The author displays a failure to understand the economics he is purporting to criticise.

There is no divide between ethical values, and ‘economic’ values. Human action in general, and economic behaviour in particular, always consists of an individual person preferring A to B. When people do so, they choose on the basis of *all* their subjective values, both those which can be expressed in a money price, *and those that can’t*.

Force and fraud are illegal in market transactions. To the extent that *market* transactions produce results the author doesn’t like, it is not because they have excluded ethics. It is because the author doesn’t agree with other people’s valuations.

Force and fraud are only legal for governments. Their entire revenue relies on the use of aggressive force and threats. And politicians in making promises that people rely on, are not bound by the laws against fraud.

Yet the author fails to distinguish between outcomes that are the result of market decisions, and those that are the result of government decisions. He simply assumes that anything he doesn’t like is because of human freedom. Therefore his ethics are as incoherent as his economics.

The author is conflicted over whether it is desirable for people to enjoy material wealth or not. On the one hand, he decries the existence of poverty. On the other hand, he criticises the process that has alleviated poverty and increased wealth more, for more people, than ever before. Well, which is it? Make up your mind!

If we were equal, people would obtain no material benefit from human society. One could get what one wants without resorting to social co-operation. What gives rise to the wealth that the author would like to be more equally distributed, is the fact that people are driven by their *unequal* valuations of the same thing, to engage in exchange transactions that are mutually beneficial.

The theory of Karl Marx, that capitalism makes the mass of people poorer, lives on in woolly thinking, despite the fact that both theory and practice have disproved it over and over and over again.

Ray Cleary makes a sound and considered point, hardly warranting the defensive response from Wing Ah Ling and the patronising suggestion that Ray "displays a failure to understand the economics he is purporting to criticise." I hope that the article elicits some more considered responses from economists who do not suffer from the illusion of perfect markets and are prepared to learn from this global threat. Whether it is correct to claim, as Ray Cleary does, that "the current global crisis is, at its core, an ethical and moral issue, and then an economic one" may be debated, but it would seem unarguable in my view that the adverse impacts of the crisis, particularly on the more vulnerable members of society, demand serious analysis and consideration of a more effective role for government regulation.
Peter Johnstone, 1105, Tuesday 160609

PJJ’s post comprises misrepresentation and circular argument.

No-one is asserting perfect markets.

Serious analysis and consideration of a more effective role for government regulation is a great idea, as long as you don’t assume that it must take the form of more, rather than less government regulation. However if you do assume that, then it is you who is making the assumption of perfection – perfect government.

No-one asserting the need of more government regulation will venture to explain how government gets this wished-for economic super-competence. But perhaps you can, PJJ?

What is it about the fact of majority opinion, or being able to use force, that enables the government to know the difference between what each of billions of market values *is *,and what it should *be*?

And if government does have such a superhuman knowledge, wisdom and capacity, then isn’t it true that we would be better off if human freedom were abolished, and substituted with such coercive central planning? Answer?

The problem with the assumption that the current crisis originates in not enough government regulation, rather than not enough market regulation of activity, is that it assumes that governments’ chronic policy of inflating the money supply has no economic effect, no effect on debt levels, no effect on bad loans, no effect on prices, no effect as to ‘bubbles’, no tendency to promote malinvestment, can continue indefinitely, and has nothing to do with the resulting collapse.

The moral vanity of the anti-capitalists is in their conception that they represent the greater good for the poor and disadvantaged.

In fact the main arguments against the ideology of government ‘economic management’ is precisely that such well-intended interventions are based on economic fallacies and turn out *necessarily worse* for the vulnerable members of society, whose interests are better served by economic and political freedom, than coercion and central planning based on long-disproved economic fallacies.

There is no question of “returning” to anything. We are still living in the same conditions we were before the global economic ‘crisis” – a ‘crisis’ affecting only those, like the author, who do not understand the free market system.

The system is about ups and downs; bumps and thumps. The “conditions” referred to are the silly actions of a few lenders handing out cheap money to people who could never afford to repay it. There is nothing wrong with the system. All alternatives to the free-market system have most of the people dirt poor all of the time.

Enlisting the ramblings of the unworldly and Left-wing Archbishop of Canterbury shows that Mr. Clearly doesn’t know what he is talking about. If he did, he wouldn’t write such nonsense about the system which helps his Anglicare organization greatly.

Wing Ah Ling continues to resort to a simplistic argument against regulation of the market. He resorts to the misrepresentation and circular argument of which he accuses others.

