But at What Cost?

Yes the markets would eventually sort themselves out but at what cost? In a "Darwinian economic" sense, this is a good thing if it eliminates a weak bank and makes room for better, stronger banks. The big difference that people don't get, and this can not be stressed enough, is that we are not talking about one or two banks. We are talking about entire financial markets. If the markets fail, and again this cannot be stressed enough, everyone, including you and me, suffers greatly. If markets fail, businesses can not function and this means people lose jobs. If markets fail, people lose their economic power and this means people can not buy houses, cars, college educations, etc. If markets fail, people lose retirement plans. If markets fail, everyone suffers direct and devastating economic consequences. This is what people don't get and why it is necessary to take distasteful measures to make sure that does not happen. When the "victory" in letting banks suffer their due consequences and fail means that we lose jobs, houses, retirements, and personal wealth, that is not a Phyrric victory we can afford.

What Is "the Free Market Economy"?

It seems there is some confusion about "free market economics" and the economic rescue plan. Some opponents the the rescue plan oppose it because they believe it to be anti free market. The problem stems from a confusion between what "free market economics" really is and what is an ideology of government non-intervention in economics. These are not one and the same. Government intervention can be anti free market to be sure, but it is not so by definition. The ideology of non-intervention stems from the belief that the free market is the most effective and efficient economy and the concern that government intervention inhibits that by necessity. This is the same as the confusion between democracy and human rights. To be sure, democracy is the best tool to ensure human rights. This does not mean that human rights cannot be had without democracy nor does it mean that democracy is an absolute guarantee of human rights. Similarly, nonintervention is the best tool to enable free markets but it does not mean that free markets cannot exist with intervention nor is it a guarantee that free markets will exist.

The "economy" is what mathematicians and engineers refer to as a "solution space". A solution space is the collection all of the valid states that something can achieve given the governing laws or mathematics. For example, imagine a "fully posable action figure." Any position you can pose the articulated joints, without breaking it, is part of the "solution space" of the posability of the action figure. Each joint has a limited range of motion and therefore the solution space of possible poses is also limited. There are poses that are not part of the solution space that if put into that pose would require breaking one or more joints to do so. Where laws of nature are concerned, the action figure is made out of an indestructible material, meaning that try as you might, some poses, or solutions, are simply not physically possible.

For discussing the economy we'll use another more representative solution space model. Imagine you have something shaped like a soup bowl and in this bowl you have a marble. The bowl represents the solution space for the economy given the laws of economics such as supply and demand. The position of the marble in the bowl represents the state of the economy at any given time. As you can see, the marble will want to roll to the bottom of the bowl. When the marble is in bottom, this is what is called equilibrium. If left alone, the marble will stay at the bottom and if displaced will naturally tend to roll back to the bottom. This is called a "stable" equilibrium. ("Unstable" equilibrium would be something like balancing a broom handle - once balanced it will stay there but if disturbed it will fall.) This type of equilibrium is also what is called a "low energy state". This means that at the bottom of the bowl, the marble is in it's lowest energy state. If you push the marble up the lip of the bowl this will take energy and the marble will be in a higher potential energy location.

So what does this model mean in terms of economics? Consider the real estate market. We have seen two distinct states recently. In one case, prices were so ridiculously high that no one could afford to buy houses anymore. In another, prices have fallen so sharply that a lot of people have lost a lot of money. In both cases, price is determined by the laws of supply and demand. In this example, the laws of economics determine the shape of the bowl. In our bowl model, both of these states are toward the lip of the bowl. The marble was on one side of the bowl with high prices and now is rolling to the other side where prices are falling. Generally speaking, desirable states are at the bottom of the bowl and undesirable states are along the rim and the further up the rim as characterized by an out of balance economy. One aspect of the real economy is that, just like the marble in the bowl, it naturally wants to find the stable equilibrium point of lowest energy and free market economics does this very effectively and efficiently. In economics, this is the most optimal achievable operating state for the economy.

