Wednesday, May 12, 2010

Amazing Lessons from Megan McArdle On Government and Free Markets

I am not making this up. She writes:
There is no neat separation between "the government" and "the free market" in a financial crisis, and attempts to impose such a separation in your mental models is bound to lead your analysis astray.

Well, Megan, let me try.

The free market is always the productive side of the economy, financial crisis or not.

The government is not productive and simply takes from some groups and gives to other groups, financial crisis or not.

The government through central banks is the cause of financial crises because of their manipulation of the money supply.

Unhampered by government intervention, the free market will "solve" the financial crisis.

Outside of these minor points, Megan does make a lot of sense and should probably get a Nobel Prize.


  1. When someone says something that stupid they must be getting paid for it

  2. Not the first time for Greece. Venizelos, 100 years ago, established laws "not to fire public employees" etc. to avoid bribes, and then the country went through wars that made the public sector look very safe. On top of that, we went through a socialist government of Papandreou Sr. during which even the school books praised working for the public sector. It became the one and only goal of my generation. Destroyed the country.

    Andreas Papandreou:

    - Harvard professor
    - Elected by the motto "Allagi" (Change!)
    - Nationalized and bailed out bankrupt companies
    - Brought the Greek government to unique debt highs, deficits and debts covering all visible horizon.
    - Then he printed lots of money - inflation in the 90s - my last credit card in Greece was 36% and it was the cheapest
    - Then the Euro came and stabilized the conditions
    - The old habits remained, we sunk the Euro too.
    - I worked in insurance. No.1 product sold: hospital coverage (public hospitals suck)

    Today, even the most "right-wing" youth in Greece thinks in terms of "government". No hope in the horizon. The country is the worst socialistic money pit in the western world, it'll only get worse, and public services are almost non-existent on top of it...

    Greece is finished as we knew it. Maybe it'll take the Euro for a bad ride along... until someone kicks them out of the Euro, or until Germany leaves the Euro... or until Germany demands "it's either Greece in the Euro or us...".

    If you believe that the Greek government will actually stick to the plan, I bet you $1 it won't for long. They' ve done it countless times in the past - same scenario, repeated in different circumstances.

    (the "austerity" measures, if kept, will save approx. 12 bil. in their balance sheet - total debt is 300 bil. the austerity measures won't even cover the interest on the debt!).

  3. When action is taken voluntarily, it's the free market. When action is taken to avoid being the object of a SWAT Team, it's government.

    Pretty simple

  4. I skimmed that piece...not sure what she meant by it.

    The best take on it would be that there is precious little private sector left in finance...

    For instance, "not intervening" ignores all the regulations, corporate structures, subsidies and intervention already put in place through intervention. It's an absurdity in that sense to talk about free markets at all.
    All we have now is rigged markets..