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1. The new credit card regs that kicked in today.

2. The forthcoming price controls on health insurance (cf. Greg Mankiw's most recent post).

I propose the following policy rule: when a market is distorted, by intervention, do not distort it further with more intervention. Rather, eliminate the source of the original distortion.

I agree with Art's proposal, but if the State thought that way, it wouldn't intervene in the first place.

mugabe...where do we start?

"The most egregious examples of the failure to keep my point in mind is the passage of anti-gouging laws after a natural disaster"

you mean u are against price control after natural disasters? how come?

isnt this the only situation where brief price control is justified?


Outstanding point. I have argued for years that it does not require a Ph.D. in Economics to uncover the problems of interventions, only the willingness to look at their secondary effects. The GM that is saved today causes unwanted and inefficiently-built cars to be manufactured, which creates unfair competitive pressure on unsupported companies. The bank that is "too big to fail" becomes a shining example to others that no investing decision is poor because there is no penalty.

For all their inherent goodness and intelligence, many of my liberal friends seem utterly incapable of such straightforward reasoning, preferring instead to see a problem and cry that government must "do something." "Doing something" is about to do us all--in...



After a natural disaster the price mechanism is more important than ever. If prices are allowed to rise, then goods go to their most valued uses (preventing hoarding, for example) and people will be more willing to exert extraordinary effort to get goods into the disaster area. Just like any market, a properly working price system improves the allocation of goods and (in this case) brings more goods into the market.

As skeezy as we paint people who raise prices during crises, they do more good than harm.

I recommend Russell Robert's 'The Price of Everything,' a fictional account of such a happening (by an economist).


thats why its important for it to be brief price control.

you are talking about the supply effect of increasing prices (i.e. higher prices, more is supplied). there is another effect of higher prices thats particularly pernicious in the aftermath of disaster -- prices determine purchasing power.

for a short period of time, the supply effects of the disaster is of second order importance to the fact that the consumption of the residents in a disaster area is slashed because the day before, there was a disaster.

in the immediate aftermath of a disaster, why restrict their real income, because they were hit by a shock?

specifically, right after the disaster, prices shouldnt be used to allocate supply. just make sure the victims get some immediate consumption by sharing existing supply, and then, later, let the prices/market allocate.

Question to Art re credit card regs: what exactly is wrong with requiring a credit card company to at least notify us when they decide to change the terms of our contracts, e.g. raise our rates? What is wrong with forbidding them from retroactively applying new higher rates to old balances? What's wrong with requiring contracts to be more transparent and less vulnerable to gaming by the banks?

And where were you in 2005 when congress rewrote consumer bankruptcy laws (a component of credit card contracts) at the behest of credit card companies and against the consumer?

Here are the changes: http://www.federalreserve.gov/consumerinfo/wyntk_creditcardrules.htm

The average APR now is about 15%; the banks can borrow at < 1%. These regs might marginally raise banks costs, but banks are heavily subsidized in the first place. I find it very hard to imagine how these regs constitute a suspension of basic economics.

We are fooling ourselves if we think the economy will “improve”

Excerpt from the Green Living site, www.pbzproductions.com/green/:

Even if our economy "improves," this would be illusionary, since a similar financial crisis can happen again. The reason for this is that the math doesn't work. Most household budgets have no income that can be spent on anything beyond basic needs. To buy anything else requires going into debt. But lending institutions are now required to be picky about who they lend money to. Even more importantly, there is no room in this tight average budget to make payments on any debt beyond housing and maybe a car. If borrowing that cannot be paid back keeps going on, it can lead to a total and permanent breakdown of the world economy, far beyond what we have already experienced.

Let's look at the average family budget:
Income $50,303
Taxes: federal income and payroll 7,281
Taxes: state and local income 4,879
Housing 17,109
Food 6,443
Healthcare 2,976
Transportation 8,604
Insurance, pensions 5,605
Total $52,897
Left after basic expenses -$2,594
The median income is according to the U.S. Census Bureau's Income, Poverty, and Health Insurance Coverage in the United States: 2008. Expenses are from the U.S. Bureau of Labor's Consumer Expenditures—2008. The amount for federal and payroll taxes is from the IRS Employer's Supplemental Tax Guide, which provides withholding amounts for employers. The state and local tax estimate is based on the average of 9.7%, from retirementliving.com. Keep in mind that the healthcare average cost from the Bureau of Labor seems far too low (what were they smoking?), and it is not clear from the report whether health insurance is included under "healthcare" or "insurance/pensions." It appears that utility costs are included in "housing." Even if the numbers need a little adjusting, they would tell the same story.

The average family has no discretionary income per year, and is behind by $2,594 per year when only spending on basics. No wonder the economy melted down. The problem is not that suddenly Americans didn't have money to spend. They never had the money. Although the average income declined in 2008, from $52,163 in 2007, and offset a gain in income over the previous three years, there was no discretionary income in those years either. None of the vacations, electronic gadgets, restaurant meals, and such were paid for by money people had actually earned.

And the Obama administration's plan of tinkering with the tax code and making one-time stimulus payments will not alter the basic equation here.

So the green economy, or any economy that does not crash and burn on a regular basis, is focused on basics, with almost nothing on additional products and services.

This is sobering until you realize that such an economy would be far better for the environment without the destruction that excess consumer goods causes. It is also far better for people's lives. Is it really all that great to sit in a car several hours every day? To rush around, "multitasking"? Isn't the shopping mall a weird, impersonal place? Haven't you noticed that children will ignore a roomful of expensive toys and play with boxes or pots and pans?

Electronic gadgets aren't fun. They suddenly quit working and you go nuts trying to hunt down and read the manual to figure out what to do. Quickie food doesn't taste all that good compared to peaches right off the tree. When you go green you really aren't missing anything.

Find out more at www.pbzproductions.com/green/

Patty Zevallos
media producer – web, video, print

Gabby, in the immediate aftermath of a really big emergency (earthquake, hurricane), the ability of central authorities to enforce price controls is pretty much nil to begin with. By the time the authorities are back and able to control things most communities have already self-organized to deal with emergencies. There's a nice book on that, called "A Paradise Built in Hell". It DESCRIBES how in the immediate aftermath of most natural disasters people actually share resources with the most needed and engage in large-scale voluntary charity.
It seems that, historically, the brief period during which you think price controls would be necessary for humanitarian reasons they are not necessary because it is actually in the nature of people to be helpful and charitable by choice when necessary (which should really not be surprising, since complex social life would not be possible were humans different)

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