Mish's Global Economic Trend Analysis |
Reader, Citing Hayek, Asks Me to Reconsider My Stance Against Finland's Free Money Proposal Posted: 12 Dec 2015 07:35 PM PST On December 7, I strongly criticized Finland's decision to give every citizen $870 each month, tax free. For an outline of the proposed deal, and my response, please see Bernanke's "Helicopter Drop" Hits Finland; Prime Minister and 70% of Finnish Support "Free Money"; Dauphin Canada Revisited. Wealth Redistribution In response to my post, reader "MH" sent two emails, the first asking question about wealth redistribution and the second citing Hayek. Here is the first email. Hi Mish,On Guaranteed Wages For starters, the idea of a guaranteed "living wage" type of proposal, in a wealth redistribution scheme of sorts is about as far away from libertarian as one can get. So yes, I am sure I have this correct. Before I replied, "MH" next sent a link to a Telegraph article by Jeremy Warner who writes Paying all UK citizens £155 a week may be an idea whose time has come. It was Warner who cited a Hayek reference. And just in case you are tempted to dismiss the idea as socialist nonsense, this is what Friedrich Hayek, intellectual godfather to the Thatcher revolution, had to say about it in Law, Legislation and Liberty.An Idea Whose Time Should Never Come Amen to this: Guaranteed living wages are a time whose time should never come. In response to the second email, I replied "It will never stop where you suggest. Anyone who gets less than they do now will want more. And resentment will build that the rich get as much as the poor. The guaranteed minimum will be seen as not enough by proponents of a 'living wage. Once started, people will vote for more and more and more. Taxes will rise and the wealthy will flee. It cannot possibly work." And to that I now wonder about immigrants. Does it apply to them to? If it does, expect to see an onslaught of immigration that is orders of magnitude greater than what's happening in Germany right now. And what about birth rates? Does one really want to give everyone the same amount of money as Finland proposed? I am quite sure I am missing things, and likely many things. But this is precisely the kinds of mishaps that will occur when one goes willingly and blindly against free market ideas. No legislation of this sort in history, regardless of good intention, has ever worked out. Please don't tell me about Dauphin, Canada, as I rebutted that silliness in my first post. Mises or Hayek? After I responded to MH, I pinged my response to Pater Tenebrarum at the Acting Man blog. He responded "I agree. And by the way, Hayek was severely criticized by other Austrians for the stance he took in that particular book." Tenebrarum referred me to Why Mises (and not Hayek)? by Hans-Hermann Hoppe. It turns out that not only did Hayek go off the deep end with guaranteed living wage nonsense, he also went off the deep end on military conscription! Hoppe writes ... According to Hayek, government is "necessary" to fulfill the following tasks: not merely for "law enforcement" and "defense against external enemies" but "in an advanced society government ought to use its power of raising funds by taxation to provide a number of services which for various reasons cannot be provided, or cannot be provided adequately, by the market." (Because at all times an infinite number of goods and services exist that the market does not provide, Hayek hands government a blank check.)Freedom and Coercion On forced servitude, Hayek had this to say "If the known necessity of paying a certain amount of taxes becomes the basis of all my plans, if a period of military service is a foreseeable part of my career, then I can follow a general plan of life of my own making and am as independent of the will of another person as men have learned to be in society." Supposedly it's OK to involuntarily forced into servitude to fight wars in which you do not believe, if only it's for a "period of time". No libertarian on the planet would agree with that. Indeed, no one should agree. Forced conscription to fight wars is nothing but slavery. Hayek went off the deep end in more ways than one. Is it any wonder that it's Hayek and not Mises who gets any mention? Mike "Mish" Shedlock |
Back in the Saddle, Just in the Nick of Time Posted: 12 Dec 2015 11:18 AM PST For those looking for a bit of humor this weekend, here's an article for the "just in the nick of time" bucket. Back in the Saddle Bloomberg reports writes Ally Returns to Mortgage Business Two Years After Total Exit. Ally, whose defunct GMAC Mortgage unit was one of the biggest lenders of subprime mortgages in the run-up to the 2008 housing bust, will inch back into direct home loan originations next year, the bank's Chief Executive Officer Jeffrey Brown said this week at a Goldman Sachs Group Inc. financial conference in New York.Timeline of Ally's Actions Housing wire presents an interesting timeline of Ally's actions in Ally Financial Getting Back Into Mortgage Business.
Just in the Nick of Time Just in the nick of time, with housing prices recovered and the global economy slowing, and therefore risk is the highest in years, Ally hopped back in the saddle. Don't worry, they won't securitize the loans, and they won't service them either. Instead they will hold all of the default risk themselves just as home prices have slowed if not stalled. That people walk away from mortgages but not car loans is no longer a concern. From here on out, home prices will only go up. By the way, people will walk away from car loans if they lose their job. Need to Do Something "But they've got to do something, because they won't make a decent return if the business is limited to making car loans," said Jeff Davis at Mercer Capital. Ah yes, let's take on more risk now, just as home prices have recovered, the Fed is hiking, numerous warning signals on the global economy abound, and losses on subprime autos are poised to mount. Fate Ally's timing for the next downturn could not possibly be better. I pinged the above articles to Pater Tenebrarum at the Acting Man blog under the email title "Just in the Nick of Time" and he pinged me back with "The fates have a strange sense of humor". Mike "Mish" Shedlock |
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