ECONLIB: INTOLERANT SOCIALISM vs. TOLERANT CAPITALISM

Intolerant Socialism | EconLog | Library of Economics and Liberty

				Intolerant Socialism | EconLog | Library of Economics an... Like Bryan, I really enjoyed Jason Brennan's discussion of
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Like Bryan, I really enjoyed Jason Brennan's discussion of "Why Utopia is Capitalist." Bryan is correct to note that one of the main problems with G.A. Cohen's camping trip example is that it assumes (albeit implicitly, if I remember correctly) that we have all decided to go on a camping trip together. It's basically a question of constitutional choice: what kinds of contract do we wish to adopt if we are all going camping together? It reminds be of Peter Leeson's work on contract and governance among PIRATES (he explains it in a 2007 Cato Unbound symposium).

As Brennan writes, capitalism is preferable to SOCIALISM because voluntary socialist experiments like utopian communes and socialist camping trips are possible in a world with private ownership of the means of production. 

Capitalism tolerates socialism. Socialism does not tolerate capitalism.

For the last few weeks, we've been getting together with friends from church for potluck lunches on Sunday afternoons. These are "socialist" ventures like Cohen's camping trip, and I think most of us would agree such gatherings are integral parts of a robust and thriving civil SOCIETY.

What if we went around the neighborhood and instead of inviting people to lunch we tried to jawbone people into joining us out of moral obligation? What if we started trying to conscript people into our Sunday lunch gatherings? Most people would find such BEHAVIOR boorish, intolerant, and once force is involved, evil.

Capitalism accommodates diversity in ways that socialism simply cannot. NATURALLY, one might respond that with the advent of the New Socialist Man, concerns about different preferences will be beside the point. I'm reminded, therefore, of a joke:

A revolutionary is giving a speech to a large audience, and he promises the assembled masses that once the revolution comes, the land will flow with milk and honey. He is interrupted by a gentleman a few rows back, who asks "what if I don't like milk and honey?" The revolutionary responds: "comrade, after the revolution, you will like milk and honey!"

Baseball ahead of other leagues in fighting PEDs - Philly.com

The conundrum that MLB finds itself in unfortunately is that by being in the lead in the PED fight, they are in the trail position as far as PR and public perception.

Right now, the international problem is looming over this sport like no other.

The different enforcement standards vis-a-vis Amercian players and their Latino counterparts allows for exactly the kind of un-level playing field that the fight AGAINST steroids and PED's was meant to prevent.

When this thing moves to the forefront, and it will again with the Biogenis names set to be released, it is going to reignite the debate. This time it will be a whole lot more virulent.

from Philly.com:
Baseball ahead of other leagues in fighting PEDs - Philly.com:

The science of getting away with doping always seems to stay a half-step ahead of the science of catching dopers, and the financial gains that hang in the balance for the players involved encourage them to test the system.

"As an ex-athlete, I understand what it takes to compete, and if you feel you are competing with less of an arsenal than others, they can be tempted to want to enhance their position one way or the other," Amaro said. "We hope we're getting it out of the game, but that's the nature of competition, that's human nature, that's the nature of capitalism, or whatever you want to call it."

Of the players reportedly under investigation, almost all are of Latin descent. Eleven of the 12 major leaguers suspended for violating the drug policy since 2009 are Latin. Just looking at the Phillies, four of the five organization players suspended since the program began - Pablo Ozuna, J.C. Romero, Freddy Galvis, and Carlos Ruiz - are Latin. (Kevin Frandsen was suspended in 2012 for a test result that contained the stimulant found in Ritalin.)

Are Latin players more likely to cheat, more likely to get caught, or the victims of a system that offers less protection for players who are often trying to navigate their profession in a second language?

"I don't know. Maybe they see other Latin players getting to the big leagues and having success, or were selected for the baseball academies, and they feel they have to keep up," said Amaro, who is of Cuban and Mexican descent. "It might be there are different standards in some Latin countries. You don't even need prescriptions to get some of the things that are banned here. It could be a lack of education on the real issues. But I can tell you that in our organization, a lack of being educated about the issues is not an excuse."

'via Blog this'

Of Jobs, Debts and Budgets | Richard Mills | FINANCIAL SENSE

How Crony Capitalism Corrupts the Free Market | David Stockman

Stockman finally gets it. He's a favorite of the lefties because he pounds (distorts?) the supposed failings of  Reagonomics from time to time. Of course, he was an architect of the budget during those years so.......part of the problem / part of the solution / 20-20 hindsight / rewriting history and legacy, IDK.

He sounds smarter talking Austrian economics to Mises members. Almost as smart as Ron Paul.


Of Jobs, Debts and Budgets | Richard Mills | FINANCIAL SENSE:

“The plain fact is that we are warehousing a larger and larger population of adults who are one way or another living off transfer payments, relatives, sub-prime credit, and the black market. My suspicion is that this negative trend and many others like it get buried by the monthly change chatter from mainstream economists and on bubble vision, and that these monthly deltas are so heavily manipulated  as to be almost a made-up reality. Call it the economists’ Truman Show.” David Stockman, Former Reagan budget director talking about the BLS jobs reports"

John Taylor, Taylor Rule discoverer says,
"We could get into a situation like Greece, quite frankly. People have to realize it is a precarious situation. The debt is going to explode if we don't make some changes. What seems to be more important is that people can get back on track, the country can get back on track, with just some sensible adjustments. I argue just bring spending back to where it was in 2007. That's not so long ago. We've had an enormous spending binge in the last few years. If we undo that binge, shouldn't be that hard, we can get back to some sensible pro-growth policies.”

