Charles Wheelan, Ph.D. The Naked Economist

Yahoo! Finance User - Sunday, March 30, 2008, 4:44AM ET  Report Abuse

• Overall: 4/5

At the risk of sounding like a typical stoner with a cause, I'd like to make an attempt to get one of my favorite economists and thinkers to consider this question in a way I may not have yet considered. Milton Friedman, referenced in this article as being brilliant in asserting "individuals know best" has signed an open letter to the US government calling for a real debate on the costs of marijuana prohibition. You may doubt we're ready for Friedman's small government, but are we ready to accept that smoking cigarettes has NO positive health implications, while a large portion of the medical community recognizes the power of marijuana. As a long time reader of your blogs, a former economics instructor and a generally interested party, I scrolled anxiously to the bottom of the list, wondering if you had also signed this letter and/or weighed in on the report. My motivation for writing this comment on the very low chance you may read it and respond in any fashion is not that of a typical marijuana user, but because I've witnessed lives stolen because of marijuana's Schedule I status. From this, I wondered if prohibition was worth it from a human perspective. After reading Naked Economics for the first time and doing follow-up research, I struggled to find a justification for marijuana prohibition based on any free market principles. I still struggle to find such a justification, but at this point much of my view may be clouded by personal experience and predisposition. The point is simple: please weigh in, in any way, because your opinion and ideas are of great importance to me. I have found your arguments to always speak to my rational core. Here are my points to be disputed/corrected/confirmed: 1) An estimated $7.7 billion a year would be saved from eliminating government expenditure on enforcement and prohibition, primarily at a local and state level. (I'd argue this money could help education tremendously, and narrow our skills deficit you described in an earlier article.) 2) An estimated $2.4-$6.2 billion a year would be generated in tax revenues. Sin taxing marijuana seems more than reasonable, so the higher end of this estimate is also a reasonable expected outcome. 3) Since 1992, an estimated 6 million Americans have been arrested and tried for marijuana possession or sale. While this remains a relatively low number to some, this only represents those who are arrested and tried. In my lifetime I've met judges, teachers, doctors and laborers alike who consume marijuana in a safe and responsible manner. Approximately 10% of the marijuana consumers I have known were actually arrested and tried. (I will admit, I have sought out these types of people since the first time I witnessed a friend's father (a judge) and his friend (a trial lawyer) smoking a joint while having a completely rational and intelligent conversation. My approximation of 10% is skewed by the fact that I attempt to meet and converse with people who responsibly consume marijuana in different forms.) As a person whose opinion I truly value, I truly wish to know how you feel about this issue. For anyone who wishes to chide or label me, feel free...I've never felt hurt by people being willing to halt their own lives to observe and comment on mine.

Arbollito - Tuesday, March 25, 2008, 4:36PM ET  Report Abuse

• Overall: 4/5

Great article! It is nice to see someone finally explain the two points of view without bringing the political parties into it. One of the comments here states that the government should not do anything about those who borrowed "stupidly" because in a sense that would make it so that those who did nothing wrong would pay for those who did something really stupid. The comment was very good at pointing out the fact that the commentor had done everything right with their home purchase and therefore they shouldn't have to pay for someone who had not. Unfortunately that is like going to your parents after your younger brother has burned the house down and saying that you didn't do it so therefore you should still have your room to play in. The main problem with that thinking (I am rational so treat me that way and everyone else differently) is that it doesn't take into account the ripple effects that those poor decisions have. If someone makes some poor accounting decisions at a company then not only is that person punished, but the employees and investors also suffer. Just as the article stated: The government is for the "people" (notice the plural) it can't treat some as irrational adolescents and some as rational adults. All the government can do is pick in what areas it feels the majority are rational adults and what areas we are just plain stupid and try to protect us from stupidity while allowing us to think we are all adults.

niknar2003 - Sunday, March 23, 2008, 8:00PM ET  Report Abuse

• Overall: 1/5

We may get the gov't we deserve - we may not. The gov't cannot protect me from itself.It is goofy to think that 'they' could have done something to prevent the housing bubble. Give us cheap $$$ and we're going to do something with it. The fricking g-men were throwing money at us. Some, individuals and banks both, were stupid. And as Ron White says "you can't fix stupid" So here we are. I sold my house before the bust and am traveling as a homeless guy with a PO box until the right time comes around again.