Wing Ah Ling asserts that government regulation must take the form of less, rather than more regulation. He thus seems to accept a place for government regulation while assuming that there is no room for more government regulation. Yet he claims to accept that serious analysis and consideration of a more effective role for government regulation is "a great idea". Personally, I'd like to see the result of the serious analysis before adopting a position on whether the present level of regulation is excessive. Perhaps we need better targeted regulation that is less interventionist but more effective in addressing the issues raised by Ray Cleary.

I am surprised at the imputations that a) I am anti-capitalist, and b) I believe in perfect government. In fact, I strongly support the importance of an effective market place and am as sceptical of the performance of governments as I am distrusting of a market place without any regulation. But we do and should hold our governments accountable for an appropriate level of oversight of the behaviour of the marketplace.

Wing Ah Ling gets to his point in the final line or two where he admits to the view that the interests of the vulnerable members of society are better served by "economic and political freedom", than by what he refers to as "coercion and central planning based on long-disproved economic fallacies". Not bad in a discussion about the global economic crisis!

I reiterate my own final line or two: "it would seem unarguable in my view that the adverse impacts of the crisis, particularly on the more vulnerable members of society, demand serious analysis and consideration of a more effective role for government regulation." Seems a fairly conservative and responsible approach?

Peter Johnstone

Ray Cleary's article is full of good intentions but in the end I found it empty. The problem started with poor American supervision of their own banking and finance system, about which Australians can do little. As for returning to anything, Leigh is right in that we never left.
To change, first we'd have to have a clear idea about what we wanted to change into and some idea of how that change might occur. Cleary does not put forward anything that might be described as an agenda, just a declaration of good intentions.
But is there any need for change? The beauty of our system is that everyone can choose their own path. If they want to be moral and join organisations like Anglicare then they can do so. If they want to chase dollars then they can go into sales, or the stock market where they must obey regulations that are, we hope, properly enforced.
Open markets boom and bust - its what they do - we have had a bust that was not Australia's fault, so lets think carefully before we try to fix something that is not broken.

The advantage of approaching this recession from a position of affluence is that we have much more of a buffer to cushion us from serious economic hardship. Had we followed the path of centralised planning we would be in the position that Russia was in the early 1990s, with a declining life expectancy and bodies in the streets, not merely having to give up our bottled water and gym memberships.

As for the government's competence to manage the economy:

"The Future Fund’s return for the quarter (ex Telstra) was minus 1.32% and for the financial year to date it was _minus 8.78%_"

March 2009 quarterly update: http://tinyurl.com/nsbagq

For the author to suggest ethics as the cure is overly simplistic, and makes it clear he has fallen for the lies of the likes of Rudd and Obama.

The fact is we haven't had anything like an "overtly capitalist" economy, and the crux of our current situation falls to successive very poor socialist, extremely interventionist governments.

Sure, greed played a part, but all men are greedy, and it's the risk of loss that tempers greed. Governments the world over have removed the fear of that risk by guarantees on deposits, and bailouts, thus allowing greed to run wild since investors no longer bother to do their own due diligence, as the government is doing it for them.
More regulation or intervetnion based on ethics will do more harm than good.

Perhaps read some Peter Schiff (http://www.safehaven.com/archive-162.htm)to find out what's really going on Ray, rather than listening to the mainstream economic pundits, or self serving politicians.

Given he's predicted everything that's happened from the dot.com crash to the current real estate bubble, when the mainstream (Keynesian) economists & western governments were caught like a Deer in headlights, I'm inclined to listen to him over any of them, and their self serving socialist lies.

Governments only push socialism because it gives them more power over everyone else, and it's amazing how much of the population is willing to hand over personal freedom for the illusion of safety, or the promise that the government will steal from others and give to them for doing nothing. That's human greed at its' worst in my opinion.

PJJ
I am not assuming that government should necessarily have any role in ‘economic management’, so whether or not you agree with my argument, it is consistent, not circular.

* * *

I think it is a great idea to re-consider the role of government and market. However if the re-consideration starts with an assumption in favour of government, then obviously that will bias the conclusion.

The argument against government ‘economic management’, is that it makes society worse, especially for the disadvantaged. Yet when the predicted negative consequences materialise, government, and the author, simply blame the market. Presumably a nirvana of social justice and economic plenty lies somewhere between the level of government we have now, and total government control of everything. Reality check?

The starting point of an even-handed analysis would have to be an understanding of how people take action in peaceful social co-operation so as to produce and share more rather than less; the process by which people’s valuations give rise to exchanges and to society; the function of money, prices, and economic calculation; how people’s time preferences give rise to the phenomena of capital and interest; and how markets co-ordinate and harmonise the values of billions of people without knowing each other.

