Fire and Knowledge

Remember the bailouts? Well the government just made $12 billion from bailing out Citigroup:

Taxpayers scored a $12 billion bonus as the government washed its hands of one of its biggest bailouts, Citigroup.

The Treasury Department said Monday afternoon it planned to sell 2.4 billion Citi shares in an underwritten offering. Treasury said later in the evening that the offering was priced at $4.35 a share — giving the government a $12 billion profit on its $45 billion Citi bailout.

The government paid the equivalent of $3.25 a share for its stake in the No. 3 U.S. bank by assets. Counting stock sale proceeds, dividend payments and interest on bailout loans, the government got $57 billion in compensation for the Citi bailout, Treasury said.

If you want to make people conservatives, take away their money:

You might think that in a time when more money is concentrated in fewer hands and incomes vary wildly from billions to subsistence, poor people might increase their support for government policies that offer some help.

Not in America.

New research findings add complexity to the basic assumption that humans act in their own economic self-interest. By analyzing hundreds of survey questions from 1952 to 2006, Peter Enns, assistant professor of government, and Nathan Kelly of the University of Tennessee found that as inequality rises, low income individuals’ attitudes toward redistribution become more conservative. Their paper appears in the October issue of the American Journal of Political Science.

“It’s a bit of a conundrum,” Enns admits.

Here’s my theory: Ideology and fear can trump self-interest.

(via)

Kevin Kelly talks about the new socialism in Wired:

We’re not talking about your grandfather’s socialism. In fact, there is a long list of past movements this new socialism is not. It is not class warfare. It is not anti-American; indeed, digital socialism may be the newest American innovation. While old-school socialism was an arm of the state, digital socialism is socialism without the state. This new brand of socialism currently operates in the realm of culture and economics, rather than government—for now….

Instead of gathering on collective farms, we gather in collective worlds. Instead of state factories, we have desktop factories connected to virtual co-ops. Instead of sharing drill bits, picks, and shovels, we share apps, scripts, and APIs. Instead of faceless politburos, we have faceless meritocracies, where the only thing that matters is getting things done. Instead of national production, we have peer production. Instead of government rations and subsidies, we have a bounty of free goods….

Now we’re trying the same trick with collaborative social technology, applying digital socialism to a growing list of wishes—and occasionally to problems that the free market couldn’t solve—to see if it works. So far, the results have been startling. At nearly every turn, the power of sharing, cooperation, collaboration, openness, free pricing, and transparency has proven to be more practical than we capitalists thought possible. Each time we try it, we find that the power of the new socialism is bigger than we imagined.

The world’s poor do not resent the rich anywhere as much as the left-wing parties in the developed world imagine. What they resent is not having any pathway to get rich and join the flat world and cross that line into the middle class.

—Thomas Friedman, The World is Flat (2005), p. 384.

Communism was a great system for making people equally poor.

—Thomas Friedman, The World is Flat (2005), p. 49.

“Retail sales plunge 1.2 percent in September”

I didn’t realize a drop of 1.2 percent was now considered a “plunge.” Gosh, what if it drops 3%? Would that be the end of the world?

Maybe next month’s headline will be: “Retail sales skyrocket 1.3 percent in October.”

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources….

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

—Jeffrey A. Miron, “Bankruptcy, not bailout, is the right answer” (September 29, 2008)