Carmen Reinhart and Kenneth Rogoff co-authors of “This Time is Different: Eight Centuries of Financial Folly” are sceptical of any fix and think we should get use to present conditions because nothing is going to change for the good anytime soon.
President Obama’s budget for fiscal year 2012 would have increased the country’s  debt by nine trillion dollars over ten years - even Democrats rejected it. Obama will deliver his new budget this Monday, last year he claimed one trillion dollars in deficit reductions from winding down the wars in Afghanistan and Iraq but that money hadn’t even been approved.

'via Blog this'

MISH: TOP ORWELLIAN COMMENTS OF ALL-TIME

I'm with you there Baldy!!!

From Mish's Global Economic Trend Analysis Blog:
http://globaleconomicanalysis.blogspot.com/2012/05/we-embittered-people-to-protect-future.html

Top Orwellian Comments Of All Times

• An American major after the destruction of the Vietnamese Village Ben Tre: "It became necessary to destroy the village in order to save it."
• Vice President Joe Biden: "We Have to Go Spend Money to Keep From Going Bankrupt."
• President George W. Bush: "I've abandoned free-market principles to save the free-market system."(For a discussion please see The Most Redeeming Feature of Capitalism is Failure)
• Nancy Pelosi said "We have to pass the health care bill to see what's in it." (YouTube Video)
• Larry Summers says "The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending." (Reuters)

 

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Income Inequality Rose Most Under President Clinton - Investors.com

I'm not sure if this one article knocks down the bulk of the OWS'ers basic thesis and arguments one by one. So the Gini coefficient, the best measure of income inequality did worse under Republicans Reagan-Bush-Bush than it has under The Dems Clinton-Obama. If the Repubs are the party of the rich -- and that's the mantra we hear screeched the most -- then they may need to ask for a refund.

Great read. Of course, you won't see it reported by any of the MSM pundits. There, the truth hurts, even though most of us know that the truth shall set you free. They have never been know to let the facts get in the way of a good story either.

H/T to the Conservative Manifesto blog who sent me a heads up to the story. More food for thought on the Gini coefficient and income inequality from another favorite blogger 'Whiskey and Gunpowder'.

Income Inequality Rose Most Under President Clinton - Investors.com: "Income Inequality Rose Most Under President Clinton

By JOHN MERLINE, INVESTOR'S BUSINESS DAILY

Posted 11/03/2011 08:05 AM ET

In his weekend radio address, President Obama decried that "over the past three decades, the middle class has lost ground while the wealthiest few have become even wealthier." Although he was trying to leverage the Occupy Wall Street movement, the income gap has been a longstanding concern of his."

During the 2008 campaign, Obama said, "The project of the next president is figuring out how do you create bottom-up economic growth, as opposed to the trickle-down economic growth that George Bush has been so enamored with."

But it turns out that the rich actually got poorer under President Bush, and the income gap has been climbing under Obama.

What's more, the biggest increase in income inequality over the past three decades took place when Democrat Bill Clinton was in the White House.

The wealthiest 5% of U.S. households saw incomes fall 7% after inflation in Bush's eight years in office, according to an IBD analysis of Census Bureau data. A widely used household income inequality measure, the Gini index, was essentially flat over that span. Another inequality gauge, the Theil index, showed a decline.

In contrast, the Gini index rose — slightly — in Obama's first two years. Another Census measure of inequality shows it's climbed 5.7% since he took office.

Meanwhile, during Clinton's eight years, the wealthiest 5% of American households saw their incomes jump 45% vs. 26% under Reagan. The Gini index shot up 6.7% under Clinton, more than any other president since 1980.

To the extent that income inequality is a problem, it's not clear what can be done to resolve it. Among the contributing factors:

Economic growth. Strong economic growth, rising stock prices and household income inequality tend to go hand in hand.

Technology. Tech advances have put a premium on skilled labor, according to a Congressional Budget Office report . Because the pool of skilled workers hasn't grown as much as demand, their wages have climbed faster.

Free trade and immigration. Cheap labor abroad and an influx in low-skilled immigrants can depress wages at the bottom, according to the CBO.

Women in the workforce. As the CBO put it, "an increase in the earnings of women could boost inequality by raising the income of couples relative to that of households headed by single people."

Tax policy changes don't explain the widening income gap. The CBO found that, by one measure, "the federal tax system as a whole is about as progressive in 2007 as it was in 1979."

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From the Conservative Manifesto blog:

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Actually... the rich got poorer under Bush (and richer under both Clinton and Obama) Posted: 07 Nov 2011 08:07 AM PST In a time of rampant (not to mention criminal) Occupy mobs, this should be a bubble burster. The wealthiest 5% of U.S. households saw incomes fall 7% after inflation in Bush's eight years in office, according to an IBD analysis of Census Bureau data. A widely used household income inequality measure, the Gini index, was essentially flat over that span. Another inequality gauge, the Theil index, showed a decline. In contrast, the Gini index rose — slightly — in Obama's first two years. Another Census measure of inequality shows it's climbed 5.7% since he took office. Meanwhile, during Clinton's eight years, the wealthiest 5% of American households saw their incomes jump 45% vs. 26% under Reagan. The Gini index shot up 6.7% under Clinton, more than any other president since 1980. Of all the places the Occupy children have infested, it's a wonder 1600 Pennsylvania Ave. isn't one of them.

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From Whiskey and Gunpowder:

The Income Gap Obsession

Nov 8th, 2011 | By Jeffrey Tucker
http://whiskeyandgunpowder.com/the-income-gap-obsession/

The word “equality” is being rammed down our throats every day, with special focus on the so-called “income gap.” The presumption is that we should all denounce the gap, work to eliminate it and embrace perfect equality as an ideal.

It’s true that inequality is growing, but the focus on that alone is sheer folly. Equality applies to math equations. You could also use it to describe how the law should be impartial with respect to persons — the traditional use of the term “equality” in the classical liberal literature. But that’s it. Otherwise, an obsession with this topic is very dangerous for a free society.

