So much for disagreeing about the future, back to disagreeing about the past...living sounds said:JohnRoberts said:I believe new energy entrepreneurs can make a difference if the government just gets out of the way, and stops picking their own group of winners. It makes me sick every time they divert tax dollars to buy some old car plant to support another electric vehicle that wouldn't happen if left to private funding. Of course that old car plant often comes with a bunch of idled union jobs that get rescued too. Not literally a quid pro quo, but far from free market behavior where capital flows toward the best return and therefore best utilization for economic growth.
Now I'm forced to (sort of) disagree again. ;-) Easily the worst example of the (US) government picking winners was during the height of the financial crisis, it's truly astonishing with what Hank Paulson got away there. This should put the tea party on the barricades, especially considering the long-term consequences of the back-room deals, it can only be called socialism - for certain Wall Street banks- and a free market for everyone else.
That said I have been on record opposed to how the bailouts turned out... We now have fewer bigger institutions, so the riak of too big to fail has not been changed. Since this is relatively recent history a short revisit is perhaps in order. When the crisis started the first thing they did was let Lehman fail. The entire credit market puckered up tighter than a _____ (Insert your own colorful image here). It quickly became apparent that simply letting the large investment houses fall like dominos would be a bad thing for the world economy. Like I said their solution looks like a "get out debt free" card, since little noticed the government has pumped an incredible amount of capital into the banking industry since that event with artificially low interest rates and forced suspended dividends. They have just released them to pay dividends again, time to remove the silly low interest rates too.
I have also posted extensively on this. The US auto industry was sheltered by import duties and special treatment from the government for decades. They grew soft under this protective umbrella, and accepted union contracts that were not sustainable. The excesses of these agreements are widely reported. Competition finessed the import duties by building non-union factories here and kicked their ass proper. A couple weak sisters got a reprieve and were pulled back from the precipice, but this is the second save for chrysler. We may see these folks fail again if they don't change their ways... and the problem wasn't paying a dividend.The auto industry requiring aid by the governenment had a lot to do with their longstanding mismanagement (adherance to the quarterly shareholder value principle as opposed to long-term investments in R&D) and the effects of the economic crisis, which cannot be blamed on union workers at all. The government stepping in to safe a private company is far from ideal, but it would have made the crisis far worse not to do so.
I know you don't but this hinges on what the long term goals are and how much of our life should be government's business. Our founding fathers were IMO very wise to limit federal government to areas of responsibility that they were ideally suited for (international matters, and resolving disputes between states) and excluded them from all else. A common misperception is that government can effectively do things better than the private sector. History suggests the exact opposite.I don't see a problem with providing incentives and making up rules every company has to comply with in order to reach important long-term goals. Business is just not very likely to do these things entirely on their own.
Yes, free markets will react to energy prices... if prices go too high people use less and buy more efficient cars (demand destruction), and oil companies invest in extracting more oil (when the government lets them) creating more supply, that should moderate prices. But this only works in markets allowed to respond freely. The evil speculators, if current prices are not a true reflection of future expectations will shoot themselves in the foot as they trigger more unneeded supply development and demand destruction (they hope to sell that oil to somebody else for even more money in the future, not less). I personally don't think these prices are a complete bubble, while higher than they should be due to disturbing trends in the middle east, that could get even worse. Gaddafi is not going to leave much standing intact on his way down (while no-fly interdiction may be able to prevent a Kuwait style scorched earth). If the west was as self interested as so many suggest, we would be helping Gaddafi maintain control and keep pumping that sweet light, but supporting him does not seem moral. He has made it difficult to even look the other way.
From 2003 to 2008 speculative money in commodities rose by a factor of 25. Yes, 25 times more within 5 years, from 13 billion to 325 (not exactly, but close). Here's a recent analysis on the current bubble, and an outlook on the dire consequences after its inevitable implosion:
http://seekingalpha.com/article/257278-in-the-shadows-of-the-commodity-bubble-a-normal-correction-doesn-t-seem-possible
Also in 2008 OPEC was selling their oil for around 45 $, while speculation drove up the price to 150 $. There is a solution to this, the question remains if the Obama administration will act and name a tough regulator for the job when the appointment is due in a few weeks.
As for the investors shooting themselves in the foot - yes, but this is the kind of ponzi-scheme finance where the clever guys trick the not-so-clever ones into making bad choices. That's how so many pension funds lost a lot of money. Often the government is then forced to step in, adding to the debt, which in turn can be conveniently used to dismantle unions and even justify outragous overreach like the bill recently passed in Wisconsin (the whole principle is called "shock doctrine" politics).
We agree more on what the problem is than the solution. I skimmed through your link and the writer is mostly correct, but I don't buy the writer's pure speculation that
(BTW linking to another opinion to support your opinion does not carry that much weight. There is lots of bad opinion on the WWW.. some consider mine in that group, while at least by now most readers have formed opinions about you and me regarding our personal biases ).I think some too big to fail banks have literally tried to corner commodity markets, and in their greed have created unsustainable dangerous bubble prices.
Bubbles have happened multiple times in our history and probably always will. We have the confluence of several events. Growth in developing markets putting huge new demand on commodities, and Helicopter Ben, generating huge liquidity with his quantitative easing. Nobody should be surprised by loose money chasing hard assets. Rather than big banks, I suspect everybody who can, who isn't smart enough to be fearful of bubbles, is chasing the commodity momentum up. So this will end badly for them. The futures exchanges have already increase the margin requirements on several commodities to damp pure speculation but there is still a fraction of the price that is irrationally high. WRT oil It is hard to ignore event in the middle east as a significant supply disruption fear factor, but other commodities are also being pushed up by the same general trends.
You could appoint superman to regulate this market and he won't be able to change the macro trends that lead smart money to bet we won't have enough oil to meet future demand following today's policies. The dumb money, will get what dumb money always does, a losing trade. There already are regulators and they are doing everything they can with the tools they have.
IMO the correct direction from here is to tighten the money supply and let the chips fall where they will, wrt housing and other still weak sectors. Clean out the dead wood and let things bottom. Only from a solid base can we build a solid future. This tighter money supply will deflate the tendency for bubbles far better than popping each one as fast as they form. We need to consider the cause and effect. Bubbles are an effect.
Of course I may be wrong,, and I don't expect politicians to embrace any painful policy just before elections. They can't even make a budget more than a couple weeks at a time, let alone practice economic prudence. So I expect current trends to persist for a while (unfortunately). QE is scheduled to end soon, so lets hope Bernanke honors his promise, to remove the excess liquidity when it is no longer needed.
JR