This natural tendency to seek stable equilibrium and the lowest energy state is what people who are "free market" proponents have in mind. The idea being that to leave the market (marble) alone, it will naturally attain the most optimal (lowest energy at the bottom of the bowl) achievable state. Now, before I move on to what this means in terms of the rescue package, let's take some time to look at a couple of concepts this model allows us to play with. Maybe you decide that you want the economy to occupy a state not on the bottom of the bowl? This is the case with things like price controls or other policies that attempt to force the economy into a particular state. Two situations can result. One is that the "desired state" is on the bowl but up on the lip. In order to achieve this state, you must push the marble up the lip and hold it there. This is not an efficient way to have an economy operate and if you drop the marble it's going to go rolling wildly around the bowl before returning to the bottom and we certainly don't want a wildly fluctuating economy. The other case is that the "desired state" is not even located on the bowl. In this case, the desired state in not even achievable within the laws and constraints of economics. You would be left with trying to push the marble around the bowl trying to put the marble some place it simply can't be.

But free market proponents sometimes have it wrong too. The idea that the market attains the most optimal state when left alone, when taken as ideology, can lead one to actions or inaction that are unwarranted. This is what caused many "free market" republicans to vote against the rescue bill. Their ideology is to allow the market to freely correct itself. Strictly speaking as mentioned above, this is a "nonintervention" ideology and not "free market economics." And this is where many "free market" proponents can go wrong. Just because the marble will eventually land at the bottom of the bowl does not meant that we should just sit by and allow the marble to follow any trajectory to achieve that. Certainly we do not want to obstruct that, but neither should we necessarily allow a fate determined by a "random" trajectory. As you can imagine, the marble can roll in many different directions and paths. These are all valid "free market" solutions as the marble is allowed to freely roll toward the bottom of the bowl. The thing is, not all of the possible trajectories are equivalent and we can and should influence what trajectory the marble takes. If one trajectory would produce a great deal of devastation and another less so, then by all means we should do what we can to influence the trajectory toward the less destructive path. This satisfies free market principles so long as we do not attempt to force the trajectory to follow any specific unnatural path. And this is what the rescue plan does. The likely trajectory if we did nothing would be to result in devastating consequences resulting in massive collateral damage to you and me and everyone else. The rescue plan simply attempts to influence the trajectory to take a less catastrophic path. The financial markets are still free to be priced according to "free market" economic principles such as supply and demand. What the rescue plan does is to remove some of the toxic product from the market in order to eliminate the negative effect that has on supply. As supply increases as a result of removing the "toxins", demand and pricing are free to adjust in response according to free market economic principles.

So now you might ask, if the marble wants to stay at the bottom of the bowl, how does it end up somewhere else on the bowl in the first place? The economy is not a static thing. Circumstances can and do change over time in response to changes in prevailing conditions. The most accurate answer in terms of the bowl analogy would be that the shape of the bowl is always changing. A simpler analogy would be if the bowl got bumped or tilted or something knocked the marble to thrust it away from the bottom of the bowl. In the real thing, this could be anything that alters supply and demand or resources. Examples are things like the dwindling supply of oil, a natural disaster such as a hurricane, new technology, changing cultural or social preferences. In the real estate market as well as the dot com boom and bust, one of the greatest disruptive influences was speculation. This was a sudden influx of large amounts of money into the real estate market that temporarily skewed the apparent demand in the market. This had the effect of a sharp whack on the marble that sent it spinning off wildly. And the availability of "easy money" (all of the "creative" loan products made available that enabled the ease with which money could be poured into the market) simply added fuel to the fire.