JOHN - Thursday, March 20, 2008, 10:01AM ET  Report Abuse

• Overall: 5/5

I love your column - keep up the great work!

Guy - Saturday, March 8, 2008, 7:02AM ET  Report Abuse

• Overall: 5/5

Yet again, Dr. Wheelan takes a balanced and rational view of the role of government in our lives. As anyone knows who has spent 5 minutes reading about his book, he is an economist who believes strongly in free markets. But he is not a religous fanatic about this - he also understands that government has a role to play. Conservatives that care about the balance of power and basic justice know that government has to act as a balance against powerful corporate interests that will abuse the system for their own selfish gain. Teddy Roosevelt knew this, and smart policy makers knew this after the crash of 1929. We would not have the strong market we have today if it were not for the creation of the SEC and the 1933 and 34 Acts, all of which were denounced by hardcore Republican conservatives as excessive regulation by the government. Guess what, it worked! In the end, that's what matters Carefully crafted banking regulations that would have prevented banks from issuing "no doc" loans are granting mortgages to people paying no money down with bad credit could have significantly reduced the pain the economy is feeling now. Neither conservative or liberal ideas have a monopoly on truth. The best leaders and thinkers take the best ideas out there, regardless of where they come from. Wheelan is clearly of that camp. He has my vote, i've decided to buy his book :) BTW, for all of the ranting conservatives out there who can't stand the fact he is not doctrinaire, here is an Amazon review of his book: Naked Economics is a good introduction to economics for the layman. There is no math, although personally I wish Wheelan had used some to back up some of his points or to show some issues in more depth. It is well written and easy to read. So even though the information is as useful as many textbooks, it isn't tough to understand it. Subjects covered include: why capitalism and free markets is better than communism and state-controlled markets; how information is crucial (such as product or corporate branding and health insurance for individuals); efficiency of financial markets (why the individual is often foolish when he buys a stock after reading a tip from the newspaper); and why international trade is good even if special interest groups may oppose it due to job losses. Readers on both the extreme left or right will be able to pick up certain issues in the book that they disagree with. They will then pick those up and attack Wheelan for being an extreme liberal or an extreme conservative. They will accuse him of not caring about U.S. jobs; they will accuse him of pandering to the environmentalists. For those readers, their mind is already made up before the read this book. For open-minded readers, this book will be very enjoyable and interesting.

AndrewE - Tuesday, March 4, 2008, 12:54PM ET  Report Abuse

• Overall: 1/5

"We" may get the government that "we" deserve, but I don't get the government that I deserve. I am not the one who took out a bad home loan, nor am I the one who bought bundled sub-prime mortgages as an L3 asset. As a result, the market has rewarded me; I get to stay in my home and I get to continue reaping the fruits of my labor. Unfortunately, the government punishes me for doing well; it will now tax me and bail out those who were stupid, all in the name of "stability." I was an adolescent once, and as an adolescent, I made some pretty stupid decisions. But today I no longer make those decisions. I think I became a man when I had to live with the consequences of my actions; this caused me to take more rational actions in the future. I rarely learned when either Uncle Sam or my parents forced me to never do this or that. That's how the market works, too, unless the government gives those affected a free pass in the name of "stability." You seem to be playing a populist/majoritarian card in this piece, arguing that "we all" have to pay the price for some people's mistakes, thus we should control the mistakes they make. I argue differently, because I didn't have to pay for dumb people's mistakes through the market, but I will have to pay for them through the government. I made good choices and the market should reward me. Kudos to dorigoliver for making the explanation that "Wheelan, Ph.D." could not. I don't know what your degree is in, Dr. Wheelan, but I'm certain you got it from a Cracker-Jacks box.

Jim - Tuesday, March 4, 2008, 12:01PM ET  Report Abuse

• Overall: 5/5

I'm always amazed at the comments posted here (and seemingly everywhere on the web) - it is almost as if the readers had already decided what the article was about without bothering to read it.