That’s because the people who invoke equality have no intention of creating the conditions to make it easier for the poor and for middle-income earners to grow rich. Leveling upward is never the goal. Egalitarians want to flatten incomes at the top so that the rich no longer exist. This can’t help anyone but the envious, those who get a kick out of destroying, rather than creating.

As Shikha Dalmia writes, “Income inequality tells us zilch about the only thing that really matters: Are the lives of Americans, rich, poor and in between, getting better or worse?”

Try an experiment in your mind with a society of 10 people. Five people earn $50,000 and five earn $100,000. Let’s say we flatten out the top half so that everyone earns the same. Equality! But who benefits? Absolutely no one. Society as a whole is poorer, and that is to the detriment of everyone: less capital, less wealth available for wealth-forming projects, demoralization among the smartest and most inspired and a ceiling on those who might have previously desired to move from the lower half to the upper half.

In any case, the supposed egalitarian ideal can always be achieved by driving everyone into the dirt and universalizing poverty. There is a serious problem, with an ideal that can be achieved by wrecking the lives of absolutely everyone.

In a free society, we just have to get used to the idea that some people are going to be vastly richer than other people. And those rich people do act as benefactors to the rest of us. They give more to charity. They start the new businesses that employ us. They take the risks that make capitalism dynamic and progressive. They act as society’s economic leadership team. And the individual members of that sector of society are constantly changing, and this is a good thing.

What’s more, in a free society, the rich are completely dependent on the poor and the middle class, who, in a market setting, make it possible for the capitalists of society to accumulate wealth in the first place. It is the voluntary choices of the masses that direct the use of society’s resources. The “distribution” of wealth is a result of the choices we all make in our capacity as consumers.

Yes, I’ve watched lectures by people who claim that societies with more equality are happier places. What they end up pointing to are places like Finland, Sweden, Denmark, Japan, Norway. This is just a mistake: These countries are demographically homogeneous and cannot be compared in any way to places like the U.K. or the U.S.

Consider this… Where would you rather live? Ethiopia or the Netherlands? Ethiopia has more income equality, according to the statisticians who calculate the so-called Gini coeffiicient. Another example: Tajikistan or Switzerland? The former has more equality than the latter. Another: Bangladesh or New Zealand? According to the egalitarians, we should rather live in one of the poorest places on the planet than one of the richest.

Again, the degree of equality is not in any sense related to the quality of life.

So why the hysteria right now? The real problem is more fundamental in the United States. The poor are growing and entrenching. The unemployed are staying this way. The middle class is slipping, and more substantially after the the recession statistically ended than when the statistical recession was on (and polls show that hardly anyone believes we are out of recession).

Now, this is catastrophic, not because this increases the income gap, but because it is killing the American dream. What the political left is doing is attempting to change the subject away from what matters (we are all getting poor) to what doesn’t matter (the income gap between the top and bottom). And this rhetorical shift is scary: It prepares the way for higher taxes, more redistribution, more attacks on the financially successful and more of all the policies that are causing our worst problems right now.

So why the focus on the equality? As Mises says in his great work Socialism (1922): “The principle of equality is most acclaimed by those who expect to gain more than they lose from an equal distribution of goods. Here is a fertile field for the demagogue. Whoever stirs up the resentment of the poor against the rich can count on securing a big audience.”

Americans should know better. Even when our economy was the freest in the world, we had one of the most unequal distributions of that wealth on the planet. It was during these years that the lifespans of everyone increased, when the chances of moving from poor to rich were huge, when the per capita income was growing as never before in human history. Growing inequality is likely to coincide with growing wealth (see How the West Grew Rich, the masterpiece by Nathan Rosenber).

We need to learn to admire the justly rich and strive to emulate them and their outlook on life. This is what the advice manuals of the late 19th century said. The most popular magazines of the time chronicled their lives, and they were held up as national heroes. This is a sign of a healthy society. It is because of this ethos that the poor of today live vastly better than the richest of the rich 100 years ago.

Today, on the other hand, we are told to resent the rich, attack them, hate them, expropriate them. This is the sure path to disaster. Freedom is what enables the poor to become rich. The state is the means by which everyone in society is driven into poverty. We need less state and more freedom.

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From Mish Shedlock's Economic Trend Analysis Blog:

Mish's Global Economic Trend Analysis:

Note that Obama projected the unemployment rate to be under 6% now according to projections of the the American Recovery and Reinvestment Act of 2009.

The only reason the unemployment rate is not 11% (or higher) is because 4.5 million people dropped out of the labor force vs. expected demographic gains."

With all these financial issues swimming about and morphing into election / campaign issues, I'm reminded of the following two quotes from the past.

“How did you go bankrupt?"
Two ways. Gradually, then suddenly.” -― Ernest Hemingway, The Sun Also Rises

This is how I'm afraid we'll go down if we do not get our fiscal house in order. Gradually and then suddenly. And the steps we are taking to FIX the crisis -- the "hair of the dog that bit you" strategy of more debt to cure a debt crisis, money printing and creation ad-nauseam, will also create an inflationary crisis (hyper-inflationary / currency crisis) that could lead to a GREAT-GREAT DEPRESSION.

And to all the OWS'ers and their supporters:

Democracy is the theory that the common people know what they want, and deserve to get it good and hard. -- H. L. Mencken

It's not a democracy folks, it's a republic.