What "free market" economics is all about is this "equilibrium seeking" and allowing the economy to seek the path of lowest energy. However, just because it is most efficient to rely on the natural equilibrium seeking nature of free market economics, that doesn't mean we should allow the economy to pass along any trajectory from a disturbance back to equilibrium. We can, and often times should, act to nudge the trajectory toward one path and away from another. As long as we don't try to force it along a "higher energy" trajectory, this is still a valid free market solution. What we have to evaluate pragmatically is which possible paths incur more or less devastation along the way and how can we nudge the marble toward the least destructive path. The rescue plan is simply a very elegant nudge that allows the free market "marble" to do the rest. The rescue plan is consistent with free market economic principles. Rather than controlling the market by decree, the rescue plan puts the government in the role of participatory agent in the free market. The buying as an agent in the free market is strategised in such a way as to influence the free market trajectory on a more favorable and less destructive path.

Hello, Not Voting for Candidate A Is a Vote for Candidate B

This just boggles my mind, and it's true on both sides of the fence. Most recently it has come out McCain might choose a pro-abortion candidate. So, the answer? To not vote for McCain? And that means what? Obama, who is clearly much less conservative, wins? That would be the preferred outcome? And the Democrats are just as bad. Some HRC supporters, for example, will refuse to vote for Obama. So they would prefer that McCain would win, someone who would be much less representative of Democratic ideals? So some people would rather let someone who is less representative of their values win rather than vote for someone who doesn't exactly represent their values? Look people, the next president will either be Obama or McCain and not voting is not going to change that. So it would behoove you to vote for the candidate who more closely represents your values if for no other reason to keep out of office someone who would be even less representative of your values. If you withhold your vote because your party's candidate has offended you in some way, the only one you are hurting by not voting is yourself. If neither candidate is your ideal candidate that is irrelevant and pouting about it isn't going to change that. If you are smart you can suck it up and accept that your only options are McCain or Obama and vote for which ever is the next best thing and most closely represents your values (or against whichever is the next worst thing) or you can go off and pout and get what you get which might end up being the worse of the two for your values. To make the point, for those who oppose abortion rights, if McCain were to choose a pro-abortion VP, you would prefer to have a President AND a VP who stand for abortion rights than to vote for a ticket where only the VP is pro-abortion? And for HRC supporters, you would rather have McCain as president than vote for Obama? Yes, voting has consequences and so does not voting. Are you willing to accept the results and consequences of not voting? Remeber, what you choose to do, whether to vote or not, on November 2 this year has consequences for whether Obama or McCain is in the Whitehouse on January 20 of next year.

Yes, Russia, It Is You Who Is the Hypocrite, not the US

So Russia seeks to cast the US as hypocritical for expressing opposition to it's invasion of Georgia and has the audacity to raise the issue of Iraq? Well, let's put some things into perspective and just see who is the hypocrite.

If we look at crises that are actually analogous to the Georgia situation we see a completely different picture. In the Iraq war that actually is analogous to the current crisis in Georgia, when Saddam Hussein invaded Kuwait, the US pushed Saddam out of Kuwait and back to his border. The US did not invade Iraq at that time. When Serbian troops were committing genocide against the Kosovo Albanians, NATO, led by the US, repulsed the Serbian troops only sufficiently to put a stop the genocide. And if you want to bring up the US invasion of Iraq, it took 12 years of as many UN resolutions that were obstructed, circumvented or simply ignored by Saddam before the US invaded. And even then the US attempted to gain the support of the international community. It didn't even take Russia 12 hours before they invaded Georgia.

