Had dinner with a couple of friends/co-workers last night and we had some interesting discussions about economics and politics which I am interested in blogging about further. A few of the topics discussed that I may try to delve in further after I compose my own thoughts on the different subjects:
- The notion that “Wall Street” is too powerful. (I’m not sure how I feel about this yet since “Wall Street” isn’t a single entity you can point to and say “they” did “this”). An interesting article from Atlantic Monthly back in May (which I have not fully read yet) suggests that the economic bailout of financial institutions was more akin to the type of activity that occurs in third world “banana republics” than would be expected to happen in a large economic superpower.
- A more specific version of the above argument, namely that Goldman Sachs is too powerful and has far too many ties, direct and indirect, to the government (see this feature from Forbes in 2007 which refers to Goldman as “The Most Powerful Investment Bank In The World”.)
- Privatization of Social Security. One of my friends suggested George W. Bush was somewhat crazy for having this agenda (even though he never really did anything about it, only delegated to Congress the creation of a Social Security reform plan which ultimately produced nothing). He did however seem to agree with me that Social Security was a scam nonetheless. It makes me wonder if we will ever be able to dislodge the fantasy notion that Social Security is a necessary program, or even a good program, when just looking at the facts suggests otherwise.
- The notion that health care reform is a really really hard problem. I am not so sure anymore that it is that hard, assuming you could unwind most of the government involvement in the current health care system. That, however, is a big assumption so politically I tend to agree that it is nearly impossible (or at least extremely difficult) to make progress on reform in either direction (to either more or less government control).
- The Economist currently has an interesting online debate on health care reform that was mentioned during our conversation (I also haven’t listened to this in full yet).
- The importance of incentives to people’s economic decisions. (I haven’t read the full book yet, but knew this as Principle #4 from Greg Mankiw’s Principles of Economics Textbook). My friend said he performed a test at our Christmas Party last year and offered to trade anyone for their raffle ticket, and then offered to pay anyone $2 for their raffle ticket (when the prize could potentially be in the hundreds of dollars, usually in gift certificates). Apparently no one accepted the trade. He used this as supporting evidence for the notion that people are mainly interested only in what they can gain short term (and by extension, politicians and Wall Street traders and consumers and so on are almost always going to focus on the short term), but I feel this is not really the case. I know professional economists can come up with the technical definitions of the incentives pertaining to such decisions (trading a raffle ticket or something perhaps more significant), but I’m not educated on economics enough yet to formulate a strong academic argument one way or the other.
One of the topics I also brought up was my belief that during the height of the financial ‘crisis’ last year, both the Treasury Secretary (Paulson) and the Federal Reserve Chairman (Bernanke) had absolutely no idea what was going on and the $700 billion TARP ‘bailout’ was not just unhelpful but counterproductive. A simplistic way of making at least the beginnings of the case for this argument is that TARP was not ultimately used for what it was intended (to remove troubled/toxic assets from the balance sheets of various financial institutions) so it couldn’t have been as critical as the public was led to believe in the short debate leading up to the passage of the bill. I’ll try to follow up with a more detailed post with evidence backing up my point of view, and maybe some contrary opinions if I can find anyone who has some evidence to show that TARP actually did do some good (other than as a magical elixir that proved the government was willing to ‘do something’ about the ‘crisis’).