Pure Democracy is evil.
http://www.albatrus.org/english/goverment/democracy/pure%20democracy%20is%20evil.htm

"Democracy substitutes election by the incompetent many for appointment by the corrupt few." --
George Bernard Shaw

"The majority is never right. Never, I tell you! That's one of these lies in society that no free and intelligent man can ever help rebelling against. Who are the people that make up the biggest proportion of the population --- the intelligent ones or the fools? I think we can agree it's the fools, no matter where you go in this world, it's the fools that form the overwhelming majority." -- Henrik Ibsen

The Conservative Manifesto -- In great victories, expect attacks.: Is this the greatest response to Occupy Wall Street... ever?

The Occupy Wall Street protesters are complaining about everything from corporations to having to repay student loans. Is America the victim of its own success? Have we created a generation of self-entitled cry babies? Is it time to make these people spend three and half days in the woods so that they can appreciate what capitalism has given them? Find out.

Hat Tip to The Conservative Manifesto Blog:

The Conservative Manifesto -- In great victories, expect attacks.: Is this the greatest response to Occupy Wall Street... ever?:

"THURSDAY, OCTOBER 20, 2011
Is this the greatest response to Occupy Wall Street... ever?

If not, I'd love to see better."

EDITORIAL: Obama's solar stimulus snafu - Washington Times

Just another day in Washington, I guess.

Hopefully the jobs speech contains better plans than this one. $535M flushed to "save" - not create - save 1,100 jobs for 12 months. Delaying the inevitable. Money flushed, no jobs "created" and none really "saved". Plus details are emerging that the bigs at the company were large donors to guess who? Crony Capitalism at its finest.

Seriously though, I blame US, the electorate. Because what little we did know about him screamed "Chicago politician". So to act surprised that there is some level of skull-duggery in his administration / policies is a bit naive.

It's like we act all surprised when we hear about the kid who growing up used to torture the neighbor's cats, and then he goes off and kills some folks and we say "I didn't see that in him". Yeah, just a little like that.


EDITORIAL: Obama's solar stimulus snafu - Washington Times:

"The House Committee on Energy and Commerce is attempting to investigate Solyndra and the extent of its political connections to the White House, but it’s being stymied by no-show witnesses and White House refusal to turn over records. One of the company’s leading investors, oil billionaire George Kaiser, was a campaign-donation “bundler” for the 2008 Obama campaign. An investigation by the Government Accountability Office found the Department of Energy announced Solyndra’s loan approval “prior to completion of external reviews required under procedures.” Earlier this month, the Office of Management and Budget agreed to comply with a House subpoena for up to 1,800 pages of records related to the Solyndra loan decision.

Whatever sweetheart, back-channel deals the investigation eventually reveals, the lesson is that it takes more to survive in the marketplace than just trendy green credentials, political pull and a boatload of taxpayer cash. Last year, Mr. Obama said, “The true engine of economic growth will always be companies like Solyndra.” Let’s hope not."

THINK MENTAL MODELS

I remember when I was a bigger fan of Warren Buffett and Charlie Munger and read the graduation speech Munger made outlining how students should have a "latticework of mental models" I was so smitten by the brilliance and simplicity of the concept that I kept repeating the words in my head over and over.

You get an PhD. in the game of life if you can learn the concepts and models outlined in this site.

A neat illustrative story at the end demonstrates how these models blend together in how you are talking about playing bridge or playing baseball. Interesting parallels in terms of mind-set.


Think Mental Models website:
http://www.thinkmentalmodels.com/

“The better decision maker has at his/her disposal repertoires of possible actions; checklists of things to think about before he acts; and he has mechanisms in his mind to evoke these, and bring these to his conscious attention when the situations for decision arise.”
(Herbert Simon, Nobel Laureate)

How the exceptional mind works

According to Warren Buffett, his business partner, Charlie Munger has ‘the best 30-second mind in the world. He goes from A to Z in one move. He sees the essence of everything before you even finish the sentence’ (Forbes, January 22, 1996).

How does he do it?

Well, fortunately, Mr. Munger has explained his approach in lectures and books. Essentially, he thinks by using the BIG IDEAS from disciplines as diverse as physics and psychology. He has a list of these ideas (mental models) in his mind and quickly picks the one(s) applicable to the given situation, much as a pilot automatically goes through a checklist prior to take-off.

This website, inspired by the work of Charles Munger, provides over 100 models that can be brought consciously to mind to aid the thinking process.

Each model is described by at least one distinguished user. Examples include Warren Buffett, Richard Feynman, Robert Rubin and Peter Drucker, among others.

Wikipedia defines it as follows:
http://en.wikipedia.org/wiki/Mental_model

A mental model is an explanation of someone's thought process about how something works in the real world. It is a representation of the surrounding world, the relationships between its various parts and a person's intuitive perception about their own acts and their consequences. Our mental models help shape our behaviour and define our approach to solving problems (akin to a personal algorithm) and carrying out tasks.

A mental model is a kind of internal symbol or representation of external reality, hypothesized to play a major role in cognition, reasoning and decision-making. Kenneth Craik suggested in 1943 that the mind constructs "small-scale models" of reality that it uses to anticipate events.

FROM CAPITALISMMAGAZINE.COM:
http://www.capitalismmagazine.com/culture/books-non-fiction/4669-Latticework-Mental-Models.html

Excerpt from Chapter I of "Investing: The Last Liberal Art" by Robert G. Hagstrom

A Latticework of Mental Models

How does one achieve worldly wisdom? To state the matter concisely, it is an
ongoing process of, first, acquiring the significant concepts--the models--from
many areas of knowledge and then, second, learning to recognize patterns of
similarity among them. The first is a matter of educating yourself; the second
is a matter of learning to think and see differently.

He challenged the students to broaden their vision of the market, of finance, and of economics in general; to see them not as separate disciplines but as part of a larger body of knowledge, one that also incorporates psychology, engineering, mathematics, physics, and the humanities.
In this broader view, he suggested, each discipline entwines with, and in the process strengthens, every other. From each discipline the thoughtful person draws significant mental models, the key ideas that combine to produce a cohesive understanding. Those who cultivate this broad view are well on their way to achieving worldly wisdom, that solid mental foundation without which success in the market--or anywhere else--is merely a short-lived fluke.