The second point would have to be an understanding that any political state includes a monopoly of the use of force. From this basis they then can and do legalise for themselves what are crimes for everyone else, including demanding money with menaces, armed robbery, forced labour, counterfeiting, fraud, forced indoctrination, murder, mass murder etc.

But all this is a blank on the map of those urging for greater governmental intervention. The author seems to suspect, as Marx argued, that the processes of peaceful social co-operation are essentially immoral, exploitative, and unjust, and should be forcibly overridden by the state for a more ‘just’ outcome.

On the other hand, if people are too dim or greedy to know what transactions to enter into, he does not begin to explain how the state – made up of these same people – is in any better position, especially since it will lack the advantage of economic calculation based on profit and loss, and have the ethical liability of a monopoly of violence and threats.

No interventionist will venture to answer the question: how and from where does the state get this assumed super-competence in ethics, in knowledge, and in capacity? Is the state a superhuman entity? A god?

What is it about the power to beat people into submission, or about majority opinion, that confers the supposed competence of the government to “balance” the market’s peaceful co-operation?

We know what reason there is to think a coercion-based monopoly will use its powers to privilege vested interests, sponsor political favourites, restrict production, confiscate earnings, exacerbate disadvantage, make war and aggrandise its own powers and income.

What reason is there to think it is capable of a “more effective” intervention in the first place? How is government going to know the difference between what the market price of millions of goods *is*, and what it *should be* in millions of people’s valuations changing daily?

As for government accountability, one (compulsory) vote every three years, between two parties each offering a similar ‘package deal’, both aspiring to run a monopoly government based on compulsory expropriations, is near worthless in practice.

I suggest we should be thinking instead how to introduce more and more opt-in policies, so that government is really factually subject to the consent of the governed, and people are not forced into sponsoring power arrangements and privileges that they disapprove of.

Wing Ah Ling, thank you for your extensive explanation, of which I refer only to your opening statement that you are “not assuming that government should necessarily have any role in ‘economic management’. I suspect that you don’t see any role at all for responsible democratic leadership. Now that you’ve clarified your position, I am no longer surprised that you are unable to see that the adverse impacts of the global economic crisis (particularly on the more vulnerable members of society) demand consideration of better means of government regulation.
Peter Johnstone 1450, 170609

PJJ
You are continuing to argue in circles - assuming what is in issue.

Your mission, ‘should you choose to accept it’, is to provide the answer on which your own presumption depends: How does majority opinion, or force, give rise to this mystic super-competence that the same people lack?

Wing, you keep misrepresenting my position - governments with “mystic super-competence”!! Where did that come from?

The point is that we elect governments to act on our behalf where that is appropriate, to do their best, and to be accountable to us. It seems that you would prefer unaccountable markets which are totally unfettered – a literal approach of laissez-faire.

I want markets to do what they do best, particularly exchanging goods and services efficiently with innovation and resolution of competing interests under the forces of supply and demand, but I expect governments to intervene where market behaviour threatens society, and we will hold governments accountable for the effectiveness of that intervention.

I am a little surprised that you reject the notion not only of better means of government regulation but of any form of regulation. As I said in my last post and to get back to the point of the article, I am no longer surprised that you are unable to see that the adverse impacts of the global economic crisis (particularly on the more vulnerable members of society) demand consideration of better means of government regulation. You simply do not accept any regulatory role for governments. I am unable to comprehend such a position.
Peter Johnstone

PJJ
The reason you are ‘unable to comprehend’ what I’m saying, is because you are thinking in circles.

It is not that I’m misrepresenting your position, it’s that you yourself don’t understand it.

According to you, what justifies government intervention is where market behaviour ‘threatens society’. But by definition, if government has intervened, it must be because market behaviour threatens society, right?

For example, a farmer can hire a private vet; and the government taxes him to provide a vet through the pastures protection board. So, in the absence of the PP board, was the vet ‘threatening society’? Or was the farmer?

My wife has a medical condition for which we can pay a private doctor, or we can use a government-paid doctor. Was the private doctor ‘threatening society’? Were we? How would one know?

Don't tell me, lemme guess: government will decide!

If the explanation of government is that we ‘elect them to act on our behalf’, what was government doing all those centuries before people had the vote?

Voting is compulsory. You can’t build any theory of consent on that.

Force or fraud are illegal in market transactions; but are the basis of government transactions. This is because all government action depends on taxation, which is a compulsory impost. In law, tax is not payment for a service. It entitles the payer to nothing.

