday; price movements during the previous two days had eliminated many at-the-money options so that investors could not easily roll their positions into new contracts for hedging purposes. These developments pushed more investors into the futures markets, where they sold futures contracts as a hedge against falling stocks. Increased sales of futures contracts created a price discrepancy between the value of the stock index in the futures market and the value of the stocks on the NYSE. Index arbitrage traders reportedly took advantage of this price discrepancy to buy futures and sell stocks, which transmitted the downward pressures to the NYSE (Brady Report 1988, Study III, p. 12).

By the end of the day on Friday, markets had fallen considerably, with the S&P 500 down over nine percent for the week. This decrease was one of the largest one-week declines of the preceeding couple of decades, and it helped set the stage for the turmoil the following week (Wall Street Journal 1987d). Portfolio insurers were left with an “overhang” as their models suggested that they should sell more stocks or futures contracts (SEC Report 1988, p. 2-10). Mutual funds experienced redemptions and needed to sell shares (Brady Report 1988, p. 29). Further, some aggressive institutions anticipated the portfolio insurance sales and mutual fund redemptions and wanted to pre-empt the sales by selling first (Brady Report 1988, p. 29; SEC Report 1988, p. 3- 12). ..."

This is an interesting account and the entire event deserves careful study because it exhibits the dangers of an unregulated leveraged market. It shows how a price bubble driven by euphoria and leveraged speculation can be rapidly burst when the factors driving the bubble go away. This can be a change in tax law, a rise in interest rates, a bad economic report, and so on. It also shows how the use of financial derivatives - in this case futures contracts and portfolio insurance (which is a "replicated" put option on the stock market) - can magnify a decline into a crash.

An important thing to note is that with such a huge decline in stock prices, the stock exchange itself was at risk of breaking down . This is because stock specialists financed their positions in stock on bank borrowing using the stock as collateral The banks became reluctant to finance these positions because the stocks had lost significant value and there was huge risk still remaining. BTW: This sort of financing is common in securities markets. In Government bonds, the market for this type of short term - usually overnight - borrowing is called the Repo market.

http://en.wikipedia.org/wiki/Portfolio_insurance

 

[Siv]

Still, capitalism as we know it today has less than 100 years in effect; too soon to decide whether it works in a sustainable way.

I agree.
But I think there are plenty of examples of its imperfections.

The bad aspects of human nature need to be suppressed and discouraged. Thats the whole definition of "civilization".
Capitalism does just the opposite.

Going one step further ... and I know there will be cries of "Nazism" in response to this ... but I don't know why we should continue to live with this problematic human nature and struggle with its consequences. Its a taboo subject to even discuss attempting to improve/modify it. Just because it resulted in atrocities once, does not mean it should be a banned subject forever

 

[lavinia]

In my opinion, one problem with capitalism as it is practiced today (and historically), is the way that central banks handle problems of economically weaker countries to pay debt. The solution is to roll debt over in return for "austerity measures" which force these countries into economic hardship. Paul Krugman has this article where he says that austerity measures not only don't work i.e. they prevent the debtor country from paying by slowing its economy but their harshness leads to political radicalism.

http://www.nytimes.com/2013/02/25/opinion/krugman-austerity-italian-style.html?_r=1

To me, the imposition of austerity is not intrinsic to capitalism so I consider Krugman's observations to be criticism of practice rather than theory.

 

[lavinia]

I agree.
But I think there are plenty of examples of its imperfections.

The bad aspects of human nature need to be suppressed and discouraged. Thats the whole definition of "civilization".
Capitalism does just the opposite.

Going one step further ... and I know there will be cries of "Nazism" in response to this ... but I don't know why we should continue to live with this problematic human nature and struggle with its consequences. Its a taboo subject to even discuss attempting to improve/modify it. Just because it resulted in atrocities once, does not mean it should be a banned subject forever

SIV a couple of questions.

What do you mean by "human nature"?
What are the bad aspects of it?

 

[Siv]

SIV a couple of questions.

