Professor Bainbridge...on law, politics, religion, culture & food

Wow. How smug can you get! You really don’t know anything about Democratic policy wonks do you. What in the world do you think they are? Unreconstructed socialists or something?

The economic policies of the Clinton Admin were based on that “profound” insight. And have you read anything Obama (or his economic advisers) has said about markets—he’s really big on the importance of market efficiencies and price signals.

But as you well know, there’s no such thing as a “free” market. Markets are structured, and their incentives and price signals work, according to the particular rule system in which they are embedded. They are never neutral but privilege certain values or interests over others.

So part of what the mainstream wonks on the left ask is how a given rule system is producing incentives and signals and whether some of the rules should be adjusted. That’s what those on the right ask as well, if they’re intellectually honest about what they’re doing instead of knee-jerk ideologues. They just have a different set of preferred values and outcomes.

That’s also what you, when you focus on corporate governance, are in effect asking. You don’t believe there’s a “free” market in corporate governance. You look at how the system might work better, given your preferred values and outcomes, if the incentives and signals were adjusted in certain directions. 

I get a great deal out of your corporate governance writing by even though I don’t share your political sympathies. Far more often than not I agree with the thrust of your analysis, even though I’m less likely to agree with your proposed solutions because either I think incentives work a bit differently than you do, or because I have somewhat different priorities or concerns about certain types of management behavior. If you want to be taken seriously, I suggest you give your political opponents the same intellectual courtesy.

I hate to say this, but what Drum (and many liberals ) is really saying is “market pricing in honest transactions.”

A big slice of American business no longer seems at all interested in honest anything, and sadly many of my fellow conservatives appear to agree.

“Greed is good.” Gordon Gecko

How do you “free market types” feel about bailing out Bear Stearns, Fannie Mae and Freddie Mac?  How do you “free market types” feel about the $10 trillion of federal debt previous Republican administrations have run up?

The hypocrisy of your “free market types” is stunning.

How do you “free market types” feel about bailing out Bear Stearns,

How did the government bail out Bear Stearns?  The company no longer exists as a separate entity.  The Administration refused to actually bail Stearns out and instead leaned on JP Morgan Chase to get them to buy a company that was on the brink of bankruptcy (with Morgan Chase’s own money).  That wasn’t a fair market transaction—more like duress on both sides—but it wasn’t a bail out either.

Fannie Mae and Freddie Mac?

The Professor has written extensively on Fannie and Freddie.  See http://www.stephenbainbridge.com/punditry/comments/the_imminent_fannie_mae_and_freddie_mac_debacle/ “Fannie and Freddie should have been fully privatized years ago, so that they were subject to market competition,” http://www.stephenbainbridge.com/punditry/comments/the_fannie_and_freddie_bailout/ “The bailout plan confirms what many Fannie and Freddie critics have argued over the years; namely, that when push came to shove, the government would not let either fail. ... [meaning] that Fannie and Freddie’s ... management was effectively insulated from market discipline,” and http://www.stephenbainbridge.com/punditry/comments/privatize_freddie_and_fannie_or_bring_them_back_into_government/ .

How do you “free market types” feel about the $10 trillion of federal debt previous Republican administrations have run up?

What does the federal debt have to do with the free market?  If the government spends more than it has, what effect does that have on the price of bread at the corner grocery store?

The Fed protected (essentially insured) JP Morgan on $29 billion of the $30 billion of assets they took over from Bear.  Look it up.

And perhaps the Prof. wrote extensively on the Fannie and Freddie issue, but the guys he voted for did absolutely nothing to change the system and in fact allowed the GSE’s to grow enormously on their watch - so where was “institutionalization of the presumption in favor of free markets” in that regard?

And lastly, what effect does deficit spending have on the price of bread?  Are you kidding me?  Do you think deficit spending is not inflationary?

The Fed protected (essentially insured) JP Morgan on $29 billion of the $30 billion of assets they took over from Bear.

And JP Morgan is on the hook for lawsuits filed against Bear Stearns before Bear went belly up.

And perhaps the Prof. wrote extensively on the Fannie and Freddie issue, but the guys he voted for did absolutely nothing to change the system

A little history is in order:

Republicans ... tried to rein in Fannie Mae and Freddie Mac mismanagement and overly promiscuous lending many times, but it always foundered on Democratic politics: Dems were ... in favor of easy money for high risk borrowers because the financially ignorant are a core Democratic voting demographic ( http://tjic.com/?p=9503 ).

Besides, your original comment was directed at us “free market types” not at the people we may have voted for.  We “free market types” have a definite opinion on the Freddie and Fannie bailout.

And lastly, what effect does deficit spending have on the price of bread?  Are you kidding me?  Do you think deficit spending is not inflationary?

Defecit spending is no more inflationary than any other kind of government spending.  If the IRS stopped buying reams of US-made office paper, for instance, the effect on the economy wouldn’t depend on whether the IRS had been getting the money for that paper from taxes or bonds.  On the other hand, if the IRS only bought Chinese-made office paper, then China’s economy might feel some inflationary pressure, regardless of where the money came from.

But there’s another problem with the argument.  Mainly, that during this time of deficit spending, inflation has stayed incredibly low.  Try putting in different years at http://data.bls.gov/cgi-bin/cpicalc.pl .  For instance, “$1 in 1992 has the same buying power as $1.23 in 2000”; “$1 in 2000 has the same buying power as $1.27 in 2008” (why those years?  because Clinton is famous for reducing the deficit during his term and Bush is famous for expanding it).  Four cents just isn’t enough for me to get worked up over.