On the Government Takeover of Money

The Government Takeover of Money of the creation and issuance of money in the civil war period is to me the greatest illustration of this famous Hayek quote:  

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

- F. A. Hayek: The Fatal Conceit: The Errors of Socialism (1988), p. 76. 


Arguable it lead to the Great Depression and to World War II.  

The Incentive Bubble

The Incentive Bubble

I agree that there seems to be and incentives bubble but it is my observation that it always takes a while for free people to try, adjust and maybe discard ideas.  People will adjust to the incentives.

It is good to not interfere with people's rights to try new things even if they some times lead to failure or in this case skewed income and create some bad incentives.  For example even if the 2008 financial collapse was due to deregulation (an open question), that does not mean for sure that the deregulation was bad.  You can think of the collapse as school master.  I would hope that had the politicians not bailed out the firms, that the collapse would have taught people not to lend to the likes of Lehman and the other investment banks.   Very educational.  It is often the case that a change in deregulation leads to very negative short term results as people are slow to adjust but the do learn.

I think that part of the incentive/compensation problem is the cultural belief in supermen.  Perhaps this comes in part from watching sports where a LeBron James is a real superman who can carry a team, but business is not like that.  Jim Cramer and Jack Welch, are not so important.  Even Steve Jobs and Bill Gates though very good at what they do are not like LeBron James, there was quite a bit of serendipity that went into their success so paying huge compensation for CEOs is probably not a good policy.  In Fact Carl Icon takes over companies and replaces the high paid CEO with one of his lower paid people and the impact is generally not negative.

Besides the the incentives problems with CEOs the incentives of mutual fund and money mangers seem particularly bad even more so than CEOs.  The get paid even when the under perform the market as they usually do.

One of the big problems with trying to control executive compensation is that it is a small part of profits.

Now in defense of the overpaid in business they often do not consume much of the money that they get.  Much of their money it goes into investments that make us all better off and to call for government intervention is a mistake because the incentives in government are even worse and politics evolves slower.


BTW one thing that one can do is invest with Carl Icon (IEP).

How Is this for an Un-thought Idea, Privatize the Fed

John Goodman made a blog post describing how bad the Government insurance programs that are breaking the Federal Government budget are but he leaves out FDIC.   Here is my very short critique of the FDIC  and a possible solution.
The FDIC charges the same premium to an institution that is leveraged to an insane extent as to an institution that is modest.  This is bad policy.  Perhaps the Federal Reserve should be privatized, made into a for profit organization and should provide insurance to member banks.    The Federal Reserve could insure the banks because it cannot run out of many because it has the ability to create money.  Each american could be given shares in the resulting organization.  We would need to change the legal tender laws so that the threat of competition would keep it in line but it might work.  It has been shown that even the threat of competition can be enough to keep a monopoly in line.


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Arnold Kling on Governments Failure to Efficiently Help the Poor

Arnold Kling posts about the fact that Governments programs are more targeted at the middle class than the poor and that these programs, that are let's face it are just a transfer from middle class people to themselves, are pushing the deficit ever higher.

My comments:

The irony is that in the end even the middle class do not benefit, they just think that they do. Take schooling, I sent my children to a private school that costs half what my county spends per student (the education may be slightly worse but you cannot tell that by me), so if we were all charged directly for each child that we send to the Government schools we would be better off, but try convincing people that charging them is better than them "getting it for free".

Even SS which is a simple transfer may not be so utility maximizing or even neutral.  SS has changed our culture such that more older Americans live on their own than otherwise.  So a simple transfer from children to their retired parents must reduce utility.  I think the same is true for medicare and low deductible insurance in general. When we have medicare or low deductible insurance we use more care than we otherwise would and if we are middle class or rich surely most of us (i.e. those of us without exceptionally high life time medical spending) of us pay the full costs either way.

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Study Finds Evidence that more Income does not Improve Health.

The incidental economist highlights a study that finds evidence that more income does not improve health.

Conclusions: These findings suggest that the ability to improve short-term health outcomes through public transfer payments may be limited. However, the lifetime effects on the health of people with higher incomes would still be a valuable avenue for future research.


Some may not be surprised by this but studies have consistently shown that people with higher income live longer on average.  This study is evidence that though health correlates with income, income is not causal. It is evidence that that poor health causes lower income or something else is causing low income and poor health. We need a good test that will show  which is the cause because for example poor impulse control could cause both bad heath and low income. Highly talented athletes could be a place to look. Athletics does not require a lot on impulse control.

It is my observation that a large amount of money can be destructive to some people’s health e.g. it allows some people to drink all day and drug all night and drive very fast care very fast.

BTW the is a section Of Glasgow Scotland where male life expectancy is below 55 years. Those people might be drinking themselves to death. Giving them free stuff (including free health care) might just speed up the process.

Andrew Cohen Proposes Licensing Parents

I am against licensing parents but the his post is interesting because it makes it clear that there is a stronger argument for licensing parting which we do not license than professions that we do license.   

I it is better to give everyone a license to be a  parenting  and then have rules that if broken result in loss of license.  That is everyone has a right to be a parent but that right can taken away in a case of abuse which is the system that we have.   I think the same for professional licensing but in professional licensing their might a case for a very easy test (that any college grad could pass with a few weeks of study) up front.   


BTW related I think that anyone should be allowed to buy most medicines without a prescription but that one should have to pass a simple test and commit to taking the full regime to get an antibiotic. 

Tyler Cowen on Better Verses smaller Government

He writes:

The world is changing more rapidly, so automatic pilot isn’t good enough any more.  “Good governance” and most of all adaptability have become more important.  This will benefit the Nordic countries, the UK, Germany, Switzerland, Canada, and Singapore.  It is mostly bad for India, Russia, and the Mediterranean countries, plus other countries with lots of corruption.  It remains to be seen which category the United States and China will fall into

It seems to me that our Government is even more wrong than it is big and that it could deliver more and yet be much smaller if it were not so wrong. For example SS exists to prevent low life time earners from running out of money in their old age, but SS pays out more to high earners than to low earners. Other examples: the lack of sensible spending controls on medicare, the bloated military budgets and how about the war on drugs. I do not see how anyone can propose giving more money to the Government until they end the war on drugs and address the other problems that I listed.