The Bailout

Dammit.  I usually find the reserve to just keep on talking about timeless issues, the human condition, and problems that persist and grow.  But this is just too much.  While I’m still going to avoid talking about the election and such, I just have to talk about the bailout.  It can no longer be avoided.

The source of my agitation is this article (http://www.thesmokinggun.com/archive/years/2008/1007083aig1.html) from the Smoking Gun.  Essentially, the executives of AIG have, days after the $85 billion bailout, thrown a massive executive party at a resort in California.  Now, let’s be honest, this article does slant the situation in the obvious direction.  But don’t they just bloody well deserve it?  I mean, seriously.  These people are seriously threatening even my steely impartiality and objectivity, if I do say so myself.  What on earth are these executives thinking?  Was the whole thing a scam and they simply no longer care because we’re all going to economic hell anyway?

OK, first, let’s be fair.  The invoice tells us that the vast majority of the funds were spent on either rooms or food and not on luxury services like spa services, exploding cakes, urinating ice statues, and the like.  Although there were sizable figures under those categories, to say that they spent a fortune (relative to the $450k price tag) would be improper.  I don’t want to pore through their invoice because it’s a limited source of information anyway, and you can only extract so much information from it.  Anyway, it seems to me that the exorbitant cost of their retreat resulted from their choice of location rather than any particular absurd excess.  Whether or not they might have simply gotten a convention hall for an executive summit is debatable, but any argument we might have lacks all basis because we have no context.  It’s highly probably there is a good reason why that location was chosen, possibly to secure ties to some other company or maybe something as small as associates of the company involved with the resort.

All that said, dammit, do you guys care that little about our money?  That $85 billion is supposed to be saving your asses, not letting you party like it’s 1929.  They must have known how this would look, which only strengthens the possibility that there is a good reason we aren’t seeing.  Of course, Occam’s Razor says they’re just partying because they feel like it and don’t give a damn if we despise them for it.

The basic issue at hand here, though, is not corporate irresponsibility.  In a perfect world, CEOs and executives can do whatever they want with their money.  However, the critical point here is that it must be their money.  The second that they control money they don’t actually own or have legitimate authority to manage, we have a problem.  Of course, that’s exactly what the government has done.  The government extracted that $85 billion from us against our will with the vapid promise that it was *still ours.*  Of course that’s nonsense because we have absolutely no control over how it’s spent.  So they give it to big corporations because those big corporations can incentivize the people in power however they need to in order to get a piece of that pie.  They’ll figure it out if it’s possible.  You can’t build a system that will get the job done properly that will not be open to willful subversion to the same degree.  If you count on intent, then intent will be its weakness.  If you count on structure and checks, then structure and checks will be its weakness, and so on.  If you count on open violence, then open violence will be its weakness.  It doesn’t matter on what motive power the government is managed, it can be subverted by an appropriate strategy because the only way it can’t give money to the wrong hands is if they can’t give money at all.  Anyway, I’m getting off topic.  My point is that those bankers now control a great deal of “our” money, so it pisses us off when they do stuff like this, and rightly so.  We’ve been robbed on the promise that we would get something in return, and later we were deprived even that (as usual I might add).  If there were no public money floating around, then why should it irritate you if these CEO’s throw flagrantly irresponsible parties?  You already got your goods or services rendered.  Just like how they don’t care if you burn that plasma TV after you buy it, you don’t care if they burn your money once you’ve paid for that TV.  It’s not yours anymore- you willfully parted with it in exchange for your new TV.

There are so many unfortunate fools who will blame the companies for this type of fiasco.  What bullshit!  Imagine if you were handed $85 billion dollars on a silver platter.  Well, that’s not strictly true.  Imagine that you could spend all of your assets and have some probability of pulling down $85 billion from the government cloud funds, and it pays off for you.  You’re A) going to party like a wild animal because you’re set, and B) you’re going to keep on using that money to try to get more.  It is obviously a very effective strategy.  Not only that, but there comes a time when they don’t even need to provide the same level of services.  Because when things are in the shitter, they get free money.  Does this sound like a good plan to fix the economy?  No.  These banks are going to do their damnedest to keep that free money flowing.  The only way they would stop would be if they could make significantly more money by actually working.  There must be a significant enough difference that their profits from being honest will exceed the free funds they get while cutting expenses at the same time.  Which probably is never going to happen.