To drive his point home, Charlie used a memorable metaphor to describe this interlocking structure of ideas: a latticework of models. "You've got to have models in your head," he explained, "and you've got to array your experience-both vicarious and direct-on this latticework of models." So immediate is this visual image that latticework has become something of a shorthand term in the investment world, a quick and easily recognized reference to Munger's approach.

from the book: Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger
http://www.poorcharliesalmanack.com/intro3.html

The quotes, talks, and speeches presented here are rooted in the old-fashioned Midwestern values for which Charlie has become known: lifelong learning, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, perseverance, objectivity, willingness to test one’s own beliefs, and many more. But his advice comes not in the form of stentorian admonishments; instead, Charlie uses humor, inversions (following the directive of the great algebraist, Jacobi, to “Invert, always invert”), and paradox, to provide sage counsel about life’s toughest challenges.

Charlie also employs historical and business case studies to great effect. In these presentations, he makes his points with subtlety and texture, often using a story-like context instead of abstract statements of theory. He regales his audience with humorous anecdotes and poignant tales, rather than with a blizzard of facts and figures. He well knows, and wisely exploits, the traditional role of the storyteller as purveyor of complex and detailed information. As a result, his lessons hang together in a coherent “latticework” of knowledge, available for recall and use when needed.

It is clear throughout these talks and speeches that Charlie places a premium on life decisions over investment decisions. His mental models, drawn from every discipline imaginable, recur repeatedly and, in no way, focus on “business portfolio strategy” or “beta” or “Cap M.” Rather, they center on fundamental truth, human accomplishment, human foibles, and the arduous path to wisdom. Charlie once said, “I wanted to get rich so I could be independent, like Lord John Maynard Keynes.” Independence is the end that wealth serves for Charlie, not the other way around.

HANDLING LOSSES IN AN ENVIRONMENT WHERE WINNING IS IMPORTANT:

"After all is said and done, learning to handle losses will be your greatest triumph." -- Robert Prechter.

More from Prechter:

There are many denials of reality which automatically disqualify millions of people from joining the ranks of successful speculators. For instance, to moan that "pools," "manipulators," "insiders," "they," "the big boys" or "program trading" (known today as "high-frequency trading" -- Ed.) are to blame for one's losses is a common fault.

Anyone who utters such a conviction is doomed before he starts. [My] observation, after eleven years "in the business," is that the biggest obstacle to successful speculation is the failure merely even to recognize and accept the simple fact that losses are part of the game, and that they must be accommodated.

The perfect trading system does not exist. Expecting, or even hoping for, perfection is a guarantee of failure. Speculation is akin to batting in baseball. A player hitting .300 is good. A player hitting .400 is great. But even the great player fails to hit 60% of the time! He even strikes out often. But he still earns six figures a year, because although not perfect, he has approached the best that can be achieved. You don't have to be perfect to win in the markets, either; you "merely" have to be better than almost everybody else, and that's hard enough.

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I read an investment article recently from the Hussman Funds titled "Why Warren Buffet Plays Bridge" and it is especially appropriate to the craft of hitting in baseball in addition to long-term success in investing.

FROM HUSSMAN.NET:
http://www.hussman.net/wmc/wmc061127.htm

The reason relates to the story Buffet's mentor the legendary investor Benjamin Graham tells about the game of bridge. Focus on the process not the results.

"I recall to those of you who are bridge players the emphasis that bridge experts place on playing a hand right rather than on playing it successfully, Because as you know, if you play it right you are going to make money an d if you play it wrong you lose money - in the long run.

There is a beautiful little story about the man who was the weaker bridge player of the husband-and-wife team. It seems he bid a grand slam, and at the end he said very triumphantly to his wife 'I saw you making faces at me all the time, but you notice I not only bid this grand slam but I made it. What can you say about that?' And his wife replied very dourly, 'If you had played it right you would have lost it."

The author rightly observes that it takes restraint to play the game " the right way", with an established "discipline" or approach and let the law of averages work out in your favor. You don't try to win every hand. He describes having the right "temperament" to execute the "approach" and not deviate from it.

The same temperament and approach leads to success in baseball.

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"Anytime you and I question the schemes of the do-gooders, we're denounced as being against their humanitarian goals. They say we're always "against" things — we're never "for" anything. Well, the trouble with our liberal friends is not that they're ignorant; it's just that they know so much that isn't so." - Ronald Reagan

The more things change...

Let's review. Not sure much has changed, at least not for the better. IMO, this guys analysis of the situation was spot on back in 2009.

Quote of the Day:

"We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure?" -- William K. Black

Quote of the Day - Second Place

"If cheaters prosper, cheaters will dominate. It's like Gresham's law: Bad money drives out the good. Well, bad behavior drives out good behavior, without good enforcement." -- William Black

From Barrons.com

The Lessons of the Savings-and-Loan Crisis
William Black, Associate Professor, Economics and Law, University of Missouri, Kansas City
By JACK WILLOUGHBY |
MONDAY, APRIL 13, 2009


http://online.barrons.com/article/SB123940701204709985.html#articleTabs_panel_article%3D1

Barron's: Just how serious is this credit crisis? What is at stake here for the American taxpayer?

Black: Mopping up the savings-and-loan crisis cost $150 billion; this current crisis will probably cost a multiple of that. The scale of fraud is immense. This whole bank scandal makes Teapot Dome [of the 1920s] look like some kid's doll set. Unless the current administration changes course pretty drastically, the scandal will destroy Barack Obama's presidency. The Bush administration was even worse. But they are out of town. This will destroy Obama's administration, both economically and in terms of integrity.