Private businesses are liable in contract, fraud, criminal law, equity, state statute law, commonwealth statute law, and corporations law for lying. But you try suing a politician for breaking an electoral promise. The accountability you are talking about is a fiction.

Business are also accountable by profit and loss. Profit is the direct result of the behaviour of the mass of consumers in *voluntarily* preferring a particular good. It is a measure of the value *they consider* they received *over and above* what they already considered a fair exchange for the benefits they received. On the other hand, losses transfer the means of production from unsuccessful entrepreneurs to those who serve the masses with what *they* consider most urgent.

Now compare that with government. Has government ever sent you an account of how much they have (forcibly or fraudulently) taken by raiding your bank account; showing what benefits you have received, so you can get a true account? No.

If you don’t want a service, can you withhold payment? No.

If you don’t want to be forced to pay, perhaps to make unnecessary war, or to subsidise polluting the environment, or whatever – can you withhold payment? No.

In the market, if you don’t agree, you don’t pay and have total control over your contribution. In the government, you are herded like animals into compulsory support for power arrangements you don’t like.

You seem to think that the existence of the vulnerable has got nothing to do with government? Have you ever considered how much unemployment is caused by taxation, inflation, regulation, occupational licensing – not to benefit society, but to help politicians get their snouts in the trough of other people’s money, by themselves giving away other people’s money, to people who don’t own it, and didn’t earn it? Have you considered how much the position of the aged has been made worse by government taking 50 percent of everything they earned during their life?

Since government has a legal monopoly of both force and fraud, and since force and fraud are illegal in market transactions, you have not given any reason for your back-to-front presumption that it is peaceable human freedom, rather than a legal monopoly of crime, that is threatening society.

>> Wing Ah Ling asserts that government regulation must take the form of less, rather than more regulation. He thus seems to accept a place for government regulation while assuming that there is no room for more government regulation. Yet he claims to accept that serious analysis and consideration of a more effective role for government regulation is "a great idea". <<

Welcome to the conservative economic dichotomy. Since the GFC began, the Right has argued from an entirely false premise: that capitalism is synonymous with completely unrestricted markets, and anything short of that is de facto socialism.

Strangely, the notion that some marketeers might be dishonest is anathema to conservatives, so they regard any recognition of the criminality of share traders as an assault on the fundamental principles that liberal democracies are meant to enshrine.

Explaining why that's come to be would require an entire essay, if not a thesis, but it comes down to conservative politicians successfully conflating white-collar crime with individual freedom. That's why the the Right's argument always boils down to "if traders don't have the freedom to lie, cheat, and steal from us, thought-crime gulags are just around the corner".

They don't see the paranoia in this non-sequitur, which is why rational people of principle must insist on market reform.

Sancho
Fraud is illegal in market transactions. Defending fraud is no more a part of the arguments for liberty than it is of the arguments for government. Thus your argument is a straw man.

In fact, since you can sue businesses but not politicians for breach of promise, it is the apologists for government who are defending legalising dishonesty with impunity.

Also since the whole point of fraud being wrong is that it’s a violation of property rights, and since government is completely dependent for its existence on the violation of property rights, why your inconsistency in the condemnation of such violations in some circumstances, and the approval of it in others?

Just because there’s a social problem, doesn’t automatically mean that the solution is more government; nor that it would be more ‘rational’, nor more ‘principled’. The dishonesty of some marketeers is no more an argument for more government intervention than is the dishonesty of some politicians. You are merely assuming what is in issue: arguing in a circle.

You have not shown any reason why a legal monopoly of force and fraud is likely to produce a better solution to an original problem of fraud; or anything else for that matter. Your reference to supposed ‘paranoia’ is mere personal argument: your third fallacy in 200 words. Not bad.

Either decisions on the best use of resources can be made by the owners of private property; or by the state. Whatever you call the latter alternative: socialism, fascism, communism, interventionism, statism, democratic socialism, social democracy, the third way etc. etc. is irrelevant. The whole point of these interventions is for the state to forcibly override individual freedom and private property in allocating resources to uses.

The same problem underlies all of them: those doing it have an endless interest in using legalised force or fraud to aggrandise their own wealth, power and prestige at the expense of everyone else.

You and PJJ have not still given any reason to think that government action will be less anti-social than the original social problem it is intended to solve.

>> You and PJJ have not still given any reason to think that government action will be less anti-social than the original social problem it is intended to solve. <<

Because in a democracy politicians are answerable to the entire populace, while share traders and banks answer only a handful of shareholders, most of whom are other corporations.