Anytime the international community attempts to deal with crises around the world, Russia is always there acting to obstruct those attempts. Russia is always pushing for interminable talks, diplomacy, and negotiation. Even peaceful attempts with resolutions, sanctions, or peace keeping troops are obstructed by Russia. Russia states it's position as non-interference in the internal affairs of other sovereign states, even when those "internal affairs" include atrocities such as genocide. Now that there is a crisis in a sovereign nation they have an interest in, do they exercise the restraint and non-intervention in the internal affairs of a sovereign nation that they impose on other nations by use of their veto power at the UN? No, they completely bypass all peaceful approaches such as the talks, diplomacy and negation they demand others utilize, they bypass the other peaceful approaches of resolutions and sanctions, and they even bypass a measured military action to repulse Georgian troops out of South Ossetia and go straight for the jugular with a full scale invasion of Geogia, a sovereign nation, with overwhelming military force. So why is it ok for Russia to immediately resort to extreme military force to "meddle in the internal affairs of a sovereign state" whenever they choose yet they obstruct even peaceful attempts of other nations and the UN to resolve other crises? If Russia wants to see hypocracy in international affairs, it need only look in the mirror.

Inflate Your Tires to Solve Our Energy Problems

Some people just don't get the point, even Obama. Obama seems to think that McCain was taking issue with whether or not inflating your tires saves gas, when in fact he was taking issue with whether or not telling people to inflate their tires is an energy policy or not. This from McCain pretty much sums it up: "That's not an energy plan, my friends -- that's a public service announcement." And if inflating your tires IS an energy policy, then at least McCain is doing something about it by handing out tire pressure gauges. I don't think either one has what I would consider a satisfactory energy policy but my point here is being honest about what was and was not said and what does and does not constitute an energy policy. But then again, at least Obama appears to be open, to some degree, to considering ideas to which he was previously opposed.

And as to being honest about what was and was not said, the recent tire flap harkens back to the flap over McCain's remark over troops in Iraq for 100 years.  The point was an arrangement not unlike the fact that we, to this day, have troops in Germany, Japan, and South Korea. Do people who have taken issue with McCain's comment think that these other troop deployments have been a bad thing? And if these have been a good thing then why wouldn't the exact same arrangement in Iraq not also be a good thing? The existing arrangements have been mutually beneficial for over 50 years and show no signs of major changes, so why would claims of 100 years of a similar arrangement in Iraq be unreasonable?

Hyperventilating Over Oil

(This just in... Obama says he would discuss a pragmatic approach to offshore drilling as part of a pragmatic over-arching energy policy -
"Like all compromises, it also includes steps that I haven't always supported," Obama conceded. "I remain skeptical that new offshore drilling will bring down gas prices in the short-term or significantly reduce our oil dependence in the long-term, though I do welcome the establishment of a process that will allow us to make future drilling decisions based on science and fact.")

Why are people hyperventilating over broaching the topic of off shore drilling? The only thing that anyone has actually said is that if supply issues are contributing to the problem then let's talk about possibly increasing supply with exploitation in locations previously off limits. What's wrong with asking the question? It is a completely reasonable question to ask and Democrats and liberals are doing everything they can to stop people from trying to answer it in any pragmatic manner. If insufficient supply is part of the problem how does increasing supply not help? Will it solve all of our problems and make them all go away? Of course not. Only Democrats seem to think that this is the claim - or at least that since it won't solve everything we should not pursue it at all. But even if it is only 1 or 2 million barrels of additional oil, isn't that better than no additional barrels of oil? Does drilling for more oil preclude us from exploiting other solutions for our energy problems? No it doesn't. Except that Democrats seem to think it will. They say we should pursue conservation and alternate energy instead. Instead? Why not AND? And how is the fact that new drilling won't produce oil for many years an argument not to drill? Isn't that what investment is all about - expenditure today for future payoff? Democrats give any number of similar illogical arguments to not drill, which if true, then no wells would ever have been drilled in the first place. We would also never build bridges, or dams, or highways or any other large construction efforts as these don't show results until many years in the future. Yet, not surprisingly, many people actually understand that the reality is that quite often you must begin work today so that the benefit can be realized at a future date and that there is value to this. And that being the case, if it is indeed true that exploration and drilling today will not produce results for many years, isn't that in fact an argument to start now rather than delay and push realization of results even further into the future??? Oh yeah, Democrats don't seem to understand investing today for future payoff.

