On the Financial Bailout Vote and Certain Responses

This Reuters article on the bailout vote, Conservatives stand firm on opposition to bailout, gives me mixed feelings. Yes, it's good that they opposed the bailout, but the vote was a little too close for comfort. This part especially troubles me:

"Conservatives strongly oppose the rescue plan proposed last week by U.S. President George W. Bush, arguing that it amounts to government intervention in the free market and would misspend taxpayer money to help big banks."

Uh, yes, it would be misspending taxpayer money, but what La-La Land are these conservative politicians living in if they think we currently have a free market? It's good that conservatives are voting against Bush, but it still seems that they don't really understand the problem in the first place, except for Congressman Ron Paul. It was the previous interventions in the free market that got us into this situation. Remember the Federal Reserve? Fannie Mae and Freddie Mac? Subprime mortgages and fancy financial derivatives?

The article also quotes talk show host Neal Boortz as saying "I'm not particularly distressed that the bailout bill did not pass. I want to see this thing (the bill) flesh itself out a little over a period of days."

Um, what? This alleged "libertarian" simply wants a better bailout bill to be passed? How about "No bailout", Mr. Boortz? How about "Let them fail," Mr. Boortz? Are you one of those so-called "vulgar libertarians" I keep hearing about?

Oh well. If nothing else, it makes for good comedy. I suspect we will need it in the days to come.


Financial Bailout Nonsense

Okay, okay, the big news lately is about the financial bailout package Congress and the President are trying to work out. In my opinion, this is a big mistake. We shouldn't be bailing out businesses for making bad business decisions, but letting them suffer the consequences of their actions. Instead, our government wants to make everybody pay for their mistakes. "They're too big to fail", they say. Nonsense, no company is too big to fail.

More importantly is how we got into this mess. Ultimately, it boils down to the Federal Reserve's policy of inflation and artificially low interest rates. By manipulating the money supply and keeping credit cheap, the markets were led into making business decisions that would not have been considered profitable at the true market interest rate.

The housing boom is a perfect example of this. Subprime mortgages would never have happened if lenders didn't have the support and guarantees of government to back them up. But they did, so they allowed people who really couldn't afford to buy houses to buy them, and put stress on the system when these people learned the hard way that they couldn't afford to buy houses. But why bail out the lenders? Why not bail out the homeowners directly? It still wouldn't be a good idea, but the fact that they don't do it goes to show who will actually benefit from the bailout--not the end consumers, but the financial firms who made the bad decisions.

Fannie Mae and Freddie Mac are GSE's that wouldn't even exist on a true free market. On a free market, businesses that make good business decisions are able to win more consumers (by satisfying them) and earning bigger profits that can be reinvested in the company to improve or expand the company. Businesses that make bad decisions end up losing money (i.e., they are failing to satisfy their customers), which tells them they need to make changes or else go out of business. The assets of businesses that go out of business are purchased by better-run businesses that then put those assets to better use. That's how it's supposed to work.

The bailout will reward businesses for bad decisions, and punish the better-run companies for not making the same bad decisions. The bailout will do that by the same means that got us into this mess in the first place: increasing the money supply and keeping interest rates artificially low. That's not going to fix the problem, merely prolong the problem. The market needs to correct for the bad business decisions, not prolong the bad business decisions.

The financial crisis is the direct result of government intervention in the economy, not capitalism, and the bailout is more government interventionism and will not solve the problem.

Of course, this is all my opinion and assertion. For more extensive information, check out "The Bailout Reader" at the Mises Institute website: http://mises.org/story/3128


Low Carb Diets

So I looked into the Atkins and other low-carbohydrate diets. It makes a certain amount of sense to me, although I'm not sure if it really works. After reading one of the Atkins books, I decided to try a low-carb diet, although I'm not specifically following the Atkins plan. I have lost some weight, and I'm back under 200 pounds, but I've plateaued at 190 pounds. At 5'7", I figure I should be closer to 160 than 190, but I'll settle for feeling good about myself.

