What The Torah & Talmud Teach About Moral Hazard (Bailouts)

Economy, Free Markets, Hebrew Testament, Judaism & Jews, Justice

In “Jews Against Judaism,” I highlighted The Jerusalem Institute for Market Studies’ efforts to educate about Judaism’s philosophical affinity with the free market.

Now JIMS, with which I am affiliated, has inaugurated the Center for the Study of Judaism and Economics.

Delivering the inaugural lecture was Nobel laureate economist Professor Robert (Yisrael) Aumann. Professor Aumann addressed the role ascribed to economic incentives in the Torah and Talmud—for example, “unfettered price competition” and the imprimatur to collect on loans.

Professor Aumann also talked about the many discussions of the moral hazard problem in the Torah and Talmud, and how moral hazard is currently at the heart of the faulty proposals currently being offered to solve the current financial crisis. The term moral hazard is used by economists to describe the fact that when an individual, a firm or an institution is “insured”, there is an incentive to act less carefully and take harmful risks.

This should not surprise anyone who appreciates the centrality of justice in the Jewish tradition. What are economic laws if not natural laws? And what is the natural law if not immutable and just? It follows from this that to adhere to the economic laws of nature is to be faithful to truth and justice.

“Justice, justice shall you pursue.” (Devarim 16:20)

The Child Is Back

Barack Obama, Elections 2008

The inspired Gerard Baker of the Times spoofs the Anointed One for the second time. Baker’s latest installment, sequel to “He ventured forth to bring light to the world,” commemorates the crowning of The Kid.

“THE CHILD RETURNED FROM HIS TRAVELS – AND FINAL BATTLE WAS JOINED

An epic pilgrimage and miraculous signs were not enough to convince all doubters of the anointed one, who would soon be forced to face his demons

BY GERARD BAKER

‘He ventured forth’: read the first chapter

Despite the great wonders he had worked, the peace he had poured on the troubled waters, and the signs he had performed in Babylon and Jerusalem, there were some, yea even among his own countrymen, who refused to believe that he was the Anointed One.

Even when he joined hands with the Great Preacher Joseph of Biden, called the Blowhard, a wise man of many, many words, who had served in the Senate of the People for more than five generations, his enemies still strove to undo him.

In the summer, he travelled with his new friend Joseph to the Mile High City to speak to his followers. Four score thousand came to hear the word and their hearts were filled with joy and their spirits were lifted by his voice.

But despite the multitudes, there were still some among the Pharisees who secretly despised him. The followers of Queen Hillary muttered among themselves that he had defiled them with his disrespect. The people began to look for another leader.

And lo, in the west there appeared a rival, John, the Son of Cain. Now McCain was a great warrior. He was rich in wisdom and great of age, being, it was said, 936 years old. He had suffered sorely many years before in a war against the Asians. Eight years earlier he had bravely challenged the Evil Pharaoh Bush, but had been castrated by Bush’s feared henchman, Rove. He was straight of talk and, mounted on his trusty steed, a maverick, he began to find followers.

Being advanced in years, McCain needed a mate, a loyal follower who would succeed him when the time came for him to return to the Lord.

He had first considered Joe the Lieber-Man, but he was not of the same tribe as himself, but of the tribe of the Donkey. The tribesmen of the Elephant forbade him to make common cause with this renegade and so McCain sent his men far and wide to find another mate.

And they found him a woman, Sarah, from the North Country. She had dwelled long among the nomads of Wasilla and the North Slope. She was fair of face but unknown throughout the whole land, except among the Moose and the Caribou, who had grown to fear her. At first the scribes scoffed at Sarah. They mocked the way she spake and the vast family she had borne – her children were more numerous than the grains of sand in the desert or the stars in the sky.

But the people followed her and saw that she was good. Great crowds went out to meet her when she travelled with John. The word began to spread among the men of Gallup and Ipsos and Zog-Bee that they, and not the Child, might be the Chosen Ones.

And the Lord saw all this and fell into a righteous wrath at the people’s blasphemy. Did I not lead you out of slavery? he cried. Have I not shown you that it is the Child who is to save you from your exile in the House of Bush?

And he resolved to send down a great plague among the people of the Promised Land so they would understand their error.

