Economic Idiocy

Louis Gray nailed it last night when he wrote that there are no experts in this financial crisis.

In the past 18 hours I’ve read literally thousands of posts and have done almost nothing but hang out on FriendFeed. I’ve seen a LOT of idiocy. And these are supposedly from the smarter, more educated people around. People who I’ve had a beer or two with and who I count as friends and fellow Americans.

I almost went through and cut and paste the worst of it from my FriendFeed stream, but it won’t help to make people feel bad or get into arguments now. The damage has been done by our idiocy (both in creating this crisis) and in deepening it by not fixing the credit crunch (also our idiocy).

Now, what happens when people stop buying things? Like it or not, our economy is based on credit. And the way banks work is if you save one dollar, they lend out a lot more than one dollar, which gives the banks scale. Also makes them go under if they make too many bad loans, like they did, or people take money out of the banks, like we are (billions were pulled out of Washington Mutual in the last few days before it failed).

What happens next? Economy goes into stall. Why? If people with good credit can’t get credit to buy cars and houses and expand their businesses, they stop doing those things (it’s made worse by the psychology that we’re in right now, which is to hoard, hoard, hoard and not buy things). When we stop buying, companies start showing losses. People get laid off. They file for unemployment. Ahh, so we’re going to pay anyway, only this payment will go on for years until we figure out how to get car manufacturers and real estate agents and so forth back to work.

It’s enough to make me scream.

The downside of this new media world is that you’ll hear a lot of opinions. Which one is right? I’m not always right. In fact, I’m often wrong. But I’ve counted on YOU, the audience, to help me correct that when I’m off in the deep end. Now, though, I’ve seen so much idiocy that I’m not even sure of my audience anymore. That’s how deep our loss of confidence in each other has come.

I find I’m becoming a lot more like Andrew Keen. That scares the shit out of me. Why? I find I’m looking to experts and elites more and more, because the crap I’m seeing out of all of our mouths is just so, um, wrong. As my history teacher back in the 1980s used to say “the masses are asses.” This is shaking my belief system pretty thoroughly, because I actually do believe that a decentralized system is stronger than one with one guy or gal in the middle controlling everything. But for a decentralized system to work we have to 1. be smart and 2. believe in each other. Those two things are proving to me to be pretty trying right now.

I liked what David Brooks had to say in the New York Times this morning. He said “I’ve spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What’s sad is that they still think it’s 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed our political economy. We’re living in an age when a vast excess of capital sloshes around the world fueling cycles of bubble and bust. When the capital floods into a sector or economy, it washes away sober business practices, and habits of discipline and self-denial. Then the money managers panic and it sloshes out, punishing the just and unjust alike.”
We’re in wild economic times. What should be done now? I’d still do the bailout, although that will lead to inflation and a devaluation of our dollar. We have to choose between that, or really high unemployment, which will lead to devaluation of our dollar as people file for unemployment in a few months anyway.

One thing I’d love to see is more people joining in on FriendFeed to help pull out the high value bits and provide more sifting to find both the rotten strawberries in the marketplace of ideas, as well as find the really juicy apricots. I’m doing just that on my feed of “Likes” and “Comments” there, so you can see what I’m pulling out of the 3,400 people who are feeding stuff to me.

If you have a feed that you’d want me to listen to, please let me know.

More idiocy to come, I’m sure! Hopefully we’ll all survive. :-)

93 thoughts on “Economic Idiocy

  1. We’re in wild economic times. What should be done now? I’d still do the bailout, although that will lead to inflation and a devaluation of our dollar. Ha! i totally agree with this tought.

    programmer from tatoo designs

  2. We’re in wild economic times. What should be done now? I’d still do the bailout, although that will lead to inflation and a devaluation of our dollar. Ha! i totally agree with this tought.

    programmer from tatoo designs

  3. Tom,

    It doesn’t take a PhD in economics to understand what’s going on today. It’s not complicated, it’s just being obfuscated by the culprits. So, knocking Scoble for lacking the degree is kind of beside the point. Knock him for being wrong, not for whatever sheepskin he does or doesn’t have.