What I find interesting about Atkins is the idea that carbohydrates are what make you fat, not fat or just too many calories. That is, the body uses carbs for energy, and any carbs that it doesn't need for energy are turned into fat. While food fat and proteins can be used by the body for energy, the body supposedly doesn't turn the excess into body fat, but simply flushes them from the system as waste products. Thus, if you cut back on carbs so that you eat less of them than you need for energy, then you should lose weight, and the energy requirements not fulfilled by carbs will be made up by protein and fat in your diet.

Is it true? I don't know, but like the cartoon cat said, "Dat sounds logical." I've been doing low-carb for a little over 3 months, now, and while I have lost some weight, I still haven't lost as much as I expected to. It's true that my, ahem, solid waste has increased, so I suspect that my body really is passing excess fat and protein from the body.

And of course, I have other caveats: I'm not counting calories or even carbs, and I weigh myself rather infrequently, so while I've certainly cut out a lot of pasta, bread, potatoes, potato chips, candy, and other sources of carbs, it's still possible I'm getting more carbs than I think I am. And as a desk jockey, I don't really get too much exercise, although I take the Kickbike to work every day, and on weekends I have a friend that likes to go walking. So it's entirely possible I'm not sticking as close to the diet as I ought to be.

If the above explanation for low-carb diets isn't true, then what is true about low-carb diets? One explanation is simply that high carb foods are less calorie-dense, while low-carb foods are more calorie-(and nutrition) dense, and thus, you fill up faster eating the low carb foods. That is, you'll feel full faster by eating steak and broccoli than by eating pasta and potatoes. Maybe so, but it's been hard for me to notice any difference like that in my own personal experience.

Another 'explanation' comes from the Paleo diet, a low-carb variation. Basically, the Paleo diet suggests that early man didn't have easy access to high carb foods, and thus, his body was more adapted to a low-carb diet of meat, eggs, nuts & berries, and the like, and not enough time has passed since the development of agriculture for humans to adapt to a higher-carb diet. Possible, but I tend to be skeptical of evolutionary explanations for modern issues.

However, the Paleo explanation does bring up another interesting angle. The human population started drastically increasing with the development of agriculture. Why? Agricultural farming was a productivity increase--people could start counting on a steady supply of cheap food and had to worry less about when they could eat again (note that another aspect of Paleo dieting is intermittent fasting, as early man couldn't always eat regular meals). With agriculture came the development of "staple" foods, or foods that provided basic sustenance to the population: grains, rice, potatoes, beans.

Thus, the development of agricultural staples, along with the low-carb explanation, helps explain obesity in poor people in modern developed societies. When I was younger, it seemed to me that fat was cheap. I was wrong, but not completely: carbs are cheap, not fat, and poor people who stretch their food budget with excessive carbs may tend to be fatter than normal.

Dr. Atkins also suggested that our modern, high-carb diet is responsible for the increase in Type 2 Diabetes in our society. High carb foods tend to also have a high glycemic index, which, when consumed, tends to increase the production of insulin in the body to deal with them. This tends to put stress on the body and increases the chances of insulin resistance, and insulin levels being all out of whack, and thus, diabetes. Yeah, I'm not being scientific in my explanation, but check out an Atkins site for more detailed info.

Simply put, carbs are cheap, but the body doesn't handle them too well. Thus, a high-carb diet results in poor nutrition, obesity, and diabetes. Several of these links seem to go together, so I think it makes a lot of sense. It certainly makes more sense than the gobbledy-gook the nutritional 'experts' keep feeding us. Does anybody really believe the Food Pyramid is the key to a good, nutritional diet? What's lacking is good, solid proof, either way, so the jury is still out.

Nonetheless, even if you don't want to start a low-carb diet, it probably wouldn't hurt to cut back on the junk food in your diet--we all probably get way too much sugar in our foods, especially in the processed foods. And sugar is a carb. But if the low-carb people are right, we have much more to fear from carbs than from fat.