Some people have simply raised the question for discussion and Democrats have immediately started hyperventilating as if the drills had already started. The thing is some people want the debate in order to achieve rational, fully informed energy policy but Democrats are doing everything to prevent that. (hmm... wasn't it Democrats that were lambasting Republicans for having the audacity to quash debate on other topics? And now Democrats are doing exactly that which had them outraged at Republicans.) The same is true of nuclear energy. Let's start the justified discussion on merits. But instead Democrats immediately start hyperventilating as if atoms are already smashing. How dare anyone have the audacity to even broach the idea of nuclear energy. (Except that even uber-liberal France seems to grasp the pragmatism of nuclear energy. While hard to pin down it seems about 78% of electricity in France is nuclear generated). Ooh nuclear, evil bad, hiss - better we should all suffer carbon emissions and global warming than bury nuclear waste in some desolate uninhabited desert.

And as for the strategic reserve, the intent with that is for a rainy day when we have REAL problems. Oh yeah, that's right, Democrats don't believe in saving for a rainy day as the prospect of any future calamity is only hypothetical. If we tap our reserves today and then something happens like Israel strikes Iran, don't you think we'll then regret having tapped the reserves for something as frivolous as prices rather than keeping the strategic reserves for STRATEGIC purposes? Oh yeah, Democrats only live for today and tomorrow is only hypothetical and consequences tomorrow for actions today be damned. (In Democratically controlled California, we never seem to be able to save in times of plenty in order to have reserves in times of lean - no matter how much surplus revenue we ever have we always end up broke and unable to get a budget out on time. When our lakes and reservoirs are full that's always taken as green light to build more houses seemingly thinking that quantity of water will last forever and ignoring the fact that the lakes and reservoirs are not always full as is the case this year). And speaking of strategic issues, that drop of oil in the bucket from new drilling would take on a whole new degree of significance if something majorly unfortunate happened in the Middle East and our bucket got reduced to a tea cup.

And there are the claims that the proposed drilling would not be economically effective. Isn't that a decision or the oil companies? If they decide it doesn't make business sense they simply don't have to drill. This is like not asking the hot girl out because you decide she would not accept. Shouldn't it be her choice? It is a unilateral decision assuming a second party choice not necessarily in evidence. And like the hot girl, if she declines, then you know for certain one way or another and it's that much easier to move on. And if the outcome is ultimately that the oil companies decide it doesn't make business sense, then what is the harm in having the discussion and letting the oil companies decide for themselves rather than making that decision for them?

The problem is specious and nonsequitur "reasoning" for not drilling that are supposed to somehow be reasons to not even have honest discussion. No it doesn't solve the whole problem but that does not mean it is of no help or no use. No it won't provide oil today but maybe we should start now to make it available tomorrow. What we need is real debate based on real merit and not the false logic and hyperbole expressed by BOTH sides. If we really (and honestly) want more independence from foreign oil shouldn't we honestly be talking about ALL options including conservation and alternate energy AS WELL AS increased domestic oil supply and nuclear? None will single-handedly solve our problems - not even conservation or alternate energy - but they are ALL key components to a COMPLETE, rational, and pragmatic energy policy and none should be off limits to discussion simply because of ideology. Ideology and hyperbole is not the place to start to achieve such policy.

More Hypocrisy

It's ironic how Democrats would lambaste Republicans for preventing various items from being debated on the floor. Now that the issue of certain Democratic sacred cows are becoming of more salient interest, Democrats are resorting to some of the exact same tactics to prevent debate that they accused Republicans of using. With the energy situation the way it is, the issues of previously off limit drilling and nuclear energy are compelling topics for debate. But Democrats are actively preventing debate on these topics just like they accused Republicans of preventing debate on other topics. That's not to say we should necessarily be actively pursuing those things, but given circumstances shouldn't we at least be debating them? I guess when it's your sacred cow it's ok to prevent debate no matter how pertinent.