So you are saying Democrats as well as Republicans share the blame? No one can claim the high ground?

We have failed bankers giving advice to failed regulators on how to deal with failed assets. How can it result in anything but failure? If they are going to get any truthful investigation, the Democrats picked the wrong financial team. Tim Geithner, the current Secretary of the Treasury, and Larry Summers, chairman of the National Economic Council, were important architects of the problems. Geithner especially represents a failed regulator, having presided over the bailouts of major New York banks.

So you aren't a fan of the recently announced plan for the government to back private purchases of the toxic assets?

It is worse than a lie. Geithner has appropriated the language of his critics and of the forthright to support dishonesty. That is what's so appalling -- numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies. He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent. He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything. He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Geithner is mistaken when he talks about making deeply unpopular moves. Such stiff resolve to put the major banks in receivership would be appreciated in every state but Connecticut and New York. His use of language like "legacy assets" -- and channeling the worst aspects of Milton Friedman -- is positively Orwellian. Extreme conservatives wrongly assume that the government can't do anything right. And they wrongly assume that the market will ultimately lead to correct actions. If cheaters prosper, cheaters will dominate. It is like Gresham's law: Bad money drives out the good. Well, bad behavior drives out good behavior, without good enforcement.

More recent analysis from David Stockman. This guys just absolutely nails it right here. So of course, he will be marginalized in some fashion by the MSM and TPTB. Just another kook, I guess.

The Case for the Gold Standard

by David Stockman
This talk was delivered at the New York Historical Society on May 8, 2011.

http://www.lewrockwell.com/orig11/stockman7.1.1.html

It took 200 years to build and perfect the classic gold standard system; then it was destroyed in about seven weeks when the Guns of August 1914 thundered across Europe;.....Fortunately, Churchill’s defense of democracy also applies to the daunting task at hand: To wit, the classic gold standard is the worst possible monetary system – except for all of the alternative inflation-generating, savings-destroying, debt-breeding, bubble-emitting and boom and bust-prone systems which have been tried in the 100 years since its demise. Hence, we offer six present day monetary vices which are curable by gold:.......the gold standard wouldn’t have allowed the US to incur nearly 40 straight years of massive current account deficits and to live high on the hog for decades by running a $7 trillion tab against its neighbors..........The gold standard tamed the demon of debt by delegating the pricing of money to the marketplace of savers and borrowers, not to an administrative board of interest rate riggers and manipulators......The gold standard was an honest regulator of Wall Street greed. Under gold, we did not seek Bernanke-style faux prosperity by levitating the Russell 2000; nor did we crucify Main Street on a cross of obscurantist theory like the Taylor Rule whereby the Fed naively gifts Wall Street with limitless zero-cost funding for leveraged speculations in commodities, currencies, derivatives and equities; nor did we punish people who invest in savings accounts out of an abundance of caution while placing a central bank "put" under those who speculate with reckless abandon........The gold standard made the world safe for fractional reserve banking. To be sure, banking – which is to say, scalping a profit from the interest spread between loans and deposits – is the world’s second oldest profession......The gold standard made the world safe for fiscal democracy because chronic budget deficits generated immediate pain. If financed from savings, deficits caused higher interest rates and squeezed-out private investment; and if financed by central bank credit, they caused a deflationary drain on gold. Nowadays, however, central banks have become monetary roach motels – places where treasury bonds go in but never come out....

Crony Capitalism Strikes Again
How the Federal Reserve is juicing speculators... again
by David Stockman
March 24,2011

http://www.lewrockwell.com/orig11/stockman6.1.1.html

William Black: Why aren’t the honest bankers demanding prosecutions of their dishonest rivals?

The cynic in me says its because they all do it, but that would be painting with too broad a brush. It's the Too Big To Fail Banks (TBTF) that were saved by the Fed with the taxpayers wallet.

Black brings up:

The "Immunity Doctrine" to explain why only Madoff is behind bars after all the criminality and why there have been a dearth of handcuff and perp walks.

Black says this will just allow the fraudsters to lay for awhile and then resurface to perptrate more fraud.

"Massive Illegality" that was brought to attention of regulators re: "Liars Loans" and the underwriting, accounting fraud, mortgage fraud. 10,000 Liar Loans per month at the peak of the fraud. Mozilla and Countryside at the epicenter and no prosecution.

Crony Capitalism and Crony Criminal Justice and Regulation writ large. Elite fraudsters are allowed to go free instead of going to jail.

It's enough to make your blood boil.

There’s Another Crisis Coming as Long as Banks Remain Above the Law: Bill Black

http://finance.yahoo.com/blogs/daily-ticker/another-crisis-coming-long-banks-remain-above-law-153109732.html?sec=topStories&pos=9&asset=&ccode

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From nakedcapitalism.com

http://www.nakedcapitalism.com/2011/04/william-black-why-arent-the-honest-bankers-demanding-prosecutions-of-their-dishonest-rivals.html

TUESDAY, APRIL 12, 2011

William Black: Why aren’t the honest bankers demanding prosecutions of their dishonest rivals?

By William Black, a former Federal banking regulator and Associate Professor of Law and Economics at the University of Missouri-Kansas City.

Cross posted from New Economic Perspectives.

This is the second column in a series responding to Stephen Moore’s central assaults on regulation and the prosecution of the elite white-collar criminals who cause our recurrent, intensifying financial crises. Last week’s column addressed his claim in a recent Wall Street Journal column that all government employees, including the regulatory cops on the beat, are “takers” destroying America.