What do you mean by "human nature"?
What are the bad aspects of it?

Human nature is essentially the behavioural and psychological aspects of human beings, a lot of which helped our evolutionary journey.
There are common aspects to all human behaviour.
This is a very brief description to something that can cover libraries ...

Bad aspects - oh there are so many ... ethnocentrism, xenophobia, short term benefits at the cost of long term benefits, violence, rape, deception ... all these are innate traits.

 

[Czcibor]

Accepting the imperfections in human nature is one thing ... encouraging those very things which make us imperfect and short sighted is quite something else.

Communism was not the right system for us I know - as E O Wilson said - "Great system, wrong species!" but capitalism is really not much better.

Who is looking for a third alternative? No one.
They are all worshipping at the altar of capitalism

May I, by rules of the forum ask for some data to back up your claim? Because it starts sounding quite interesting...

Because I have limited luck being born in a communist country, and consider such claims in the same as a black person consider claims that apartheid wasn't so bad...

 

[Czcibor]

One question concerning intellectual honesty of this topic. (I mean especially Lavinia)

Are we comparing RL capitalism with some idealised, hypothetical system? Because I may already solve your dillema. Any RL system would be worse than any hypothetical idealised system.

No I mean as fair idea - idealised capitalism vs. idealised alternative. But under such capitalism there are no market failures or market crash :D

Or we should talk about RL capitalism and compare its successes with RL "successes" of its contenders. Like the West vs. Communist countries. Or compare India vs. PRC from times of Deng Xiaoping, when communism was effectively started being jettisoned. Or compare India to Asian Tigers.

 

[Siv]

May I, by rules of the forum ask for some data to back up your claim? Because it starts sounding quite interesting...

Because I have limited luck being born in a communist country, and consider such claims in the same as a black person consider claims that apartheid wasn't so bad...

Sure, Czibor. But which claim, precisely?
I had quoted E.O Wilson's famous "Great idea, wrong species."

 

[Czcibor]

Sure, Czibor. But which claim, precisely?
I had quoted E.O Wilson's famous "Great idea, wrong species."

"capitalism is really not much better"

And we may try to compare let's say North Korea with South Korea.

 

[lavinia]

One question concerning intellectual honesty of this topic. (I mean especially Lavinia)

Are we comparing RL capitalism with some idealised, hypothetical system? Because I may already solve your dillema. Any RL system would be worse than any hypothetical idealised system.

No I mean as fair idea - idealised capitalism vs. idealised alternative. But under such capitalism there are no market failures or market crash :D

Or we should talk about RL capitalism and compare its successes with RL "successes" of its contenders. Like the West vs. Communist countries. Or compare India vs. PRC from times of Deng Xiaoping, when communism was effectively started being jettisoned. Or compare India to Asian Tigers.

I am not sure why I am suspected of intellectual dishonesty. Let's dismiss it as an unfortunate choice of words.

Many of my post were originally in response to a challenge to document the problems with unregulated markets and to show their long term effects. This is not a criticism of capitalism in all of its forms but of completely free unregulated markets. I argued that deregulation of financial markets was a key component of the speculative difficulties of recent decades. The effect of these difficulties is not trivial and in Japan it led to the "lost decade" and the CEO of PIMCO in another article I cited, warned of the risk of a lost decade in the United States. That is my point and I look forward to discussing it with anyone who wishes to take a rigorous view.

Of course, speculative markets are only one problem. I intend to discuss others, and have started to talk about "austerity measures". Paul Krugman's article is worth reading. He is a Nobel Laureate in Economics and a regular contributor to the New York Times.

As far as what systems work or don't work and what systems are better than others, I have no rigorous opinion on that. Nor have I seen a rigorous opinion in this thread. For instance, to say that the Soviet System collapsed ergo it was an inferior system is at worst ideology and at best a hypothesis to be examined.

 

[Siv]

"capitalism is really not much better"

And we may try to compare let's say North Korea with South Korea.

When comparing with communism, it may be better, I agree.
But where is this (unwritten) rule that there should be no other options?

