Tom, what about approaching it from the other end.

Put a delay on bonuses for management. Whatever bonus gets offered to a manager of a publicly owned corporation, give him 9% of it now and 91% in ten years—unless in ten years the BOD at that time chooses to cancel it after all. In case of bankruptcy, payment of previous bonuses would have last priority among creditors.

Similarly with stock options. If the corporation gives an option to an employee, it should give him the option to buy 9% of his stock in say one year, and 91% in ten years.

This would have obvious benefits for retiring employees—they get their money later when their taxable income is less. And it has obvious benefits to corporations, their payments are delayed. And also if ten years later the company is doing badly, it can just refuse to pay.

On one level, more effective regulation might have stopped this bubble. On another level we would have gone into recession earlier without the bubble and if one had not happened naturally it would have been necessary for the Bush administration to invent one.

This was a particularly appropriate bubble for our needs. If we had a bubble in something that could be imported, more of the money would have left the country contributing to the trade imbalance. But we hardly import houses at all. (We import some canadian lumber etc.) So it provided jobs for americans more than most other bubble possibilities would have.

Better regulation might have prevented it, but if there had been effective regulation then it would have been necessary for the Bush administration to deregulate it.

That’s leaving aside the question of whether any realistic regualtion could in fact have prevented the bubble. But the essential point is it’s probably not correct to see regulation as exogenous here.

How much explanation do you need? The same criminals are still running the US government as a whole. How many years of public unrest did it take before they dumped Rumsfeld? Why would they throw anybody off the troika at this stage in the game?

This in no way explains why the same “experts” who were instrumental in creating and nurturing the crisis are STILL in the driver’s seat offering “solutions”, while those who were correct in their assessments remain marginalized. Why does Al Capone have seat on the Chicago Crime Commission?

Much easier during a depression when the negative aspects are already present. When the sugar industry in south louisiana is already dead, there’s not so much problem about protecting it.

This is tricky. In the case of the USA, it did fit the government’s goals of increasing home ownership, especially among non-traditional home owners.

I agree that it fit the government’s goals. I disagree that the Bush administration gave a damaged rat stomach for increasing home ownership as an end goal.

The Bush administration wanted a bubble they could sell to foreigners. With our trade imbalance they needed foreign “investment”.

Like-wise, when one-third of all jobs in South Louisiana are, directly or indirectly, tied to the sugar industry, the interest in preserving those jobs is highly intense, concentrated, and in the here and now, Candy eaters and other users of sugar, while more numerous, are more diffused and the small increase in the cost of any individual item is only a minor irritant/inconvenience to an individual—but the keeping of low-cost foreign competition from competition in the US is a life and death issue for South Louisiana.

Thus seen from the above example, any program/course of action in which the negative aspects/costs are highly concentrated and front loaded and the positive aspects highly diffuse over time and space—is doomed to failure.

This is tricky. In the case of the USA, it did fit the government’s goals of increasing home ownership, especially among non-traditional home owners. An admirable goal, but not necessarily an implementable one.

The people who got caught by it get upset that the government stopped it before they got their money out, but most of the citizens just feel glad they missed out on the scam.

Only if they recognized it as a scam. I remember a rash of one term governments that used interest rates to squash inflation some 20-30 years back. They were successful as there was no resurgence of inflation. However, they were generally viewed as having induced a recession for no good reason. Most citizens will not recognize that they averted catastrophe. (And there’s still debate as to whether there was a catastrophe in the offing.)

Improvement. Cost them big time later on. Something does not add up here.

Admittedly, I should have said “perceived improvement”.

You could say the same thing about heroin except that people think it isn’t an improvement. Though people who first get addicted to it do feel like it is. Is that a good analogy?

Not bad :-). However, it would be closer if the vast majority viewed heroin as a unmistakable good.

“Registered Economist”

I think the idea is a little harsh :-), though some attempt to hold economists accountable might well be in order. However, there are three flaws.

One, predicting the outcome of a policy is pretty much like predicting the weather. There are approximately a zillion unknowns, so for any given policy there’s an almost infinite number of outcomes, although many far more likely than others. When I say there’s a 90% chance of success, do I get punished for failure, even when I predicted it should occur 10% of the time?

Two, let’s be clear here. The net effect will be to increase the homogeneity of opinion among economists. It requires real arrogance to be so certain that you’ve seen what no other economist in the world has seen that you’re willing to risk (insert penalty here).

Three, these events occur so infrequently, the odds that you have more than two such events in a given career are not high. That strongly reduces the chance that being correct about one thing makes you more likely to be correct about another (and thus worth listening to).

I will say, by the way, that your sugar example is an example of where the government can enact policy that is not in the (perceived) best interest of the consumers. You can get away with a lot and not get punished as long as the perceived cost is not too high.

However, in the end, large scale comparisons will get you. There’s no way to get around that median after-tax incomes in the rest of the developed world are about 2/3’s the American levels. When that’s thrown in your face, courtesy of the media/internet/better communications every day, of course your relative wealth drops like a rock even if your doing well compared to your physical neighbours.

That’s what makes low efficiency, high safety policies so hard to execute in the long run.

