13 Responses for "McCain Not in Favor of Bail Outs"

1. Ryan March 29th, 2008 at 11:12 am 1

   Amen McCain.

2. Publius March 30th, 2008 at 11:36 am 2

   You know, your Messiah Ronald Reagan is the one who orchestrated these S&L bailouts. I assume you would have opposed that ardently?

3. Ryan March 31st, 2008 at 9:49 am 3

   Reagan is not my messiah and yes we need no bailouts. When you do it once, it leads to more reckless actions.

4. Michael C March 31st, 2008 at 12:48 pm 4

   S&L actually failed as institutions. Requiring the bailout. Consumers were defrauded of their money and it was much more widespread. They were also insured by the FSLIC so the government was required to bail them out.

   The sub prime mess we have today is different and is not insured by the Government.Consumers share the blame with the lenders because they knowingly bought homes they could not afford.

   The lenders are not folding up their doors like the S&L’s did in the 1980s and do not need a buyout.

   Lets not forget that S&Ls have been around since the 1800s and that it was not until Carter raised their lending limits in 1978 did the S&Ls begin to falter.

5. Publius March 31st, 2008 at 4:24 pm 5

   “…Lets not forget that S&Ls have been around since the 1800s and that it was not until Carter raised their lending limits in 1978 did the S&Ls begin to falter.”

   Raising an artificial lending cap is deregulation. Continuing with the Catholic metaphors, I thought that deregulation was a Holy Sacrament to you people. Not if a Democrat does it?

6. Michael C April 1st, 2008 at 1:57 pm 6

   You know Publius your right. Honestly I do not know enough of the history of the crisis to comment on whether S&Ls were truly deregulated or whether the new caps came with new government mandates and restrictions as they often do. I suspect they did.

   Often government deregulation means more regulation. The “deregulation” of Natural Gas here in Georgia is a prime example. Natural Gas consumers got screwed as prices went up. Normally prices go down when competition is introduced into the market. Unfortunately in Georgia because the price is regulated by the Public Service Commission. its the liberal definition of deregulation: more regulation.

7. Publius April 2nd, 2008 at 6:16 am 7

   The larger point is that regulation is not always bad. Admittedly, there are agency problems and regulation can be poorly executed, but removing regulations is not always a magic tonic for curing ills.

   Consider the CA electricity deregulation fiasco. By deregulating power suppliers, they began to behave as profit-maximizing firms with market power, exactly as economic theory would predict. As such, firms began deliberately inducing shortages (blackouts) to raise prices to exorbitant levels and raise their profit. Previously, regulation had prevented this.

   Also, do you think price-gouging during natural disasters should be legal? Regulation in this case is nothing more than the government defeating the natural market price generated by high demand.

   I wonder if the dogmatic free-market lemmings on this website would support unrestrained market outcomes in these cases.

8. Michael C April 2nd, 2008 at 7:14 am 8

   You failed to mention California’s tough emission standards that make it impossible for power companies to build new power plants in California. Forcing them to buy power from other states. An over zealous environmental lobby and a capitulating state legislature cause the rolling blackouts not profit seeking power companies.

   As for supply and demand after a natural disaster you have it all wrong. Current regulation limiting price, guarantees the scarcity of goods and services. People take more than they need in times of crisis leaving less for others.

   In the Atlanta area shortly after Katrina, our lame duck Governor scared the masses by saying we were going to run out of gas. Everyone rushed to the pumps even if they did not need gas. Prices began to soar. Demand started to back off because prices got close to $4/ gallon. Then our our knee-jerk reacting Governor decided to put price limits on gas, and temporarily suspended the state gas tax. Gas stations began running out of gas all over town. People were filling up every container they could find. Then as things were starting to get back to normal, the gas tax was reenacted causing another run on gas before it was reinstated.

   The bottom line is it is not price gouging. It is charging what the market will bare. Guaranteeing the availability of a good or service to someone who needs it. Instead we have government intervention that encourages hoarding and waste of goods and services during a time of crisis.