    Don’t forget that John Maynard Keynes and John Kenneth Galbraith had PhDs in economics, and they were both dead wrong on the question of what role government should play.

  4. Tom,

    It doesn’t take a PhD in economics to understand what’s going on today. It’s not complicated, it’s just being obfuscated by the culprits. So, knocking Scoble for lacking the degree is kind of beside the point. Knock him for being wrong, not for whatever sheepskin he does or doesn’t have.

    Don’t forget that John Maynard Keynes and John Kenneth Galbraith had PhDs in economics, and they were both dead wrong on the question of what role government should play.

  5. “When will people realize that the less government is involved, the better off everyone is.”

    There was a time when most of the people in this country realized it, and we overthrew our king.

    Let me give you a bit of hope, though: Because of Ron Paul’s campaign, tens of thousands of people now understand what the Federal Reserve is doing to us.

    Ron’s put things back on the agenda that had been given up as lost causes nearly a century ago. He’s made a lot of people understand that patriotism doesn’t mean supporting an empire. He’s gotten a lot of people to think twice about the drug war. Most of all, he’s gotten a lot of people to move beyond the idea that government is our mommy and it should fix everything for us.

  6. “When will people realize that the less government is involved, the better off everyone is.”

    There was a time when most of the people in this country realized it, and we overthrew our king.

    Let me give you a bit of hope, though: Because of Ron Paul’s campaign, tens of thousands of people now understand what the Federal Reserve is doing to us.

    Ron’s put things back on the agenda that had been given up as lost causes nearly a century ago. He’s made a lot of people understand that patriotism doesn’t mean supporting an empire. He’s gotten a lot of people to think twice about the drug war. Most of all, he’s gotten a lot of people to move beyond the idea that government is our mommy and it should fix everything for us.

  7. Robert,

    Take the time to read Bastiat, and try to get your head around the concept of the broken window fallacy.

    When you say that we got back most of our money from the S&L bailout, you’re ignoring the fact that the money spent on bailing out those failed institutions wasn’t available to fund other activities. Worse than that, it was money taken by force (taxes) to give to managers who had already demonstrated their incompetence to manage it. There’s an old saying that goes “you get what you pay for”, and that certainly holds true when you’re talking about paying incompetent speculators.

    As for Gray’s claim that there are no experts, he’s full of crap. There are hundreds of people who saw this coming, said it was coming, and know how to make it as short and painless as possible, and those experts are being ignored because what they have to say doesn’t support a power-grab.

    It’s all there in Mises’s book, The Theory of Money and Credit. How and why bubbles are created, how they fail, who benefits from causing these cycles, and what it takes to recover from them.

    Right now, our government is trying to keep asset prices at unrealistic levels, and is interfering with the repricing that must (and eventually will) happen. They’re still following their 1929 game plan, and it’s as wrong today as it was then.

    The choice at hand is whether to have a bad year or two, or a bad decade or two. If the bailout goes through, we’ll be right back in the same situation in another year, only the problem will be far larger. The idea that this can be fixed by inflating the money by another 700 billion is asinine; if it were possible to “stimulate” an economy by inflation, Zimbabwe would be the healthiest economy on the planet.

  8. Robert,

    Take the time to read Bastiat, and try to get your head around the concept of the broken window fallacy.

    When you say that we got back most of our money from the S&L bailout, you’re ignoring the fact that the money spent on bailing out those failed institutions wasn’t available to fund other activities. Worse than that, it was money taken by force (taxes) to give to managers who had already demonstrated their incompetence to manage it. There’s an old saying that goes “you get what you pay for”, and that certainly holds true when you’re talking about paying incompetent speculators.

    As for Gray’s claim that there are no experts, he’s full of crap. There are hundreds of people who saw this coming, said it was coming, and know how to make it as short and painless as possible, and those experts are being ignored because what they have to say doesn’t support a power-grab.

    It’s all there in Mises’s book, The Theory of Money and Credit. How and why bubbles are created, how they fail, who benefits from causing these cycles, and what it takes to recover from them.

    Right now, our government is trying to keep asset prices at unrealistic levels, and is interfering with the repricing that must (and eventually will) happen. They’re still following their 1929 game plan, and it’s as wrong today as it was then.

