When forming my value judgments regarding “moral vices”, I like to listen to the Dubliners.  Having a proud Irish heritage helps in this regard, and I feel that they raise a number of important points regarding addiction to common commodities I can relate to (alcohol, women, cigarettes, roving).

Listening to their songs recently, two underlying points suck out – points I felt would be useful in informing part of the debate on alcohol regulation.

1.  Wild Rover(ing), experience, and maturity

Running through my head early in this post is the song “Wild Rover“.

Supposedly it was initially a temperance song, but its ended up being related to drinking.  I can understand how this double meaning has come about – and I think that the drinker’s interpretation carries a greater grain of wisdom.

The song tells us of a man who, earlier in his life, drank too much, caused harm, and was generally anti-social.  However, either through luck or hardwork he has aquired wealth.  Although this wealth is alluded to as physical wealth it is possible to interpret this as some form of mental wealth in my opinion.  He has now learnt to steer away from drinking and other anti-social behaviours and aims to lead a mature life.

Those that push temperance would call drinking the main demon of this peace – therefore he stopped drinking and is a better man.  Therefore, they believe that taking away the drink would make us all more respectable citizens.

Even if we are, for some reason, trying to push a situation where people are more mature, banning alcohol is not the only conclusion from this man’s life journey.  It was the fact that he experienced hardship, the fact that he saw his weakness and dealt with it, that made him a stronger man.  In that sense, the experience of drinking and the realisation of mistakes have lead him to a situation where he now can be mature and responsible.  In the absense of drinking, he would have shown immaturity in other ways – and some of these ways may have been MORE harmful or may have taught him less about who he is.

Ultimately, wisdom is not something that be passed down from on high – it comes from experience.  Teaching people about the costs of their actions and how they influence the outcomes of other people are valuable things – it is knowlege that can help this process.  But only through experience can people truly learn “maturity” – it is not something society can force on people.  Hell, we all make poor choices – and expecting legislation can be introduced to prevent that is at best naive and at worst domineering.

2.  Alcohol vs generic social pressures:  The desire to regulate the desire

Even so, alcohol is a costly substance.  This is something we can all agree on – and something that ‘All for me grog’ makes patently clear:

Through addiction to alcohol this man has lost everything.  Not only that, he bet his wife and sold her off!!!  This has to be one of the most extreme cases of alcohol addiction, and I do find it personally abhorent.

However, I would like to point out that pretty much all the costs are internalised – apart from the costs to his dear wife.  Even then though, she did choose to be with him – and we shouldn’t really set policy based on the fact that some people make dumb choices with regards to their own welfare right …

Now we can all agree that it sounds like alcohol has ruined this man’s life – or more aptly that he ruined his own life with alcohol.  However, what is the best way to treat this?  Restrictions on the time of sales and additional taxes (so that he stocks up and starts drinking earlier in the day and has to sell all his positions even sooner) or additional spending on the treatment of alcohol addiction so he can pull his way out.  I’m probably in the later camp.

I would also add that this is not the only form of seemingly mad addiction the Dubliners looked at, there was also the case of the ‘Black velvet band‘.

In this song, the man throws away everything on the back of his crazed passion for a woman.  In fact, this situation leads to an actual externality – a guy is pickpocketed.  Furthermore, the man facing this addiction ends up in jail with nothing.

The outcomes in this song also seem very poor, however we don’t see legislation against falling in love with attractive, and badass, women.

Does this mean that we are willing to treat different decisions inconsistently just “because” – or does it mean that, once they are finished with alcohol regulation they are going to regulate the women/men you are allowed to date …

“They are not cranking up the printing presses,” said James Nixon, co-chief European economist at Societe Generale SA in London. “This is a much more targeted, surgical approach. They buy the duff stuff that no one in the market will touch.”

The point is to buy stuff that would otherwise be good, but is only struggling because of the crisis – not to actually buy duff stuff.  The intervention is supposed to prevent a run on good assets – not to keep bad assets in business.  Of course, in practicality they will have to buy some duff stuff, but saying that this is the goal is an exaggeration.