Our politicians keep raising their own pay, but none makes the mega-dollars of a merchant banker. Why? Because they're poor at graft? Or because the public will put them out of a job if they're that blatant?

I won't argue that politicians are any more honest than traders, but it's greed and corruption operating in an unregulated environment versus one in which there is constant scrutiny and the risk of sacking by popular opinion.

But don't take my Leftist word for it. Here's hyper-conservative commentator P.J. O'Rourke on Wall Street (http://www.weeklystandard.com/Content/Public/Articles/000/000/015/791jsebl.asp):

"A lot of lousy mortgages that would never be repaid were handed out to Jim Jerk and his drinking buddies and all the ex-wives and single mothers with whom Jim and his pals have littered the nation.

"Wall Street looked at the worthless paper and thought, "How can we make a buck off this?" The answer was to wrap it in a bow. Take a wide enough variety of lousy mortgages--some from the East, some from the West, some from the cities, some from the suburbs, some from shacks, some from McMansions--bundle them together and put pressure on the bond rating agencies to do fancy risk management math, and you get a "collateralized debt obligation" with a triple-A rating. Good as cash. Until it wasn't.

"Or, put another way, Wall Street was pulling the "room full of horse s--" trick. Brokerages were saying, "We're going to sell you a room full of horse s--. And with that much horse s--, you just know there's a pony in there somewhere.""

Are you arguing that that isn't fraud? And how many of those who engineered the GFC have been punished in any way? How many have even lost a cent?

“Because in a democracy politicians are answerable to the entire populace, while share traders and banks answer only a handful to shareholders, most of whom are other corporations.”

Politicians are only answerable to the entire populace in the very broad and imperfect sense that, once very three years, you get one-twenty-millionth of a say in whether to sack them.

Shareholders and capitalists answer to shareholders only in the limited sense that they are *all*unconditionally subject to the decisions of the masses as consumers.

Every dollar is a vote in the market. The individual is free to chose whether to enter into a transaction or not. If he decides not to, he cannot be compelled to. And if he decides to, he has an ownership interest in the product as a result. A supplier cannot raid his bank account without his consent. Nor can it force him to pay for someone else.

Capitalists and entrepreneurs who disobey the people, and fail to serve them with they consider most urgent, suffer serious losses or bankruptcy. Their property is transferred to people who will serve the consumers with what they demand.

Profit is the direct result of the behaviour of the mass of consumers in voluntarily preferring the goods of a particular supplier.

Most profit is ploughed back into the business. This process of capital accumulation raises the marginal productivity of labour, which in turn raises the level of real wages for all, at the same time it reduces the level of prices. And while the return to labour remains, or rises, the return to capital always tends toward zero. The capitalists get only the smallest fraction of the total benefit to society initiated at their own risk by their entrepreneurial activities.

The risk of dishonest businesses being sacked is far greater than for dishonest politicians because *every single transaction* in business requires the consent of the payer, and none in government do.

By contrast with government, all revenue is obtained through government’s monopoly of coercion. Your only vote is once every three years.

Voting is compulsory, so you can’t build any theory of consent on that.

You have a remedy against a business’s deception under common law, trade practices law, fair trading law, corporations law, criminal law and equity. You have no remedy whatsoever against politicians lying to get votes, or failing to perform what they promised. (For example John Howard orchestrated the confiscation of ten percent of the entire product of the nation on promises he then failed to perform – a deception worth literally hundreds of billions of dollars. But no prison for him.)
All policies are presented to the voter as a package deal. The major parties have very similar packages. There is no way a voter can select the policy he wants, and not the policy he doesn’t want. After the election, there is no way of knowing which policies the majority wanted, and which they didn’t.

In the market you can have what you want, and I can have what I want. But under government, it’s enforced conformity. But worse - there is no way of knowing whether it is in fact a majority who are forced to pay for the choices of a minority; and not the majority paying for a minority.

There is no way to withhold payment. The opportunity and motivation to force someone else to pay is rife, if not dominant.

As tax is compulsory, politicians have an endless interest in hiding taxes. Government’s favourite sneak tax is inflation, which it causes by manipulating the money supply. The resulting ‘economic management’ is what causes the greedy economic booms, and the following unjust *and unavoidable* depressions, which government then blames on the market, ie society.

Those who engineered the GFC are precisely the U.S. Federal Reserve and the Treasury, and while innocent people suffer hardship, they continue the same legalised counterfeiting and fraud on a grand scale, worshipped by interventionists calling for more, such as Obama and Rudd are now serving up.

The common belief that government is more representative of society, than society is of itself, is simply false.