    The choice at hand is whether to have a bad year or two, or a bad decade or two. If the bailout goes through, we’ll be right back in the same situation in another year, only the problem will be far larger. The idea that this can be fixed by inflating the money by another 700 billion is asinine; if it were possible to “stimulate” an economy by inflation, Zimbabwe would be the healthiest economy on the planet.

  9. We’ve had 14+ years without a recession, far longer than any time in the past. The good times have been pushed along by bubbles artificially created. First the internet bubble, then the housing bubble. In between was a terrorist bubble. All this paid for by more borrowing. The correction is coming, we’d be better off allowing it to self-correct and quit trying to micromanage via government fiat. That’s not what government is good at.

  10. We’ve had 14+ years without a recession, far longer than any time in the past. The good times have been pushed along by bubbles artificially created. First the internet bubble, then the housing bubble. In between was a terrorist bubble. All this paid for by more borrowing. The correction is coming, we’d be better off allowing it to self-correct and quit trying to micromanage via government fiat. That’s not what government is good at.

  11. Scoble:

    Most of us read your blog for what you are an expert in – technology. If we want to read about politics or economics, we’ll go to another website. You are an expert in neither.

    And the way you responded to Gary, you showed yourself to be an ass (so I guess according to your buddy, Doc, you’re one of the masses). I think you owe Gary an apology. Who the hell does Robert Scoble think he is anyway?

  12. Scoble:

    Most of us read your blog for what you are an expert in – technology. If we want to read about politics or economics, we’ll go to another website. You are an expert in neither.

    And the way you responded to Gary, you showed yourself to be an ass (so I guess according to your buddy, Doc, you’re one of the masses). I think you owe Gary an apology. Who the hell does Robert Scoble think he is anyway?

  13. The bailout is badly conceived. In addition to the bailout of the known entities, the government had additional riders attached that were pure pork barrel garbage.

    Over the last few years, I’ve started changing my political outlook to that of the libertarians. It’s the only logical choice. I should never have to pay for someone else’s mistakes. The onus should not be on the taxpayers for stupid economics. The leaders of those entities that cratered should be tried and imprisoned much like the Enron and Worldcom bunch.

    When will people realize that the less government is involved, the better off everyone is.

  14. The bailout is badly conceived. In addition to the bailout of the known entities, the government had additional riders attached that were pure pork barrel garbage.

    Over the last few years, I’ve started changing my political outlook to that of the libertarians. It’s the only logical choice. I should never have to pay for someone else’s mistakes. The onus should not be on the taxpayers for stupid economics. The leaders of those entities that cratered should be tried and imprisoned much like the Enron and Worldcom bunch.

    When will people realize that the less government is involved, the better off everyone is.

  15. @scobleizer: opinions are like assholes – everyone’s got one. I have to admit that even though I do understand most of what’s going on, the roots causes and so on, the bailout plan seems ill conceived. My concern is not whether it unclogs the arteries in what has become an ossified banking system but whether it becomes a test for what government is prepared to hand over on the taxpayer’s behalf in what increasingly looks like a very high stakes games of Texas Hold’em.

    In the meantime, this is instructive: http://hnewlands.typepad.com/cardboard_spaceship/2008/09/the-bail-out.html

  16. @scobleizer: opinions are like assholes – everyone’s got one. I have to admit that even though I do understand most of what’s going on, the roots causes and so on, the bailout plan seems ill conceived. My concern is not whether it unclogs the arteries in what has become an ossified banking system but whether it becomes a test for what government is prepared to hand over on the taxpayer’s behalf in what increasingly looks like a very high stakes games of Texas Hold’em.

    In the meantime, this is instructive: http://hnewlands.typepad.com/cardboard_spaceship/2008/09/the-bail-out.html

  17. Scoble, I don’t recall you getting a PhD. in Economics. What’s next, you giving out medical advice?

    As far as idiocy goes: “Physican, heal thyself!”

    Speaking of idiots, the same idiots that were the catalyst for this problem (Democrats) are keeping this bill from being passed. (94 Dems voted “no”. In case we’ve forgotten, the Dems control the majority in the House). And when it does pass why would we trust the same idiots that caused this problem (Dems) to fix it?