AlS - Monday, March 3, 2008, 7:04PM ET  Report Abuse

• Overall: 1/5

I see Yahoo's statist economist is at it again, this time making outlandish claims that the government ought to have intervened in the housing market in order to "save us from ourselves". Of course, by "ourselves", he means in-over-their-heads house flippers, people with no verifiable means of income, and various other classes of individuals who have precisely zero business purchasing a house in the first place. The housing bubble was a result of the overexpansion of money and credit by Greenspan and his fellow Fed incompetents; in other words, it's a government *created* problem, and one which will only become worse with additional intervention. Unless, of course, you think this "fiscal stimulus package" boondoggle is going to tie everything up in a neat little package.

Kevin S - Monday, March 3, 2008, 1:55PM ET  Report Abuse

• Overall: 4/5

You make some great points. It's just that the government is made up of individuals who are no more capable than any other individuals of always making the wisest choices. Who's to say that government choices are going to have better results than private choices? I think that the government typically contributes to the very problems it tries to solve. In the case of this credit crunch, their policies of low interest rates, easy money, monetized debt, deficit spending, and social engineering tax codes (tax incentives to buy real estate) all greatly contributed to the current crisis. Why not focus on the cause, and remove the cause as the solution?

Anna - Thursday, February 28, 2008, 9:31PM ET  Report Abuse

• Overall: 5/5

Politicians are not in the business of solving problems or telling the truth. We have the best politicians money can buy, and that is not about to change.......

JTurn - Wednesday, February 27, 2008, 5:49PM ET  Report Abuse

• Overall: 5/5

One of the key points made by Dr. Wheelan is that we all expect government to swoop in and protect us from our own bad decisions. I know a number of people who were trying to get rich quick 'flipping' houses who got stuck with one of two in inventory eating up their resources, and expecting the government to come in a replace all the money they lost. As long as we have politicians who are willing to repay the losses of risk-takers when they fail, those risk-takers are going to continue to act irresponsibly. Why not take the bet, when the government is guaranteed to hedge it for you? You build a house on a barrier island that gets by hurricanes every four years, it gets blown away, you cry for FEMA to pay you for it. You take out an interest-only ARM with a five-year balloon and default, you get a government buyout. Goverment needs to get out of the business of protecting people from their own stupidity. It might just pursuade people to not be so stupid.

Ike or Zeke - Tuesday, February 26, 2008, 3:56PM ET  Report Abuse

• Overall: 1/5

More important than the unfortunate souls being foreclosed on learning their lessons in responsible borrowing is what have the banks learned about responsible lending? I also see a big flaw in relating a financial crisis with a physical emergency. While I appreciate analogies, this article relies on it too much, and its got a limp...a big one. We do pay taxes to pay for firemen to come rescue our house if we are irresponsible with matches, but that doesn't mean that the government should regulate the size quantity and quality of our matches, and that is what you are talking about. What is at stake here is freedom. People make mistakes, it is a VALUEABLE part of being human. Companies make mistakes. The proper role of government is not to tell us what we can and cannot do, but to protect us from EACH OTHER, and from FOREIGN ENEMIES. Our fat gov. has already assumed too much responsibility in "protecting us from ourselves". The more we as citizens(or should I use "subjects") give them license to do so the less freedom we have. This is so because how do they know where the boundaries are? where will it end? we are asking then for a "brave new world" as huxley wrote about or a totalitarian system as orwell wrote of in "1984". But we have in this country a set of rules when it comes to lawmaking and new regulations. It's called the Constitution and the Bill of Rights. Now the constitutionality of the regulations you are implying should be in place is seriously questionable. Unfortunately it is up to our congress-persons to decide that, but track records show that only Ron Paul and Dennis Kucinich actually care about the constitution which they have made an oath to uphold, so my confidence that the right thing will be done is near zero. Ron Paul has talked almost of nothing other than economics and monetary policy (and also foreign ploicy, but that's not the topic here), and has stated on numerous occasions how the federal government needs to butt out and let the market decide. Look at what is happening today...aside from gov intervention...the market is deciding that sub-prime mortgages are a bad thing. Bad for the lender, bad for the borrower. So the market can be trusted to make the right decision here, even if it takes a few years to play out. Lets not forget that the gov played a role in making the problem too with the FHA/HUD programs that in more cases than not put a "contract til death" in the hands of unqualified people. Yes it has helped a small percentage get a leg up...but at what cost? It is obviously being felt now, and I for one would rather that the gov would just mind their own job instead of digging their noses into every facet of american life. Small government not only will work, but is necessary to a free society. Ron Paul is right. The constitution is right. Our founding fathers were right. The market is right. And just because you have letters after your name doesn't mean that you are right. Long live the Republic!