 

[Czcibor]

I am not sure why I am suspected of intellectual dishonesty. Let's dismiss it as an unfortunate choice of words.

Many of my post were originally in response to a challenge to document the problems with unregulated markets and to show their long term effects. This is not a criticism of capitalism in all of its forms but of completely free unregulated markets. I argued that deregulation of financial markets was a key component of the speculative difficulties of recent decades. The effect of these difficulties is not trivial and in Japan it led to the "lost decade" and the CEO of PIMCO in another article I cited, warned of the risk of a lost decade in the United States. That is my point and I look forward to discussing it with anyone who wishes to take a rigorous view.

Of course, speculative markets are only one problem. I intend to discuss others, and have started to talk about "austerity measures". Paul Krugman's article is worth reading. He is a Nobel Laureate in Economics and a regular contributor to the New York Times.

I'd say that claim that claim "unregulated market" is bit risky. You pointed for example housing bubbles. Anyway why housing happens to be so expensive on those free market? Shouldn't those greedy speculators build something out of bricks and mortar instead of just building up bubbles?

Let me quote Krugman, who grudgingly admitted one interesting thing:

It turns out, however, that wages in the places within the United States attracting the most migrants are typically lower than in the places those migrants come from, suggesting that the places Americans are leaving actually have higher productivity and more job opportunities than the places they’re going. The average job in greater Houston pays 12 percent less than the average job in greater New York; the average job in greater Atlanta pays 22 percent less.

So why are people moving to these relatively low-wage areas? Because living there is cheaper, basically because of housing. According to the Bureau of Economic Analysis, rents (including the equivalent rent involved in buying a house) in metropolitan New York are about 60 percent higher than in Houston, 70 percent higher than in Atlanta.

I have to wonder why Cuomo runs ads in CA on the favorability of NY as a business friendly state, with no taxes for ten years, if low taxes...

In other words, what the facts really suggest is that Americans are being pushed out of the Northeast (and, more recently, California) by high housing costs rather than pulled out by superior economic performance in the Sunbelt.

But why are housing prices in New York or California so high? Population density and geography are part of the answer. For example, Los Angeles, which pioneered the kind of sprawl now epitomized by Atlanta, has run out of room and become a surprisingly dense metropolis. However, http://www.hks.harvard.edu/var/ezp_site/storage/fckeditor/file/pdfs/centers-programs/centers/taubman/sunbelt.pdf and others have emphasized, high housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building height in the cities, zoning that blocks denser development in the suburbs and other policies constrict housing on both coasts; meanwhile, looser regulation in the South has kept the supply of housing elastic and the cost of living low.

So conservative complaints about excess regulation and intrusive government aren’t entirely wrong, but the secret of Sunbelt growth isn’t being nice to corporations and the 1 percent; it’s not getting in the way of middle- and working-class housing supply.

http://www.nytimes.com/2014/08/25/opinion/paul-krugman-wrong-way-nation.html

I fully understand idea - risky behaving financial companies and gov that puts supervision on them to limit risk. However to such picture don't fit well ex. US gov that by allowing mortgage deduction is actually encouraging people to take excessive debt.

The problem is that markets are quite often already strongly regulated, just from time to time in the wrong direction.

As far as what systems work or don't work and what systems are better than others, I have no rigorous opinion on that. Nor have I seen a rigorous opinion in this thread. For instance, to say that the Soviet System collapsed ergo it was an inferior system is at worst ideology and at best a hypothesis to be examined

Who said that I use such claim?
Concerning SU collapse - the problem that's not one observation (that could have been caused by some random, unobserved factor.
So have you tried to compare GDP of countries on similar development level before and after testing this system you have no rigorous opinion? I mean North vs. South Korea (under Japanese rule north was actually more industrialized); China vs. Taiwan; West vs. East Germany; Spain vs. Poland (Roman Catholic countries, similar size: in 1950 Polish GDP per capita was a bit higher, in 1990 it had 30% of Spanish GDP)
How do you think, maybe a pattern emerge?