This column addresses Moore’s even more vehement criticism of efforts to prosecute elite white-collar criminals in an earlier column decrying the Sarbanes-Oxley Act’s criminal provisions: “White-Collar Witch Hunt: Why do Republicans so easily accept Neobolshevism as a cost of doing business?” [American Spectator September 2005] This column illustrates one of the reasons why elite criminals are able to loot “their” banks with impunity – they have a lobby of exceptionally influential shills. Moore, for example, is the Wall Street Journal’s senior economics writer. Somehow, prominent conservatives have become “bleeding hearts” for the most wealthy, powerful, arrogant, and destructive white-collar criminals in the world. Criminology research has demonstrated the importance of “neutralization.” Criminals don’t like to think of themselves as criminals and their actions as criminal. They have to override their societal inhibitions on criminality to commit their crimes. When prominent individuals like Moore call their actions lawful and demonize the regulatory cops on the beat and the prosecutors it becomes more likely that CEOs will successfully neutralize their inhibitions and commit fraud. People like Moore have never studied white-collar crime, have no knowledge of white-collar criminology, do not understand control fraud, and do not understand sophisticated financial fraud mechanisms. They show no awareness of the economics literature on accounting control fraud, particularly George Akerlof & Paul Romer’s famous 1993 article – “Looting: the Economic Underworld of Bankruptcy for Profit.” People like Moore not only spur neutralization, they actively campaign to minimize the destructiveness of elite white-collar crime and to deny the regulators and the prosecutors the resources to prosecute the criminals.

My favorite in this genre was authored by Professor John S. Baker, Jr. and published by Heritage on October 4, 2004.

Baker concludes his article with this passage:

“The origin of the “white-collar crime” concept derives from a socialist, anti-business viewpoint that defines the term by the class of those it stigmatizes. In coining the phrase, Sutherland initiated a political movement within the legal system. This meddling in the law perverts the justice system into a mere tool for achieving narrow political ends. As the movement expands today, those who champion it would be wise to recall its origins. For those origins reflect contemporary misuses made of criminal law–the criminalization of productive social and economic conduct, not because of its wrongful nature but, ultimately, because of fidelity to a long-discredited class-based view of society.”

We “stigmatize” criminals precisely to increase the difficulty potential criminals face in neutralizing restraints against engaging in crime. Stigmatization is an important restraint reducing crime. Indeed, it is likely that stigmatization can be most effective in reducing crime in the context of elite white-collar criminals because such individuals have more valuable reputations that can be harmed by stigma. A violent street criminal may find a reputation for violence useful. Sutherland’s research demonstrated that elite white-collar criminals were often able to violate the law with impunity. The corporation they controlled might pay a fine, but the CEO was typically not sanctioned when the corporation violated the law – even when the violations were repeated and egregious. Class proved, empirically, to be a powerful predictor of criminal prosecutions, convictions, and sentencing. Sutherland correctly sought to stigmatize elite white-collar criminals and to get policy-makers, academics, and the criminal justice system to view their crimes as important. Sutherland’s partial success in doing so is what enrages people like Moore and Baker. By the way, in order to publish his famous book on white-collar crime, Professor Sutherland was forced to delete his tables setting forth the violations of law by many of America’s top corporations – even though it was all public record information. The censorship had the ironic effect of demonstrating the accuracy of Sutherland’s observation that class mattered when it came to how we framed and responded to fraud by elite criminals. What aspect of holding fraudulent CEOs criminally responsible for their crimes is “socialist”, “anti-business”, or “neo-Bolshevism”? Baker claims that “class” has long been discredited as an important variable. Baker is not a social scientist and he is flat out wrong about class. There are literally thousands of empirical studies demonstrating the explanatory power of class in a host of settings. Baker is also flat out wrong empirically in claiming that white-collar prosecutions target “productive social and economic conduct.” White-collar prosecutions of elites are overwhelmingly based on fraud. Fraud is one of the most destructive of all social and economic conduct. Consider six forms of economic injury caused by accounting control fraud.

Eroding Trust

The essence of fraud is convincing the victim to trust the perpetrator – and then betraying that trust. The result is that fraud, particularly by elites, is the most destructive acid for eroding trust. Research in economics, political science, psychology, and sociology concurs on the enormous value that trust provides in each of these settings. We have all attended conferences that provided the participants with bottled water. If we knew that one bottle in a hundred were contaminated how many of us would drink our bottle? This dynamic explains why hundreds of markets collapsed during the events leading to the Great Recession – bankers no longer trusted other bankers’ representations as to asset quality. Accounting control fraud can cause systemic risk by eroding trust.

Bubbles

When bubbles hyper-inflate they can cause catastrophic economic damage and systemic risk. Accounting control fraud can hyper-inflate bubbles. The first two ingredients in the recipe for lenders engaged in accounting control fraud (extreme growth though lending to uncreditworthy borrowers) have the effect of right-shifting the demand curve. Because particular assets are superior devices for accounting fraud and because accounting frauds will tend to cluster in industries in which entry is easier and regulation and supervision are weak, accounting frauds tend to cluster in particular industries and regions. Accounting control frauds drove the Southwest bubble in commercial real estate during the S&L debacle and the U.S. residential real estate bubble in the current crisis. Hyper-inflated bubbles cause catastrophic losses to lenders and (late) owners, trigger severe recessions, and misallocate credit and assets (causing real economic losses).

Misallocation of credit and human talent

Even when accounting control fraud does not lead to a hyper-inflated bubble, it misallocates credit and human and non-human capital. Accounting control fraud substantially inflates individual asset values. Individuals with strong science and mathematics skills – critical shortages in our real economy – are wasted in making models designed to inflate asset values by fraudulently ignoring or minimizing risk. Accounting control fraud commonly produces reverse Pareto optimality – the borrower and the lender on a liar’s loan made in 2006 and 2007 typically suffered losses while the unfaithful agents become wealthy by betraying their principals and customers. (It is important to recall that it was the lenders and their agents who normally prompted by false statements in liar’s loans.) Fraud makes markets profoundly inefficient.