Still, this isn’t my main point.  My main point is that sovereign debt is a different beast to private debt.  If the ECB starts buying up government bonds, and there is no plan to get government budgets under control in the medium term, then the result is high levels of inflation – and probably the collapse of the Euro Zone.  The second point doesn’t concern me – the first point does.

With private debt we had a response when effective interest rates exploded upwards.  Will we get the same response from domestic governments in Europe?  I don’t know.

We now see herd behavior in the markets that are really pack behavior, wolfpack behavior

Relevant picture:

Shirt source.

My question as a New Zealander who has experience the vicious swings in currency myself – why protect the value of the euro?  The euro is falling to help buffer the painful adjustment Europe is about to go through given their banking crisis, and they want to waste money trying to prevent this?  I don’t understand. Note: Krugman seems to feel a similar way.

It’s not quite certain yet what caused it, with some blaming an “erroneous trade”, possibly via human error or a computer glitch. It seems the initial fall, whatever the cause, then triggered many more sells as paranoia over the global situation, particularly Greece, grew. Crazy!

This makes sense, previously people purchased the junk on the basis that someone else would pay for it – high return low risk!  Now that they have to face the real risk profile they are like “f**k that”.  However, Bloomberg (or at least David Kovacs) stated:

The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk(y) assets

No s**t.  An asset appeared low risk, and now it is high risk, and the expected return is (at most) unchanged – so the risk adjusted return is lower.  No wonder they want to sell.

Now we are in a crisis, and if there is a run on good quality debt because of concerns we have to do strange things – sure.  But we need to come up with a system that rips this moral hazard out of the system.  It is the moral hazard that helps to drive crisis after crisis ultimately.

One from me (also here) and one from Patrick Nolan.

Feel free to comment about them here.

The decision to pay a wage, or a bonus, is voluntary.  Given that these bankers are creating sufficient value through their work to extract these wages/bonuses why shouldn’t they get their wage/bonus.  They are generating sufficient “wealth” through their activities – or else they would i) get undercut by other labour, ii) not get paid by clients.

Yes the organisations that got bailed out should have to pay back their bailouts.  Yes, we should try to avoid the current moral hazard problem that could exist in the industry (on the basis of the bailouts mind you – which is government intervention). However, shouldn’t the solutions to these issues be focused on the actual issues – rather than arbitrarily attacking bonuses (which will simply be delayed to avoid the tax for those that can afford it).

If we think that the price paid for the financial labour service is out of whack because of some sort of direct market failure then tax it.  If we are trying to work out optimal tax and we find that the supply and demand for these services is perfectly inelastic, potentially shift the tax burden.  But that isn’t what the authors are doing.  They are accusing bankers of being the equivalent of organised crime and then stating that we should punitively attack.  I’m sorry but I find this attitude simply abhorrent.

Seriously, if you have something specifically against bankers, lets apply the logic somewhere else:

UK is going to arbitrarily tax teachers at 50% because they are not “generating real wealth” they are just “rent seeking”

After all, teachers don’t build physical things they just provide a service like the bankers.  If we are going to attack bankers for there being a credit crisis, why don’t we just start taxing teachers more because we “feel like educational standards are too low”.

Update:  Stumbling and mumbling also believes bank bonuses should be hammered.  However, he at least paints his argument out in full and so deserves to be heard.  I don’t agree, but that isn’t really the point

Now US, step up to the plate and dump yours.  Or are we going to move into a situation where the United States is more protectionism than Europe …

Fifa’s regulations on the status and transfer of players state in Article 17, paragraph 4: “It shall be presumed, unless established to the contrary, that any club signing a professional who has terminated his contract without just cause has induced that professional to commit a breach. The club shall be banned from registering any new players, either nationally or internationally, for two registration periods.”

How will this ban affect the incentives of current players registered with Chelsea? The club, being unable to sign new players, will be desperate to hold on to what they already have. The current players, knowing that the club cannot look elsewhere to replace them, will be in the driving seat when it comes to contract negotiation as they can effectively ‘hold-up’ the club to meet their demands.

The precedent for such bans being enforced is not strong, however, with Roma having their ban reduced to one summer transfer window (arguably the less important transfer window in a season) and Swiss club Sion currently appealing their two window ban.