My point is that these executives are being completely reasonable given their environment, even if they’re just being 100% wasteful.  Imagine if you were paid to spend money.  The more money you spent, the more you earned.  In fact, if you were so bad that you were in a constant state of poverty, you would get even more.  I’m not trying to argue that the poor don’t deserve aid, but I am trying to say that this incentive structure is just insane.  It will literally incentivize insanity.  Doing the exact opposite of the preferred behavior is rewarded.  Total madness.  “We want people to be wealthy, so we should give money to people who are poor.”  What the hell?  The banks are actually in this situation.  The worse they are at managing their business, the more money they get from the government, on the grounds that if they fail it will be bad for the economy.  Haha!  It would be hilarious if it wasn’t so sad.

Now a lot of people think that incentives are a crude way to look at humanity.  I would agree.  However, incentives provide a direct model upon which complications can be built.  It’s like how we discovered algebra before we discovered complex numbers, but the discovery of the complex numbers doesn’t invalidate the process of algebra.  Deeper structure to the human mind and personality doesn’t change the fact that they judge by application and comparison of incentives or utility functions.  If the deeper structure would predict that someone would pick a free $5 over a free $10 then your model is broken, no matter how complex or interesting or otherwise intuitive.

In fact, models tend to be constructed to formalize specific inconsistencies in the way that the world is filtered.  Fallacies are easily communicated through analogy, models, and other constructions.  For example, it seems perfectly logical that gun ownership would cause crimes involving guns.  Very intuitive, right?  The more guns there are, the more likely people will be to use them because they will be more available.  Actually, this is not the case.  In fact, I would wager that gun crime goes down if you decrease, or increase, the supply of guns.  The gun-control-slanted middle area is where the most crime involving guns will take place.  Those who really want to can legally acquire them, and they can be reasonably sure that nobody else will have one.  If you make them harder to acquire, it goes down a little.  Although crime might remain equally high- it’s just crime with guns that would probably go down.  However, if you increase the supply of guns, then the thugs no longer have the same certitude that they will not be met with lethal force.  Even if the probability that the person they’re mugging will be armed and belligerent are small, they only have to do it numerous times before statistics kills them.  Knowing this, a whole slew of crimes such as violent crime, muggings, robberies, etc. all would be expected to drop.  This is of course a theory only moderately supported by evidence, but it’s a reasonable hypothesis that deserves further testing.

Before I end this post, I want to talk about positive obligation.  There is no such thing.  Who cares?  Well, how come it’s possible to take out a loan which your children are then responsible for, even though they never spent a penny of it?  Irresponsible and morally reprehensible for the person, sure, but how come it’s even possible?  Simply put, it’s because the people lending the money are the people with the money.  They get to decide how those loans are paid back.  And it is true that if some loans where the client dies are paid back, it makes capital cheaper and more available.  This somewhat stimulates the economy, and at the expensive of only a little moral questionability.  This is acceptable to the people lending the money, and they have a legitimate case to make.  However, the day my government can spend money it doesn’t have on the good faith that I’ll pay interest on it?  Not a chance.  I’m not old enough to have a stake in the vast national debt.  So I just won’t.  If they make me pay for it, I will, but not because I want to.  I’m not going to put myself in a difficult position or enter direct conflict with the government- that’s just foolhardy.  You can’t fight them- they’ve got everything from the army up to and including the nuclear option.  So don’t.  Just do what they say, but keep to principles.  They can threaten you.  Let them, and accede to their demands.  Very simple.  It’s the mob.  You don’t pay, your life gets difficult.

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Seizing Property

I just read an intriguing article which talks about Bush’s recent executive orders to enable the secretary of the treasury to seize the assets of anyone who is in any way, directly or however indirectly, interferes with Iraq or Lebanon.  While I agree that this is the utmost insanity, I have a more interesting argument to make than merely discussing the lunacy of the politicians of the day.  Here is a quote from the article linked above:

“While both orders bypass the Constitutional right to due process of law in giving the Secretary of Treasury authority to seize properties of those persons posing a risk of violence, or in any vague way assisting opposition to US agenda”

Oh, so the problem is that the Secretary of the Treasury now can do it without due process.  Meaning that they don’t have to notify you about how they’re just about to freeze and then steal all your assets.  It’s that they won’t permit you to hire a lawyer that this article is bemoaning.  While this is indeed bad, I think we’re all missing the point somewhat.  Shouldn’t the Secretary of the Treasury simply not have the power to just reach out and grab whatever they feel like?  Shouldn’t the government simply be unable to outright steal everyone’s assets?  The offhanded way that this article ignores the fundamental crime that is being committed here is disturbing.