Yahoo! Finance User - Tuesday, February 26, 2008, 9:57AM ET  Report Abuse

• Overall: 1/5

Sorry, I did not get to put my 5 stars rating in before it went to a Poor rating. Sorry, sorry, because I loved the article.!

encored - Tuesday, February 26, 2008, 9:07AM ET  Report Abuse

• Overall: 5/5

Demonstrates a good understanding of economics.

Toolman - Tuesday, February 26, 2008, 5:59AM ET  Report Abuse

• Overall: 5/5

Dr Wheelan indeed delivers again. This guy is by far the best that Yahoo has to offer. The haters hate because he says things that few are willing to say. Keep up the great work!

Owns Obama - Monday, February 25, 2008, 6:50PM ET  Report Abuse

• Overall: 4/5

Can't agree more, especially comments pertaining to the lack of backbone of our political leaders. Politicians know all too well how easy it is to bamboozle the American people. Quite simply politicians have been guiding our educational experience for decades. The agenda has been and remains to raise worker bees that we can deceive with popular rhetoric. Later when it becomes quite obvious to anyone over the age of 12 that these schemes don't work, spin, spin, spin...and then point the finger at your opponent. There is little risk here as the press will support you. How tragic.

Yahoo! Finance User - Monday, February 25, 2008, 5:43PM ET  Report Abuse

• Overall: 5/5

Milton was right about "small government".Unfortunately many of us today see government acting to provide a no fault climate for the market.The executive and congress placed us a further 150 billion dollars in debt at the behest of wall street.Worst yet the fed is overly sensitive to the influence of stock traders and bond regulators grant questionable aaa ratings.When the normal consequences of poor investment decisions are removed,anything becomes possible.There is an increased perception that the market is not as above table as touted and this I believe is the true cause of a lack of investor confidence.Government needs to let the market run its course and those checks and balances we reley upon need to do what they were created to do.

HappyOldCarOwner - Monday, February 25, 2008, 3:36PM ET  Report Abuse

• Overall: 5/5

Risk and reward should be linked. One of societies biggest problems these days is people want the rewards, but they want government to bail them out when things don't work out. There are a lot of "watchdog" entities that warn us of things like dangerous toys and the faulty mortgages that are now sinking homeowners. They do a far better job than the government except people can choose to ignore them. The onus is on the individual to understand what they are buying into when they secure a mortgage, and if it sinks them in the end, then too bad. Well, I can't be that extreme -- it is far too easy for the slimy salesman to hide the dirt, so yes, we do need some regulation in business, but right now we are heading towards too much regulation, and we will pay a price for that.

Qniform - Monday, February 25, 2008, 2:24PM ET  Report Abuse

• Overall: 2/5

This article seems to want to have it both ways itself. Perhaps the reason that individuals and corporations acted "irresponsibly" (though some might consider rampant fraud to be criminal) is the very idea that government will shoulder the risk of their behaviors. This is the core message of government since the new deal.

groblix - Monday, February 25, 2008, 11:41AM ET  Report Abuse

• Overall: 5/5

Smart, balanced and thought-provoking, Dr. Wheelan delivers again.

Yahoo! Finance User - Monday, February 25, 2008, 11:31AM ET  Report Abuse

• Overall: 1/5

It is greed and fraud in all level. Homeowners use their home as a free ATM machine, appriser wants to give a higher value to generate business, loan broker likes to get more fee for the loan, the investment banker invent all kinds of products as CDO, xxx, to generate more income and make millions as salary and bonus. This is human nature and time to pay the piper....

MichaelA - Monday, February 25, 2008, 8:23AM ET  Report Abuse

• Overall: 4/5

What is missing in your analysis is the role the Fed played in "fixing" the dice. By creating an endless stream of easy money they enticed individuals into ignoring the moral hazard of debt. Now the consumer is to be called on to fix it? If real money, say gold, had been required to buy those over priced houses or leveraged pieces of paper do you think anyone would have gone so far? No. The fault lies with those designing, and gaming, the system.

