What should we really expect?

Kevin Drum is amazed to learn that John Meriwether, founder of Long Term Capital Management, a hedge fund that failed spectacularly in 1998, and founder of another hedge fund which failed last year, is starting a third fund.  And it looks like people will invest in it.  Are people crazy, wonders Kevin? See the whole post for more details on the losses incured, and profits earned by Meriwether in these extremely profitable failures.  What could induce anyone to invest in a fund which is so likely to fail?  How could so many people be so careless with their hard earned money?

I, on the other hand, find this not surprising at all.  This appears to be a case of large number of very wealthy people behaving in an insane fashion.  If you witness a large number of people behaving in a maner that seems irrational given their circumstances, perhaps they are behaving rationally, you've just got their circumstances wrong.

How can people put so much of their hard earned money into such a risky venture, indeed a venture likely to fail?  Perhaps, they are not actually putting in their money, nor is it hard earned.

As I've commented elsewhere (see here, here and here) the federal governmnet of the United States creates a number of extremely valuable services that the people of the United States are bound and determined to give away, at least to extremely wealthy people, for free, or as near to free as our political system will allow.  The Federal Government by licensing the airwaves (and guaranteeing that those using the airwaves will not have their signals meet interference), creating the mechanism for incorporation (by which the risk of running a business is shared by the community, vastly increasing the value of the business), protecting copyrights and definding physical and financial assest provides, as I say, a large number of very valuable services.  The value that these services add to other aspects of the economy is our money.  That is it is value added by us via the legislation passed by our Congress.  Nonetheless, for the past several decades we have been busily increasing the value of these services and decreasing what we charge for them, where the starting point wasn't a very high charge to begin with.  The result is that folks fortunate enough to be running a business that uses these services are pretty much guaranteed a very high income even if you do little work.  Furthermore, we have made clear that this is not going to change much for some time to come. 

The upshot is that we, the people, are generating lots of money and then giving our money away to these people, with no strings attached, no obligation in return, no obligation of any kind. In response, they behave exactly as one could expect. They treat this not as their hard earned gains from past work, but rather as a windfall.  As people tend to do, the money often gets gambled or put to some bizzare, irrational use.  People are not as careful and protective of a windfall, or other people's money, as they are of their own.  Also, keep in mind that we are making sure that this gravey train will not be ended in the future.  As a result these people do not need to worry that their future income and wealth depends upon the success of any current investment.  They have every expectation of their future income being as high or higher than their current.  We will make sure of that.  And they risk this money in exactly the manner that one would expect.

There is another way to look at this issue.  We the people of the United States create these valuable services.  Yet we have so little concern for that wealth that we give it away with no obligation on the part of the recipeint, no demand that they pay us, or do us any service in return.  If we don't care about the proper use of these money, why would we expect the folks we give it to, to care? 

Adam Smith and Taxation

Excellent diary over at Daily Kos by bay of arizona. The subject is Adam Smith and progressive taxation which Smith favored. Smith has a lot more to say in support of progressive ideas than he does in support of conservative ideas, at least the way those ideologies are shaped today. I would urge progressives to read "The Wealth of Nations". Attempting to incorporate Smith's ideas into a progressive ideology would be a huge benefit to progressives and to the world.

Conservative Patriotism

Steve Brenen at The Washington Monthly comments on the unseemly glee expressed by various conservative commentators over Chicago not getting the 2016 Olympics. He notes favorable Rachel Maddow's comment that the right wing explicitly cheering an American loss may well leave an impression far longer than the loss itself. I would note, however, that this is only the latest in a string of such anti-America sentiment from the right, and it highlights what I think is the character of right wing so-called patriotism. From Jerry Fallwell commenting on the 9-11 attacks to John Hagee's comments on Hurricane Katrina, the right wing has always been willing to criticize and blame America. The right have never had a problem with those who criticize America. Rather the act they find intolerable is not criticism of America, it is criticism of Conservatism. America does not matter to them, conservatism and conservatives do. So if the America fails to win an Olympic competition, and that failure fuels conservatism, that to conservatives it is indeed reason to cheer.

Why "Liberal" is a term of abuse.

Mark Kleiman Mark Kleiman has a post recounting comments he recieved after a recent lecture he gave. In his words

Then Tuesday night I gave my crime-control pitch at the California Endowment. It was fairly warmly received. But two of the people who came up afterwards to tell me how much they’d liked the talk said something like, “I’m glad they decided not to have some liberal talk about crime.” When I told them that I was an unreconstructed liberal and card-carrying Obamaniac, they were deeply puzzled.

He wonders at this encounter, but I am not nearly so surprised. It is a growing contention of mine that while conservative policies are indeed quite dreadful, horrid really, close on their heels for being dreadful is liberal rhetoric and argument. Liberal policies are, on the whole, quite good, but the arguments we wield, at least those that permeate the public conscientiousness are quite bad. Actually, to be more exact, the leading liberal arguments are often quite mediocre or poor, while much better, liberal arguments are left unstated.

Take crime control and the criminal justice system, for example. I hear often, from liberals, that there is a need to protect the basic rights of the accused, but this is almost invariably presented as a protection for the accused and only for the accused. This is therefore presented as a gift to someone who is accused, that will benefit my neighbors and colleagues only if they are ever accused of a crime, an event that they don't believe will happen. These rights for the accused then come across as a moral obligation my we liberals believe is a moral obligation imposed on my neighbor for the sake of people accused of crimes, the vast majority of whom have, in fact, committed crimes. My neighbor may, therefore be a bit puzzled as to why we have to grant this privilege to these people.

The most persuasive reasons why we need to do this are, oddly, rarely stated, at least in our public arguments. For one thing, the power of the state to prosecute citizens is enormous, and history shows that if that power is not checked then it gets abused. If we grant our magistrates unlimited and unchecked power to prosecute they could then do a much more effective job going after criminals. But they could also, with far less effort to themselves, do a just barely adequate job of going after criminals and use their powers to go after people pointing out their corruption. This later choice is much easier and much more profitable and therefore the one invariable taken. If instead we require that they meet standards of evidence, that they be required to present overwhelming evidence of guilt of an accused defender, they can only accuse someone on the basis of "probable cause" and the other rights of the accused are respected, then our magistrates will need to just go after actual criminals. That is why we want to have these rights respected. If we require the state to respect these rights, then those who do get accused will generally be those who are actually guilty and we will be more secure in the process.

We are also made more secure ourselves, if the state respects the rights of the accused, because it fosters greater faith and confidence in the state and greater willingness to cooperate with police in investigations. By going through the whole process of trial, including the rights of the accused, we make it publicly clear that the state is going after those who are guilty. The rest of us are more likely to be cooperative with such investigations if we have confidence that the state is pursuing people guilty of recognized crimes and not some personal vendetta.

So, in short, the reasons for respecting the rights of the accused include powerful arguments that doing so protects the security of those who do not commit crimes. Indeed, those arguments are sufficient, in themselves, to persuade most everyone that respecting these rights is the correct thing to do. The moral concerns of the fate of the accused, who may indeed be guilty of a monstrous crime, can, and should be, a secondary concern. However, in recent times "liberal" arguments have raised this secondary concern to first place, and left the more significant arguments behind. This, more than anything else, I believe, is the source of "liberal" as a term of abuse.

As I indicated in the first paragraph, I also am coming to believe, that this general tendency for liberals to put weak arguments first and to abandon our strongest arguments is far more wide spread than just the issue of the rights of the accused. More on that in future posts.