John Stewart Takes On Edward Conard

This interview is a must watch.  John Stewart should have been an economist.  Well, maybe not, then I wouldn't get to enjoy The Daily Show.

The Daily Show with Jon Stewart

What a great debate. I think JS is touching on a very important point. I have been thinking the same thing for a long time:

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For just a few minutes, pretend you are neither a Republican or Democrat. Do this because if you cling to the ideology of either group, you will fail to see the truth. (If you are neither, it will be easier.)

Many Republicans, like Mr. Conard, base their defense of Capitalism not on moral arguments, but on overly academic ones.  This was the problem Greenspan had.  He failed to see the forest from the trees.  He paid so much attention to the details, that he forgot how to think clearly.

Are risk and reward related?  Absolutely.  This is obvious, and I can't imagine having the patience to write an entire book about it.  Does this relation mean that encouraging risk takers through the tax code always works?  No, not necessarily.  People are motivated by many things, money is not always one of them, and if it is, it is not always the most important.  Should we have a tax code that encourages risk taking?  Well, that depends, doesn't it? (To quote one of my favorite professors.)  It depends on what types of risk taking we are promoting and whether they are desirable for the economy as a whole or not.

What about creating a tax code that was neutral?  Would that even be possible?  Government may create an environment conducive to business and innovation by minimizing regulation and taxes, but should not in any case be subsidizing one business over another.  This not only creates moral hazard problems, but it makes the game unfair.  Subsidies are much more harmful to Capitalism than taxes.

Why?  Because they strip the Capitalists of a moral justification for their philosophy.  Subsidies make Capitalists hypocrites, and slaves at the same time. They are destroyers of Capitalism.  They skew the risk reward system to such an extent that it cannot be relied on as a market arbiter.

What industry is more subsidized and "coddled" as JS says, than any other (perhaps with the exception of oil and farming)?  The financial industry.  How?  The Federal Reserve (arm of the Government) "lends" free money to speculators at the big money center banks.  They then "invest" it in the stock market.

By fixing the price of money, which Conard calls "saving" the economy, the Government is giving these large financial institutions the biggest free ride in economic history.

If they make good decisions, they are rewarded handsomely. If they fail, they are bailed out by the taxpayers.  This is the "investor class" Edward Conard is speaking of, and many of them are indeed are feeding of the Government teat.  But they don't want you to know that.  They don't want to give up their subsidy, their advantages...and why would they?  If you were playing poker and you knew your betting money would never dry up, would you place riskier bets?

Obviously, not all in the financial industry fit this profile. There are many investors who participate in the market with the intent of not only making money for themselves and their clients (which is great), but also to support innovation.  It is the honest guys at the middle sized firms who don't have access to leverage at 0% and actually have to make money for their clients who are at a competitive disadvantage. They don't get Federal Reserve funding, but their clients still expect results.  Many true Capitalists are operating as independently of the government as possible, and putting up with many cumbersome regulations on top of it.  These are not the people or firms I am referring to.

I love that JS points out that in the while the real estate bubble was forming "We lost our minds chasing wealth."  He also asks a question I have been thinking about for a while:  Is our overvaluation of growth coming at the price of lost stability?  YES!  YES, it IS!

In a free economy, no central bank would be able to hold the price of money artificially low and in doing so warp the normal risk reward mechanisms imposed by markets.  In a truly free economy there would be no Goldman Sachs, no GM, no AIG, no Freddie and Fannie, and no taxpayer bailouts of hedge funds.

I say these things not to disparage Capitalism, but in the hopes we can save it.  We will NEVER be successful in cutting entitlements, which is necessary to the health and well being of this country, if we do not end Government subsidies and bailouts in the "private" sector.

If the "investor" class continues to behave as it has, and ignore these issues, I am afraid I will not be able to blame the masses for their rebellion.

'Nosce te ipsum'.

Know thy Self.

Half truths require no rigor.  I admire the man who tells the whole truth and nothing but the truth, and knows Him Self.

Does he exist? Yes, in all of us.

We all fall short of perfection, of truth.  Yet, he exists in all of us.

Tell the truth to your Self above all others and know the difference between yourself and your Self.

This is my only Religion.

We all have both.  We all are two.  The recognition of this reality implies you must employ free will and decide which to feed...the self...or the Self.

Which of your thoughts will you believe?