 

[WWGD]

I'd say that claim that claim "unregulated market" is bit risky. You pointed for example housing bubbles. Anyway why housing happens to be so expensive on those free market? Shouldn't those greedy speculators build something out of bricks and mortar instead of just building up bubbles?

Let me quote Krugman, who grudgingly admitted one interesting thing:http://www.nytimes.com/2014/08/25/opinion/paul-krugman-wrong-way-nation.html

I fully understand idea - risky behaving financial companies and gov that puts supervision on them to limit risk. However to such picture don't fit well ex. US gov that by allowing mortgage deduction is actually encouraging people to take excessive debt.

The problem is that markets are quite often already strongly regulated, just from time to time in the wrong direction.

Who said that I use such claim?
Concerning SU collapse - the problem that's not one observation (that could have been caused by some random, unobserved factor.
So have you tried to compare GDP of countries on similar development level before and after testing this system you have no rigorous opinion? I mean North vs. South Korea (under Japanese rule north was actually more industrialized); China vs. Taiwan; West vs. East Germany; Spain vs. Poland (Roman Catholic countries, similar size: in 1950 Polish GDP per capita was a bit higher, in 1990 it had 30% of Spanish GDP)
How do you think, maybe a pattern emerge?

I am not defending communism, Czcibor, but didn't people in the Eastern block have most daily needs paid for by the state? Maybe doing a PPP (Purchase Power Parity) do $5,000 buy you the same in Madrid than in Warsaw (back then and now )? So, comparing maybe a $3,000 GDP per capita in the East vs more than $10,000 in the west, but in the East you are provided with housing, stable job, medical care?

 

[Czcibor]

I am not defending communism, Czcibor, but didn't people in the Eastern block have most daily needs paid for by the state? Maybe doing a PPP (Purchase Power Parity) do $5,000 buy you the same in Madrid than in Warsaw (back then and now )? So, comparing maybe a $3,000 GDP per capita in the East vs more than $10,000 in the west, but in the East you are provided with housing, stable job, medical care?

A bit tricky comparison:
-$5000 for sure bought a lot in last days of Polish People Republic... according to black market exchange rate an average salary was about $15
-how do you want to calculate a basket with adjustment for ration stamps? (especially in cases when you had ration stamps for stuff that was NOT accessible, even with ration stamps)
-how do you adjust that in the last decade shops were mostly empty and one was standing in a queue to buy anything? (sometimes it worked, sometimes not) (A realistic approach would involve calculate value of wasting a few hours per day on such staying in queue/shopping)
-how do you adjust for transactions done on black market or through a net of friends?
-how do you adjust for stealing in your place of work? (awful pathology at that time)

I may try to find you some data if you want.

 

[Czcibor]

If data for 1990 (semi-free election was in late 1989), in PPP and adjusted 2005 dollars, are OK, then according to World Bank:
http://www.google.com/publicdata/ex...=region&tdim=true&hl=en_US&dl=en_US&ind=false

The data are a bit too optimistic for Polish consumer, as GDP was somewhat inflated by ineffective heavy and chemical industry, which was producing equipment for WW3.

But according to them we had 42% of Spanish GDP. (yes, there is a big dispersion in the data, pending on source)

 

[WWGD]

My point is that while capitalism may be overall preferable to communism (at least as commonly-practiced) , it may be a good idea
to try to incorporate o capitalism some positive aspects of communism.

 

[Czcibor]

My point is that while capitalism may be overall preferable to communism (at least as commonly-practiced) , it may be a good idea
to try to incorporate o capitalism some positive aspects of communism.

Which one do you mean?

 

[lavinia]

Some economists point to FDIC instance as a regulatory measure that led to the fall of the S&L's. This is a case of what they is call a Moral Hazard.Their point is that deregulation is not the problem per se.

It is true that FSLIC insurance remained after the S&L's were otherwise deregulated. But in this situation, FSLIC insurance became a free put option written by the US Government. So instead of functioning as a regulatory measure, it transmuted into a derivatives contract.