9. Publius April 2nd, 2008 at 8:45 am 9

   1. There are Enron executives who now freely admit that they intentionally withheld electricity, causing blackouts, to raise prices. In fact, you can see them admitting to this on archival video footage in the movie “Enron: The Smartest Guys in the Room.” Admittedly a biased film, it does contain long segments of recorded voice clips, in full context, where executives admit to exactly this.

   And new power plants? Firms were actually shutting down profitable plants in this interval of time, again restricting supply in order to raise price and profits. This fact is well-known. I’m surprised I had to remind you.

   You sound like a broken record and a hack when you blame the “zealous environmental lobby” and other liberals for anything that goes wrong in the universe. In this case, you’re flat-out wrong and profit-maximizing behavior by the power companies was transparently the proximate cause of the blackouts.

   2. Your argument on price gouging is off-topic and you never answered my question. Do you believe that firms should be free to set any price they want for any good in the case of a natural disaster? This is a simple binary question.

10. Michael C April 2nd, 2008 at 2:31 pm 10

    “Also, do you think price-gouging during natural disasters should be legal?”

    Uhm… who posted that?

    And to answer your question I disagree with your premise.

    Firms shut down their profitable power plants because the upgrades required to meet the new emissions standards in California made those power plants unprofitable. In order to meet the standards older power plants had to cut back production or close.

    As for Enron who is the hack? You blame them for everything. They are only a small part of the problem. Look where it got them too. The company is bankrupt, most of the executives responsible are in jail, on trial, or dead. Definitely a business model to follow.

11. Publius April 2nd, 2008 at 3:26 pm 11

    There is no premise behind my question! I simply asked whether firms should be allowed to set any price they choose during a natural disaster. Yes or no? What’s the unstated premise that you disagree with?

    The term “price gouging” is just the common term for the phenomenon.

    I’m not “blaming” anything on anybody. I’m saying that profit-maximizing behavior leads to firms’ reducing output in order to raise price. See any economics textbook. The Enron example was merely a demonstration that this phenomenon was taking place.

12. Michael C April 3rd, 2008 at 8:00 am 12

    Now Publius, I know you can do it. What was the premise of your question? Here let me help you. Charging what the market will bare is price-gouging. There that wasn’t so hard. If you understood the basic economics you espouse you would understand that supply and demand helps guarantee the availability of a good or service during a time of crisis. Government interference is not the answer. Markets always correct themselves, government only gets in the way.

    I am still not sure how the Enron debacle relates to profit -maximizing after a natural disaster. But I will dive in again.

    The market fixed the Enron situation. The feds came in after the ship was already sinking. They can no longer do what they were doing. Setting up shell corps to hide their losses while artificially inflating their stock prices with false earnings reports has been proven a bad business model. Nor can they artificially increase demand maximizing their profits.

    I have been pondering your statement:
    

    I’m saying that profit-maximizing behavior leads to firms’ reducing output in order to raise price.

    So what? This only applies to government regulated and de-regulated monopolies like Enron. The fake de-regualtion of natural gas in Georgia is another example. If more competition was allowed in the energy sector we would not be having this discussing.

    I am going to leave you with this. I believe in free markets. I believe private industry is more efficient than government because they work for profit. I do not believe that Government should be completely laissez-faire but they should not interfere with markets by setting pricing controls, or propping up industries like the energy sector.

13. Publius April 3rd, 2008 at 11:06 am 13

    You answered my first question. Thank you. You believe that producers should be free to set the price that “the market will bare (sic)” in all circumstances. For example, during a natural disaster, the price will be extremely high because demand is high. You believe that producers should be able to charge this price. See, that was easy!

    On the second part, your comment about long-run dynamics has some validity. However, in the short-run, this unconstrained profit-maximizing behavior resulted in severe hardship for consumers. I believe the government should manage such short-run fluctuations. You do not. This is a valid and persistent disagreement in economics, and there are reasonable arguments on both sides.

    Now, I say that your argument has *some* validity. Your main mistake is that “competition” isn’t as potent a force in favor of consumers in this market as you think it might be. In particular, the existence of extremely high fixed costs limits entry.

    I’d agree with your argument if we were discussing the market for oranges or sliverware, but the energy industry will always have firms that exercise significant market power, which means that “competition” isn’t the panacea that you think it is, even over the long-run.