Chuck B - Sunday, February 24, 2008, 10:36PM ET  Report Abuse

• Overall: 1/5

You are soooo right! We are too stupid and confused to make rational decisions about anything, especially if it pertains to our self interests. Barack Obama's success is proof of that. Anyway, let the elites tell us what to do and pass more regulations to keep us safe. After all, what chance do we have, being educated in left wing public schools and taught that rent control and minimum wage laws help the poor! That's right up there with saying the right to bear arms is a collective right, not an individual right. Sorry, comrades, I digress. We definitely need more and bigger government since it was obviously unregulated free market forces that brought us to this point. The Federal Reserve not withstanding. Oh, if only I were as smart as those currently running the show and all those progressives out there that can't stand to see anyone exercise free will! Alas, I'm only smart enough to know that I can't make decisions for you and nor do I want to. I can only make them for me. I take responsibility for those decisions and learn from them, good or bad. I only wish everyone could live that way. I suggest you read Dr. Thomas Sowell's book, Basic Economics. You might develop a different view of centralized planning and it's effects.

Andrew - Sunday, February 24, 2008, 10:13PM ET  Report Abuse

• Overall: 5/5

Well, at least you mentioned Ron Paul's name. That's more than most commentators will do. I have a good 2-part solution as to what the government can do to relieve the foreclosure crisis, and at the same time stimulate the ecomomy permanantly, so there is never such a crisis, ar any recessions, ever again. 1) Abolish the Federal Reserve, the people responsible for the boom/bust inflation cycles in the first place. 2) Stop punishing thrift and productivity. In other words, abolish the IRS.

Heroine Worshipper - Sunday, February 24, 2008, 5:18PM ET  Report Abuse

• Overall: 5/5

Cubans, Chinese, Indians R gaining free will. Americans R losing free will. Silly software managers bought zero interest mortgages in Livermore & now their subordinates have to pay for it.

Yahoo! Finance User - Sunday, February 24, 2008, 2:51PM ET  Report Abuse

• Overall: 3/5

The thing is that consequences need to be proportional to causation. Consumers of mortgages, for example, are consuming the things that the market is willing to offer. What we are seeing once again - funny how history always repeats - is the consumers taking the bulk of the real pain while the financial powerhouses whose greed left them to offer such outlandish financial instruments scream about losing money will still posting decent though not historically huge profits. Unfortunately, the dose of reality for financial institutions is that their otherwise hard working employees are the ones who get to feel the pain - the losers who directed those employees and came up the risky instruments that are now blowing up in their faces will continue to suck down massive comp and perks while the guy who had to make 10,000 phone calls to sell one mortgage so he can feed his family and keep a roof over their heads will get a pink slip and a kick in the butt on the way out the door. The point is, consumers (the bank employees are more consumer than supplier in the above example) take on an increasingly large portion of risks if you measure risk as the probability of financial ruin. Consumers cannot diversify their choices - they get to make just one in most cases. On the other hand, financial institutions can hedge their risks against thousands of credit/lending decisions; if you get down to proportional measures of risk, consumers are out on a major limb when compared to any financial institution.

Yahoo! Finance User - Sunday, February 24, 2008, 7:59AM ET  Report Abuse

• Overall: 4/5

Well, reading some of the over 200 comments reads like most other financial posts. Many commenters miss the point, mostly that those commenting have their head stuck in the financial sand, missing the forest for the trees as it were. This article is not about how to fix the mortgage mess. This article is questioning who is at fault. Who is/are? I am. You are. Why are we at fault? We made government what it is today. The states gave a charter with specific limitations on what the government was allowed to do. After 230 years we have left that government change itself into a self-serving monster, concerned with electing and growing itself, controlling individuals, and lying for "the good of the people". If you believe otherwise, take a good look in your own mirror. Please. No, really, go ask yourself in the mirror who is at fault for the government we have now. Who am I to say such a thing? I'm a coward. I haven't protested one bit other than a few posts. Do I think I'm right? At the core, yes. Am I going to do anything about it? I'll vote but that's just pissing into a bucket that will be counted if it is in the interest of the counters. Good luck to you all.