The plague began in the valley of the subprime, smiting houses that had been purchased with money lent at unusually low interest rates, made possible by the foolish procurator Greenspan. The plague spread quickly across the land; and lenders and borrowers alike were laid low.

And it came to pass that a group of brothers, Lehman by name, an old and revered family, fell upon hard times because of the plague and they resolved to take themselves off to the Treasury. The Lehman brothers journeyed to the Treasury and fell on their knees and begged for help, even offering up in penance their asses. But the Treasury refused to heed their pleas, sent them away and told them to take their sorry asses with them. And with that, terrible signs appeared in the sky: Overnight Libor was elevated before the money changers’ eyes. Spreads on commercial paper widened as though in an earthquake, and all over the world the rivers of credit ran dry.

In great distress the people looked to McCain for help but he was confounded and had no answer to their pleas except for assurances that their fundamentals were sound, which the people did not want to hear.

All along, the Child smiled warmly and said little but promised salvation, and the people listened.
And it was about this time too that Sarah from the North Country was transformed. She began speaking in tongues. Sitting down with the Scribes of the media she was asked questions but replied in the language of Gobble-de-Gook and the people said among themselves: “What on earth is she talking about?” She no longer wore her simple sackcloth and parkas but appeared before the crowds in the finest robes from the stalls of Neiman-Marcus and Saks Fifth Avenue.

The plague quickly smote the enemies of the Child and sowed confusion among the people. The House of McCain began to spring leaks and not even the handiwork of the great Joe the Plumber could make it whole.

And so the final battle was joined and the Child prevailed easily, in fulfilment of the Scriptures. From the mountains of the west to the great plains, to the piedmont and to the orange groves of the Gulf, a great wave lifted him up and propelled him to the threshold of the Executive Mansion. Only the poor, bitter people of Appalachia, clinging to their guns and their faith, refused to listen to his word.
At last, when the scale of his great victory became clear, the rulers of all the world fell to their knees in unison and praised God, singing.

“Obama in The Highest”.

Stop Stimulating In Public

Barack Obama, Economy, Inflation, Political Economy

Reports the Wall Street Journal:

Mr. Obama’s team is putting together a new economic stimulus plan containing more than $500 billion in federal spending and tax cuts over the next two years, Obama aides and advisers said Sunday. That package would be far more aggressive than anything envisioned during the campaign.

My admonition against the last such lewd display obtains:

“ To revive flaccid financial markets, American politicians are now groping obscenely for their ‘stimulus packages.’ It’s an ugly image. It’s also worse than useless. They might as well be gesturing lewdly like crotch-grabbing rappers, because that’s as likely as their economic package is to get the country out of economic straits. …”

Read on.

Keynesian Commies

Economy, Federal Reserve Bank, Inflation, Political Economy, Socialism

The American economy is being socialized. The government has nationalized the mortgage market and a good chunk of the investment banks. No principled argument is offered against the government acquiring a share of the auto industry. The debate hinges only on whether the government’s growing “investment” portfolio will solve the “problem” or not.

Government intervention in the economy invariably results in a complete takeover. Consequently, once it was agreed that this one industry, GM, was too vital to fail, the government went on to specify the conditions of the baleful bailout. The political ponces—the people who do nothing but sap the productive economy—want to see a viable business plan, no less.

The public and the experts don’t think to question the State’s financial savvy–its ability to “plan” a viable industry. Where is the money coming from—this too is never asked. The soundness of borrowing or printing funny money out of thin air to implement the grand plans—this is never doubted. (Except by Ron Paul.)

Public works and big-time spending by government are planned as ways to get the economy going. Even Lou Dobbs, The Independent, fails to question Paul Krugman, the Keynesian commie, as to why more credit expansion and spending is key to recovery.

Note: Every economist touting the Keynesian twaddle of spending ourselves out of the recession is speaking the language of politics, not economics. The laws of economics are natural, immutable laws. The government, like the average Joe and Jane, can’t spend itself out of bankruptcy. (Try suggesting that to your banker, won’t you?)

With its capacity to inflate the economy with worthless fiat money, all the state does is pacify some politically powerful debtor sectors, to the detriment of politically powerless creditor sectors and other solvent citizens. At least we can hope that’s all they’ll do: The difference between Generic Joe’s insolvency and the government’s is that the first will not bring down the entire country.

A good guide to the perplexed is Mises.org’s “Bail Out Reader.”