Before the deregulation of the S&L's FSLIC insurance worked fine in the context of a complete regulatory framework. From the 1930's until deregulation in the 1980's it worked fine. The same holds for Japan as I have described above.

On the other side of the coin, without a safety net such as FSLIC insurance there is risk of runs on financial institutions that lose investor confidence.

 

[Vanadium 50]

I think you mean FSLIC.

The moral hazard came about because FSLIC paid 100% of deposits, not 100% of insured deposits.

 

[lavinia]

I think you mean FSLIC.

The moral hazard came about because FSLIC paid 100% of deposits, not 100% of insured deposits.

right. thanks for the correction.

 

[lavinia]

http://en.wikipedia.org/wiki/Shadow_banking_system

This brief article discusses the"Shadow Banking System" and its risks.

 

[Digitalism]

While I'm aware that that's true, I'd really like to see research (I've looked but haven't had much luck) discussing whether mobility isn't great because of some external barrier or whether it is mostly a matter of personal choice.

http://www.equality-of-opportunity.org/images/mobility_geo.pdf

http://www.brookings.edu/blogs/soci...ain-development-social-mobility-reeves-howard

http://www.businessinsider.com/inequality-and-mobility-in-the-united-states-2013-7

http://www.economist.com/blogs/democracyinamerica/2011/11/inequality

High-income kids who don't graduate from college are 2.5 times more likely to end up rich than low-income kids who do.

http://www.theatlantic.com/business...its-so-hard-for-the-poor-to-get-ahead/276943/

http://www.brookings.edu/blogs/soci...14/07/29-wealth-gaps-mobility-policies-reeves

After examining the records of 18,869 people, and dividing them into three categories, the rich, the prosperous and the poor, Clark and Cummins agree. They suggest that the passing on of wealth is far more persistent over the generations than previously acknowledged, noting that there is a “significant correlation between the wealth of families five generations apart”. Put simply, the descendants of the wealthy of 1858 are still much wealthier than the average person in 2012.

http://www.theguardian.com/society/...ritain-wealthy-study-surnames-social-mobility

In Italy, Portugal, Turkey and the United States, young people from families with low levels of education have the least chance of attaining a higher level of education than their parents. In these countries, more than 40% of these young people have not completed upper secondary education, and fewer than 20% have made it to tertiary education.

http://www.theatlantic.com/business...in-almost-any-rich-country-but-the-us/262336/



http://www.businessinsider.com/tech...jobs-and-it-could-spur-a-global-crisis-2015-6

http://www.pewresearch.org/fact-tan...n-rise-for-decades-is-now-highest-since-1928/

http://www.brookings.edu/~/media/Research/Images/0/123/052015-Chart.jpg?la=en

http://www.brookings.edu/research/a...ality-wessel?cid=00900015020149101US0001-0521

White high school graduates have more wealth than black and hispanic college graduates

http://bigthink.com/experts-corner/...rove-economic-mobility-in-the-united-states-2

In reality, however, only 4% of Americans travel the rags-to-riches path, according to new research from the Economic Mobility Project of the Pew Charitable Trusts. And a great many who are born into the poorest segments of the population are stuck there for life, a finding that suggests the U.S. has much to do to improve social mobility.

Forty-three percent of Americans raised in the bottom quintile of household income remain there a generation later (with income of less than $28,900 in 2009 dollars, adjusted for family size). Twenty-seven percent rise up slightly into the second quintile, 17% land in the middle of the distribution, and 9% end up in the 4th quintile.

http://blogs.wsj.com/atwork/2013/11...der-in-america-whos-upwardly-mobile/?mod=e2fb

 

[russ_watters]

...

Yes, all of those stats document the inequality different ways and some look at causes (and I'm pretty much aware of all of them), but none examine the cause I asked about. That bothers me a lot (it isn't you: I don't think people who research the issue are examining my question). It seems political to me that researchers focus on external factors and don't even address the possibility that internal factors (choices) impact inequality/mobility.