Yahoo! Finance User - Saturday, February 23, 2008, 11:06PM ET  Report Abuse

• Overall: 1/5

The fundamental problem with this essay is the fundamental problem with the discipline of economics: Individuals do not make choices in some kind of vacuum. Milton Friedman's laughable claims that we should let individuals suffer the consequences of their mistakes ignore that human beings in complex societies impact OTHER HUMAN BEINGS. We have governments to protect the weak from the powerful, the poor from the rich, and so on. This crisis enabled many people to abuse the economic system as a whole ("maximizing their utility" in the language of the economists) while screwing up that system for millions of others. This is a case, as with many others in our modern economy, where a powerful referee (the government) is needed to monitor and reign in abuses. Teddy Roosevelt argued a century ago that Americans needed a powerful force to counteract the excessive power of uncontrolled "trusts," the mega corporations of his time. He proposed an even more powerful central government to "police" their activities and to protect workers and consumers. He was right, and we still need that force.

Paul R - Saturday, February 23, 2008, 4:54PM ET  Report Abuse

• Overall: 1/5

Government should neither treat its citizens as informed adults or semi-rational adolescents. The assumption you make is that Government is a paternalistic entity. Government should serve the people, which it does not do and cannot do at this time, because it serves a financial/industrial elite instead. That fact is why your whole article is irrelevant to the issue of change that would benefit society as a whole. Instead of writing platitudinous articles with simplistic references to Milton Friedman and high school level civics, you should put your Phd to work analyzing how our monetary and banking system works and why it works excessively to the benefit of the financial/industrial elite. Of course no one could've predicted exactly when or by how much real estate prices were going to fall, and anyone could have said it was a realistic possibility. That was a cheesy, zero-information phrasing. In fact, many people myself included said with absolute certainty that prices would fall, and predicted within one or two years when the fall would occur. It is ridiculous to suggest that an event in the making for approximately 30 years can be predicted to the day, or that even when it happens, it can be said to have happened on a particular day. Your “analysis” leaves out entirely the extent to which Americans have been educated to trust Government and the monetary/banking system. Americans have been subjected to no end of Government and financial industry misinformation about economics, inflation, and the dollar. It is ridiculous to suggest that the average American should somehow have gone against the assurances repeatedly made by people in high places, saying all is well, spend, spend, spend! You intent in writing this article became clearly mendacious when you wrote, “Nothing teaches you about debt like losing your home to foreclosure. I'm still waiting for that speech. (OK, Ron Paul has probably given it -- which is one reason he'll never get more than 10 percent of the vote.)” Ron Paul has never given a speech remotely resembling what you suggest. To say so means you must really not understand anything about Ron Paul or you deliberately intend to misrepresent his message. What is being seen right now are token Government handouts that will temporarily benefit a few subprime borrowers, and massive behind-the-scenes monetary creation and bailouts of the banks. If you were honest, you would have written, “Nothing teaches the elite about debt like losing their banks to insolvency. I'm still waiting for that speech.” Instead, we are witnessing the attempt once again to implement the moral hazard of rewarding the banking system for its mistakes by transferring the costs of its errors to the public taxpayer.

john - Saturday, February 23, 2008, 2:22PM ET  Report Abuse

• Overall: 4/5

THE GOVERNMENT IS ALWAYS HARPING ABOUT EDUCATION,BUT NEVER WANTING TO TEACH FINANCE IN THE PUBLIC SYSTEM. TEACHING LEGAL KNOWLEDGE IN THE SYSTEM WOULD CHANGE EVERYTHING.BECAUSE THE LEGAL LANGUAGE INCLUDES FINANCE. REAL ESTATE AND INSURANCE AND A WHOLE LOT MORE. LEGAL KNOWLEDGE IS WEALTH KNOWLEDGE. THEN PEOPLE COULD BE RESPONSIBLE FOR THEIR OWN FINANCES. PEOPLE LIVE IN POVERTY MOSTLY BECAUSE OF IGNORENCE. LET PEOPLE TAKE RESPONSIBILITY WITH THEIR OWN MONEY. I DO NOT TELL NAPOLEAN BUSH AND HIS COHORTS WHAT TO DO WITH THEIR PERSONAL MONEY.