  18. Scoble, I don’t recall you getting a PhD. in Economics. What’s next, you giving out medical advice?

    As far as idiocy goes: “Physican, heal thyself!”

    Speaking of idiots, the same idiots that were the catalyst for this problem (Democrats) are keeping this bill from being passed. (94 Dems voted “no”. In case we’ve forgotten, the Dems control the majority in the House). And when it does pass why would we trust the same idiots that caused this problem (Dems) to fix it?

  19. It seems to me that the Internet is just as bad a place as any to get advice from strangers. I’m happy to put my shoulder to the wheel on friendfeed, but my assumption is that we’re each producing a lot more noise than signal, and, inherently, making sense of that can’t be crowdsourced – we’ll just generate more noise. As far as individual experts go, I follow Dean Baker, Robert Reich, and Nouriel Roubini. (Not David Brooks, however. His explanation above of capital “floods” and “sloshes” does not seem like a description of the real-world problem: banks took fantasy money out of a series of markets, and that delusion is now being revealed in no uncertain terms. There’s no flood or slosh: money that never existed is now assigned its correct value, though the companies affected have done their best to conceal the true “losses”.) Props to Robert Accettura, Veejay Burns, and John Lopez above. It’s a mystery to me why more folks weren’t worried when home prices began their unprecedented climb – perhaps it takes a gyrating Dow to puncture our reveries.

  20. It seems to me that the Internet is just as bad a place as any to get advice from strangers. I’m happy to put my shoulder to the wheel on friendfeed, but my assumption is that we’re each producing a lot more noise than signal, and, inherently, making sense of that can’t be crowdsourced – we’ll just generate more noise. As far as individual experts go, I follow Dean Baker, Robert Reich, and Nouriel Roubini. (Not David Brooks, however. His explanation above of capital “floods” and “sloshes” does not seem like a description of the real-world problem: banks took fantasy money out of a series of markets, and that delusion is now being revealed in no uncertain terms. There’s no flood or slosh: money that never existed is now assigned its correct value, though the companies affected have done their best to conceal the true “losses”.) Props to Robert Accettura, Veejay Burns, and John Lopez above. It’s a mystery to me why more folks weren’t worried when home prices began their unprecedented climb – perhaps it takes a gyrating Dow to puncture our reveries.

  21. Hey Scoble, great post. I’ve just got a thought on your point about the experts being wrong. I think it’s critical this early in the game that we keep level heads and think before we make our decisions. The only thing I am currently sure about regarding the economy is that neither Barack Obama nor John McCain are going to be able to solve this problem. It is going to take a more educated public (that doesn’t spend more than it makes) and a more cautious or more regulated Wall Street. But it is probably not likely that average Joes will become more financially savvy and Washington lobbyists might be able to block regulation of Wall Street.

  22. Hey Scoble, great post. I’ve just got a thought on your point about the experts being wrong. I think it’s critical this early in the game that we keep level heads and think before we make our decisions. The only thing I am currently sure about regarding the economy is that neither Barack Obama nor John McCain are going to be able to solve this problem. It is going to take a more educated public (that doesn’t spend more than it makes) and a more cautious or more regulated Wall Street. But it is probably not likely that average Joes will become more financially savvy and Washington lobbyists might be able to block regulation of Wall Street.

  23. For goodness sake Robert, snap out of it! The world does not end at the edge of the Pacific Ocean. When the economy is tight at home sensible companies look abroad. There is a whole world out there. The Arab world is flush with cash and nothing to spend it on but real estate. It is only a pity that the US burnt its bridges with a pretty stupid foreign policy. Why don’t you do yourself a favor, take a short break in Dubai and cheer up.

  24. For goodness sake Robert, snap out of it! The world does not end at the edge of the Pacific Ocean. When the economy is tight at home sensible companies look abroad. There is a whole world out there. The Arab world is flush with cash and nothing to spend it on but real estate. It is only a pity that the US burnt its bridges with a pretty stupid foreign policy. Why don’t you do yourself a favor, take a short break in Dubai and cheer up.

