Comment by phillmv | Hacker News Reader

Comment by phillmv | Hacker News Reader

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>But would the lower/middle classes be able to afford them? Or as readily?

I'm in favour of globalization. I agree with you that they'd be more expensive (it'd be interesting to determine what percentage of the iphone's cost is due to labour), I just don't think there's a moral argument to be made. Almost everyone could afford a car, in America, in 1968. In real terms of quality of life improvement in the grand scheme of things iPhones and computers are probably minor inventions next to plumbing, central heating and the first couple waves of mechanization.

>The limits imposed by the Constitution.

This assumes that a) the intent of the founding fathers was relevant to today's society and b) their intent was to have a limited size of government, both of which are pretty big assumptions. For more on the failings of constitutional originalism see here: http://www.economist.com/blogs/democracyinamerica/2011/09/eu...

>I'll be a bit more clear: we either need much less regulation, or a whole lot more.

Your conclusion does not follow from your premise. How would removing an unrelated insurance corporation promote healthier decision making amongst investment banks?

Poorly designed regulation does stifle innovation and thus growth. However, there are certain kinds of innovations that prove to be too dangerous to be handled without some safe guards.

It seems to me you possess a shaky understanding of 1) the events that led to the FDIC and SEC, and Glass-Steagal 2) the events that occurred from 2001-2007/08 and 3) the cognitive pitfalls and biases human beings suffer from when reasoning about risk.

> a) the intent of the founding fathers was relevant to today's society and b) their intent was to have a limited size of government, both of which are pretty big assumptions.

Their intent for a limited size of _federal_ government is almost certain. And I don't see how it's not relevant: our federal government is huge and almost entirely unaccountable, and clearly is not functioning as it was intended. From Federalist 45:

The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.

The operations of the federal government will be most extensive and important in times of war and danger; those of the State governments, in times of peace and security. As the former periods will probably bear a small proportion to the latter, the State governments will here enjoy another advantage over the federal government. The more adequate, indeed, the federal powers may be rendered to the national defense, the less frequent will be those scenes of danger which might favor their ascendancy over the governments of the particular States.

> How would removing an unrelated insurance corporation promote healthier decision making amongst investment banks?

Not unrelated. Gramm-Leach-Bliley removed barriers allowing commercial banks to act as investment banks. That was my point: you can't remove these barriers without also removing the insurance. Having the FDIC encourages commercial banks to be much riskier.

> It seems to me you possess a shaky understanding of 1) the events that led to the FDIC and SEC, and Glass-Steagal 2) the events that occurred from 2001-2007/08 and 3) the cognitive pitfalls and biases human beings suffer from when reasoning about risk.

Feel free to correct me where I'm wrong. I think the housing bubble was entirely avoidable had the government taken different action. I'm not saying that it was ENTIRELY the fault of regulation. I do think that: deregulation (including removing the FDIC and SEC), much less Fed fiddling in attempts to 'fix' the dot com bubble, and no bailouts or any implicit guarantees of bailouts, and you wouldn't have seen the housing bubble.

You're still making an originalist argument. Who cares what Alexander Hamilton had to say about anything? He's dead.

To steal a quote from the Economist article I linked to above, suppose we fast forward this conversation fifty years. Do we really care what James Madison might have thought about which privately cloned human-animal hybrids could use viral DNA material drawn from public health databanks?

No, of course not. This is a conversation to have amongst the living. How big should the government be? Is a complex question with many stakeholders.

> Having the FDIC encourages commercial banks to be much riskier.

No, it doesn't - because when a commercial bank became an investment bank, that insurance only applied to deposited accounts. If we define the risk holders to be the people with deposits, then sure.

However, most people would define the bank investors to be the ones willing to take risks. The shareholders, accordingly, were not protected by the FDIC and got wiped out when these banks failed or merged into larger banks.

>I think the housing bubble was entirely avoidable had the government taken different action.

Yes, but that's a tautology for a lot of things in the economy.

The financial crash was far too complex for me to try to recount here. There is a wide range of incentives that could have been tweaked; but the bottom line is people took far too many risks across far too many levels of the economy. The end result was not caused by an industry forced into bad decisions due to poor regulation. Investment banks were allowed to borrow too much money relative to their capital holdings, and they were allowed to pour their money into financial instruments that are computationally impossible to accurately judge.

Removing the FDIC and the SEC would exacerbate the problem.

Here's some very accessible reading material, that I think you ought to brush up on:

http://www.npr.org/series/124587240/planet-money-s-toxic-ass... http://www.thisamericanlife.org/radio-archives/episode/355/t... http://en.wikipedia.org/wiki/The_Big_Short

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