review of Daniel Kahneman
THANKS FOR LUNCH AND YOUR CRITIQUE!
Isn't this laissez-faire approach exactly what we tried from 1979 to
2007, when inequality shot through the roof, according to the CBO?
NO! What we had is government interference into free markets and when government interferes it distorts the market and bubbles are created and popped. Take Fannie and Freddie with all their just sign here and own a home loans for instance. It created a boom as homes were in demand and put a lot of people to work building them but it was a bubble bound to pop because it was created by government forcing banks out of time tested loan standards the community organizers like Obama called racist. You know its racist for a bank to require good credit, 10-15% down and ability to pay loan with one week's pay etc...
Many people want to blame Wall St and the removal of Glass-Steagall but the fact is if that never happened there is still a banking crisis because of sub primes loans banks were forced to come up with by government that were based on the economy.
And another thing to consider is that if all those loans that were packed and sold were time tested loan standards before the government interfered then the Glass-Steagall thing wouldn't have mattered much because they would have been responsible loans where mortgages were paid regardless of slowing economy.
Pols like to have it both ways. For example Democrats are demonizing banks for not making small business loans yet require banks to have more cash on hand before making them. Dodd/Frank did that and did not address the F&F problem. Another example of government interfering into free markets is the Durbin Tax banks are now charging for debit card use. Example: Walmart and banks willfully agreed that Walmart will pay pennies per purchases using debit cards so banks didn't charge you the customer to cover their processing cost. The Durbin Tax removed that and now banks have to charge you $5.00 a month for your debit card whether you use it or not to cover the cost while Dick Durbin demonizes banks for charging that fee he forced them into charging.
Pols love to have both ways and its the same thing with the 70,000+ pages of tax code where pols are demonizing companies they tax for raising the cost of their product or service after pols raise their cost through higher taxes. Pols know those cost are always passed onto the consumer but its a win/win for them because they can then demonize the companies.
Herman Cain's 9-9-9 plan gets rid of all those hidden taxes and loopholes within the 70,000+ pages of tax code lobbyist lobby them to change etc... and when implemented 9-9-9 will result in an economic boom with cheaper products because companies will evaluate their bottom line with the money they save and lower cost trying to steal consumers from their competition. Competition is always good for the consumer and this is exactly why big corps lobby for taxes and loopholes that'll hurt their small business counterparts and exactly the reason we need a Main St President not a Wall St POTUS like Obama has been or Romney will be.
Basically at the root of the problem with the mortgage crisis is this noble but misguided idea that everyone deserves to own a home. Its not true! You deserve to ow a home when you can meet the free market standards for getting a loan. To pretend as pols do that banks want to loose money on their loans and need a bailout is nonsensical.
Adam Smith is only seen in half light. The other half of the light is his book, The Theory of Moral Sentiments. Where he wrote of the impartial spectator and the "man within the breast" which governs our individual behavior by placing it within the context of the society we live in.
Here is Smith's invisible hand, circa 1759:
“The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining.
The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements.
They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of society, and afford means to the multiplication of the species.”
To this you can add behavioural international investment and correlated customary international law. I have followed Kahneman and Tversky for decades when they were still a duo and their theories explain faulty Bilateral Investment Treaties with foreign companies or developing countries. The BIT contains the basics of why many end up in dispute resolution tribunals because of over confidence demonstrated in the wording of so called Model BITS. BITS may be modelled on a standardised template but the contents may be. Trusting in a host countrys' ability to translate 'fair and equitable treatment' - one of the founding principles of foreign investments - is folly to say the least. The problem with foreign investment is that governments do not learn from history. They should be using legal experts to examine historical records to determne host country predictable behaviour. 'Over confidence' by the investing country because they believe they have the muscle to influence outcomes because of the le droit de signeur is folly as many an Argentine expropriation decision has shown under the Calvo doctrine. Kahneman's theory can therefore be applied as aptly in the legal field for MNCs and countries entering the global economy with expectations of success.
All well and good, but Steve Jobs' business life pretty-much proved supply side in today's world. He came up with stuff we found irresistible and thought we just had to have.
I would be interested to know whether Mr. Sorman is familiar with a book written by Ludwig von Mises called "Human-Action: A Treatise on Economics"?
"In 2002, Kahneman received the Nobel Prize in Economics—the only non-economist ever to earn that honor." Robert Aumann will be surprised to discover that he is no longer a mathematician.
So the decision to sat on the sideline as a job-creator is just promortem with no b@@@# is just the out come of a slave driver!
This is an interesting article although it is in some ways holographic. I am eternally grateful to Kahneman and Tversky for winning that 2002 Nobel Prize in Economics. Psychologists both, their victory was a victory for all of us laboring in the trenches of what as now known as Behavioral Economics. The truth is that there is no such thing as a “behavioral economist." We are psychologists and behavioral science researchers who study, make sense of, and try to bring a small dose of sanity to the "dismal science" that is standard-issue/Chicago School economics. Ironically, American journalism’s celebrity culture venerates the well placed (like Kahneman, Tversky, and Ariely) while ignoring the value of work done by less well-known researchers who study phenomena like: investor overconfidence, the social/psychological characteristics of entrepreneurs, and a host of related matters. It’s unfortunate that this knowledge does not seem to have informed Kahneman’s work—because it is not only germane but hold the potential to far more dramatically improve the efficacy of our collective efforts to change the game(s).
Cher M. Sorman,
Je vous rappelle qu'il nexiste pas de prix nobel en economie. Pourtant, toutes mes felications a M. Kahneman pour son "Sveriges Riksbank Prize in Economic Science"!