Here is a wicked idea that I like a lot. Currently economists are not in any way held responsible for their economic claims. I want to change that.

First, I want the government to set up registration for professional economists. There should be no qualifications required, you just sign up if you’re willing to take on the responsibility. Pundits of all sorts can register—academic journalists, journalists, bloggers, whoever. If you register you are entitled to put “Registered Economist” by your name when you make predictions etc.

As a registered economist, when you write in favor or in opposition to an economic plan of any sort, you have the obligation to say “This is a ponzi scheme” or “This is not a ponzi scheme” meaning that it must collapse if it fails to grow fast enough, or that it can survive an indefinite period without growth. You emphatically must answer this question if you are asked it.

If you are later found to have gotten this question wrong, you must serve one to twenty years in prison, at the discretion of the judge. If at some later time it is determined that you were right after all, any remaining jailtime will be cancelled and you will receive compensation for your unjust imprisonment.

People who aren’t registered economists can say whatever they want. But registered economists bet their liberty that they’re right. They will be more trustworthy than pundits who have nothing riding on it.

It isn’t necessary to predict when a ponzi scheme will fail. Saying it’s a ponzi scheme is enough. People can invest in known ponzi schemes hoping to make their money before it fails, but that’s their own lookout. If enough people correctly believe it’s a ponzi scheme, somebody is going to knock it over for their own purposes, at their own time. Probably sooner than later.

Why should anybody pay attention to a pundit or economist who didn’t have “Registered Economist” after his name? What good is an economist who doesn’t stand behind his conclusions?

There are lots of counterexamples. Like, the sugar lobby has gotten subsidies for US sugar and trade restrictions on imported sugar for longer than I’ve been alive. When I was a kid there were Reader’s Digest articles about it, and it keeps right on chugging along. I guess people don’t feel like it hurts them enough to complain much? Similarly with shoes. I was surprised when I visited france and found shoes that would cost $100 in the USA on sale for $20. Eventually we found ways around that. We imported shoes that were almost complete and did the last little bit of work here and labeled them Made In USA, etc. But for a long time people paid far too much for shoes in the USA and did nothing about it even though Reader’s Digest exposed the scam.

So there’s something else going on.

Nowadays, with omnipresent communication and media, you are essentially living next door to people who are considerably wealthier because they’re less cautious. That makes it very hard to maintain policies that don’t have obvious constant benefits.

I want to separate this into two cases. One case, there is a small but unknown chance of catastrophe. In that case I’m not sure what to do. We can decide what risk is acceptable but we can’t measure the risk of catastrophe. My general thought would be to set up safe enclaves and subsidise them, so something will be left if the catastrophe comes.

The second case, the catastrophe is nearly certain but we can’t be sure when it will arrive. This is the ponzi scheme case. I want to generalise that, I’ll call it a ponzi scheme if for any reason you get a catastrophe when the snowball stops growing. Not just when earlier investors are paid by the later investor’s input. If it has to grow or it fails, then it will fail because nothing grows consistently all the time forever.

I’m not certain which of these our current crisis came from. Could the bubble have slowed down without popping? If so it was not a ponzi scheme by my use of the phrase.

“If an ignorant person or an insane person incites trouble, it is the fault of authority for not predicting and preventing that trouble.” It is the government’s responsibility to prevent bubbles when those bubbles do not fit the government’s goals. Bubbles sequester increasing amounts of capital when that capital might be used much better (though at lower returns). Then they disrupt things. Not good.

There is more than one way to stop a ponzi scheme. Punishing your own citizens for participating as you say has the flaw that they will feel punished until it fails, and maybe even afterward. But a strong government might find a way to stop the scheme’s growth for a time, and if that makes it collapse—the problem is solved. Local governments, faced with a chain letter among their stupidest citizens, publish reports that a chain letter scam is circulating and that it’s illegal to use the postal service for such scams, and the thing collapses right then. The people who got caught by it get upset that the government stopped it before they got their money out, but most of the citizens just feel glad they missed out on the scam.

About US food dumped on third-world nations:
Because for the majority of non-farmers, it is an improvement, despite the fact it will cost them big time later on.

Improvement. Cost them big time later on. Something does not add up here. You could say the same thing about heroin except that people think it isn’t an improvement. Though people who first get addicted to it do feel like it is. Is that a good analogy?

I’m not saying that we should go in that direction, I’m saying that there’s an almost irresistible pressure to go in that direction.

Sure. A ponzi scheme grows, and the early investors make lots of money and spread the word. And if it gets big enough it sucks enough money out of everything else that they wither and there’s no good alternative. It seems like almost irresistable pressure, to participate in growing the bubble. It’s the responsibility of the authorities to divert that pressure. Preferably by preventing the problem in the first place, if necessary by doing something sneaky that resolves it before it gets too big.

You are assuming the actor is rational to begin with. It’s harvest time and we’re bearing the fruits of a most un-rational actor, one who sought to remove all dissent from the game. The rational actor works towards consensus by integration of opposing views; not by rote, and where possible, pre-emptive elimination of the voices he does not agree with. Of course I am totally unpatriotic for having such subversive thoughts.