Gresham’s dynamics

“Private market discipline” becomes perverse under accounting control fraud. Capital is allocated in abundance, at progressively lower spreads (despite massively increased risk), to fraudulent firms and professionals. In this form of Gresham’s dynamic, bad ethics drives good ethics out of the marketplace. Note that once, for example, a significant number of appraisers are suborned by the fraudulent lenders to inflate appraised value it is more likely that such appraisers will go on to commit other frauds during their career. If cheaters prosper, then honest businesses are placed at a crippling competitive disadvantage. Effective regulation and prosecution is essential to make it possible for honest firms to compete.

“Echo” fraud epidemics

Fraud begets fraud. Or to put it in criminology terminology – accounting control fraud is criminogenic. Fraudulent lenders created perverse incentives that produced endemic fraud (often by generating Gresham’s dynamics) in other fields. Fraudulent lenders making liar’s loans, for example, created overwhelming financial incentives they knew would lead their loan officers and loan brokers to engage in pervasive fraud. Indeed, fraudulent lenders embraced liar’s loans because they facilitated endemic fraud by eviscerating underwriting.

Accounting control fraud also leads to the spontaneous generation of criminal profit opportunities, causing opportunistic fraud. Liar’s loans, for example, generated a host of fraudulent entrepreneurs offering illicit opportunities to use someone else’s credit score to secure a loan. (Austrian school economists should recognize this dynamic.)

Undesired frauds arising from control fraud

Lenders engaged in accounting control fraud must suborn or render ineffective their underwriting and internal and external controls. They also select, praise, enrich, and promote the most unethical officers. The real “tone at the top” of a control fraud is pro-fraud – often overlaid with a cynical propaganda campaign extolling the Dear Leader’ astonishing virtues. The result is that the firm environment is criminogenic. Some officers may loot the firm through private schemes, e.g., embezzlement at Charles Keating’s Lincoln Savings and self-dealing at Enron.

White-collar crime prosecutions are overwhelmingly taken against frauds. There is nothing economically productive about fraud. When Heritage and the Wall Street Journal feature odes to elite frauds they are fertilizing the seeds of the destruction of capitalism and its replacement by crony capitalism.

Moore’s article has the same tone and themes as Baker’s complaints against prosecuting elite white-collar criminals.

“[T]he anti-capitalist left … [is] using the criminal law for the endgame purpose of striking down the productive class in American that they so envy and despise….”

Moore decries the passage of “Sarbanes-Oxley and other such laws criminalizing economic behavior….” He claims that prosecuting CEOs leading control frauds will harm shareholders – which he plainly sees as prohibiting criminal liability for corporate officers. Moore’s complaints about SOX are confusing because Sarbanes-Oxley does not criminalize honest “economic behavior.” “Economic behavior” is not privileged. It can be honest or dishonest. Only honest economic behavior is potentially productive. Even honest economic behavior may prove unproductive or cause severe negative externalities. Dishonest economic behavior can benefit shareholders. A firm that gains a competitive advantage over its market rivals through fraud will be more profitable and should have a higher share price. That increased profit and share price is bad for the world. It creates a Gresham’s dynamic and misallocates capital. It may also maim and kill if the competitive advantage arises from selling harmful products to consumers or firms.

Moore eventually explains that what disturbs him most about white-collar prosecutions is that the CEO of a publicly traded company can be prosecuted for accounting fraud. SEC rules require that registrants comply with GAAP, so material accounting fraud constitutes securities fraud (a felony). Criminologists have long pointed out that accounting is the “weapon of choice” for financial firms. Moore objects to prosecuting the most destructive property crimes committed by elite white-collar criminals. Accounting control fraud drove the second phase of the S&L debacle. The first phase was interest rate risk and ultimately led to roughly $25 billion in losses. The Enron-era frauds prosecuted by the federal government were accounting control frauds. The current crisis was driven by the accounting control frauds – the largest nonprime lenders, Fannie, and Freddie. The officers that were prosecuted during the S&L debacle and the Enron-era frauds were not members of the “productive class.” No one destroyed more wealth, for purposes of personal greed, than these fraudulent elites. Their crimes and the harm they caused, however, pale in comparison to the accounting control frauds that drove the current crisis. That makes it all the more astonishing that not a single fraudulent senior officer at the major nonprime lenders, Fannie, or Freddie has been convicted. The shills for elite white-collar criminals have swept the field. The administration they constantly deride as socialist has continued the Bush administration’s policy of de facto decriminalization of accounting control fraud. Moore and Baker have, once more, proven Sutherland correct – we treat elite white-collar criminals in a way that bears no relationship to street criminals. We now bail them out after they loot and cause “their” banks to fail and change the accounting rules at their demand to hide their losses. We even invite them repeatedly to the White House to advise us on what policies we should follow.

The anti-regulators got their wish – they took the regulatory cops off the beat. The banking regulatory agencies ceased making criminal referrals, the SEC ceased bringing even their wimpy consent actions against the massive accounting control frauds, and the Justice Department ceased prosecuting the accounting control frauds during the run up to the crisis. The results were multiple echo epidemics of fraud, a hyper-inflated bubble, and the Great Recession. If Baker and Moore think these fraudulent CEOs constitute the “productive class” – then capitalism was killed by the producers. The financial frauds, however, were not productive. They were weapons of mass financial destruction. Their fraudulent CEOs were motivated by the most banal of motivations that every major religion warns against – unlimited greed, ego, and a radical lack of empathy for their victims. The most pathetic figures in the crisis, however, are not the CEOs but their shills. Why aren’t the honest bankers leading the charge to prosecute their fraudulent rivals?