On other current news, the government is handing out $700 billion to banks.  OK, so let me get this one straight.  You reserve the right to steal from citizens at will, and you restrict yourself by having little bits of paper which sometimes say you do, and sometimes you don’t.  However . . .  Unfortunately this makes perfect sense because the average citizen hasn’t the capital to siphon down from the great pie-in-the-sky that is government funds.  Fiscal governments raise barriers to entry.  Laws.  It’s what they do- they make regulations and restrictions, and they throw money around.  The bailout, the executive orders, everything, the whole deal is just business as usual.  Can you imagine how poorly the American government would be doing right now if it were a company?  If citizens had the option to leave and go to a competitor without dealing with the huge barriers to entry which are actually barriers to exit, they would be gone.  All the features the US government offers have become corrupted in recent years, from the Constitution to the balance of powers to the services rendered.  However they don’t care, quite simply because no matter what, they will keep their revenue stream alive.  That’s the purpose of taxes.

I’m going to cite Stefan Molyneux’s example, perhaps again, but I can’t be bothered to check.  Let’s say there’s a paperboy.  He goes from house to house and delivers papers.  Part of his job is to try to sell subscriptions to more houses.  If the paper offers more value to consumers then he sells more papers, and everyone is better off.  The consumer gets the paper, he gets paid, and the publisher makes money.  Now, let’s give this model a twist.  Let’s turn the paperboy into a government force- say the paperboy has the force of arms to walk up to someone’s house and tell them, flat out, that they are now subscribed to his paper and will pay the subscription cost.  He doesn’t care what they do with the paper- they can burn it for all it matters.  But they must subscribe and receive the paper, or there will be consequences.  For example, let’s say he can have them thrown in jail for failure to comply.  In the short term, you’ll see a massive increase in the number of subscriptions.  This looks like a fan-fucking-tastic idea.  True, some people get thrown in jail, but on the whole the economy is being stimulated, and so many more people are getting newspapers than they used to.  They’re keeping up to date, they’re reading, they’re becoming more international.  Of course, the paper no longer has any incentive to print anything at all- they could give out blank sheets of paper for all they care.  They have more subscriptions than ever, and are growing explosively.  If the paperboy is ethical, he might exercise his power to make the newspaper print good stories, but how do you judge that, and are you need boards and standards, and so on…  Of course, the paperboy is making a lot of money since he’s the crux of the operation- or at least him and others like him.  Of course, this puts the paperboy in a powerful position, giving him the option to push hard for more money, exploit his employer, turn corrupt, etc. etc.  Crime- at least, white collar crime, is a result of this crevasse created by the government.  For example, if the paperboy is trying to help people with his power, he might demand that people receive the paper in order to give the publisher more money with which to hire more reporters, editors, etc. to make more and better stories.  So everyone enjoys the paper more, lots of people are receiving it, and everything is just dandy.  This puts our paperboy squarely in the naive liberal point of view.  This is fantasy.  You can’t put the cart before the horse and expect it to go.  You can’t legislate that the machine will work.  You let people who want the machine to work fix it so it goes.  If nobody wants the machine to go- if it’s uneconomical to run it, then it shouldn’t be run anyway.  By demanding that people receive the paper, you’re skewing the incentives to screw over the consumer, or buyer, and thereby alleviate the burden on the seller.  If you expect them not to take advantage of that, you’re stupid.  The way to stop them is to regulate the seller, too, but now that crevasse is widened and you’ve made everyone worse off, and introduced counterproductive protocols and immense complication.  If it gets too complicated, you might even create niches for specialists to help people navigate and cope.  It’s madness.

Can you think of any parallels between this example and, say, the school system?  The stock market?  Other systems or government programs?  Can you guess why they use contractors whenever they actually need to get stuff done, and done well?  I have a thought experiment for you.  Let’s say that the government didn’t issue defense contracts.  Do you think that the defense contracting companies would even attempt to make weapons the way they do when they’re being paid for their effort?  How do they expect to make money?  Do you think these people just want to make weapons, and they would do it anyway even if they wasted millions or billions doing it?  Of course not.  Now, if there was a legitimate reason for those weapons to be built, agreed upon on a sufficiently massive scale to make the general public want to pay for their production out of their own pockets, they could be made.  But I don’t believe a situation like that has ever occurred without being created in the first place by one or more governments screwing their citizens.  I don’t want a company representing me to attack anybody- what a complete waste!  But of course that’s just the point.  The government doesn’t actually represent anybody.  Even if you wanted them to stop representing you, you can’t.  QED, they don’t represent you.  The reasoning behind this is very simple.  Let’s say you’re in a conversation with three other people, and one of them is telling the other two about your opinions.  At any point you can simply declare that person incorrect and retract their right to represent you, granted on a very temporary basis.  If they keep going and say, “No, I represent you.  You don’t get to argue with me,” they are clearly the problem.  I mean, seriously, does anyone actually think this is a sane way to run a conglomerate of millions of people?  At the end of the day, this stuff is truly simple, but so many people are being misled.  Like the “terrorist fist jab,” it would be hilarious, if it weren’t so sad.