  25. Idiocy Mr. Scoble?

    To me idiocy is taxing us on savings account interest and
    NOT taxing us on credit card balances.

    best,
    bonnieL

  26. Idiocy Mr. Scoble?

    To me idiocy is taxing us on savings account interest and
    NOT taxing us on credit card balances.

    best,
    bonnieL

  27. Robert Accettura speaks great wisdom in my book. Housing values haven’t crashed, they have returned (are returning?) to the ballpark of what they should be without the artificial inflation caused by insane loan practices and a “housing prices never fall” mentality. I wish this chart was updated with the current situation:

    http://www.speculativebubble.com/videos/real-estate-roller-coaster.php (scroll to the bottom for the chart, or watch the video for an amusing portrayal) .

    However, there are even more fundamental issues at play here. Our economy has been based on binge spending via credit for a long time, and the crows are now roosting.

    We save little (around 4% in 2005): http://www.nationmaster.com/graph/eco_gro_dom_sav_cur_us_percap-savings-current-us-per-capita

    And spend much via credit (around 19% in 2003): http://money.cnn.com/2003/10/02/markets/consumerbubble/

    Looking at these old articles, one can see the house of cards at the height of being built. Today, we see the cards falling around us, yet act surprised. I think that is the most disappointing part of the whole cycle, that we walk into them with eyes wide open.

  28. Robert Accettura speaks great wisdom in my book. Housing values haven’t crashed, they have returned (are returning?) to the ballpark of what they should be without the artificial inflation caused by insane loan practices and a “housing prices never fall” mentality. I wish this chart was updated with the current situation:

    http://www.speculativebubble.com/videos/real-estate-roller-coaster.php (scroll to the bottom for the chart, or watch the video for an amusing portrayal) .

    However, there are even more fundamental issues at play here. Our economy has been based on binge spending via credit for a long time, and the crows are now roosting.

    We save little (around 4% in 2005): http://www.nationmaster.com/graph/eco_gro_dom_sav_cur_us_percap-savings-current-us-per-capita

    And spend much via credit (around 19% in 2003): http://money.cnn.com/2003/10/02/markets/consumerbubble/

    Looking at these old articles, one can see the house of cards at the height of being built. Today, we see the cards falling around us, yet act surprised. I think that is the most disappointing part of the whole cycle, that we walk into them with eyes wide open.

  29. Scott: I do not have a stake in FriendFeed. I am not being compensated by them. It is simply the best community and aggregator out there right now. If you have one that’s better, I’d love to hear about it.

  30. Scott: I do not have a stake in FriendFeed. I am not being compensated by them. It is simply the best community and aggregator out there right now. If you have one that’s better, I’d love to hear about it.

  31. Robert, thank you for the post. I will interject that I think all of this passion is a wonderful thing. The fact that people are responding is wonderful!

    I believe your issue is how they are responding… at what level. One thing I have learned in my own life is people go through various stages of (actually wrote a post on handling change in uncertain times due to some personal issues I’m currently facing):

    http://www.changeforge.com/2008/09/20/how-do-you-deal-with-change-in-uncertain-times/

    Nonetheless, it warrants mentioning in this scenario b/c people go through various stages of denial and fear – and the strong ones come to grips with hard reality and triumph! That is the America I know and love.

    However, in this situation very few people on the outside know how this got started or even how to fix it. It is not a simple solution. What you are seeing is totally normal – a backlash of emotion.

    The leaders are the ones who see there way clear by taking a step back and surveying the landscape, then acting decisively. There is always a sense of urgency, but we should not allow fear to guide us.

    I think this may be a point you are talking around, but I wounder if you, yourself, are reacting negatively b/c you are a decisive person and cannot bear to watch others make “wrong choices”.

    I would offer you encouragement that America will see it self clear of this and we will all learn lessons. However, I do worry we may have quite a bit of collateral damage no matter which direction we move.

    I, for one, am not convinced the package is viable in its current state. But I do have confidence our country will see its way through this… and perhaps a little smack on the face is what we all need.

    Thank you for sharing your thoughts.

    From 1 American to Another,
    Ken Stewart

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