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Hoover’s pro-labor stance helped cause Great Depression, UCLA economist says
Posted: 01 September 2009 04:01 AM   [ Ignore ]  
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Hoover’s pro-labor stance helped cause Great Depression, UCLA economist says

Pro-labor policies pushed by President Herbert Hoover after the stock market crash of 1929 accounted for close to two-thirds of the drop in the nation’s gross domestic product over the two years that followed, causing what might otherwise have been a bad recession to slip into the Great Depression, a UCLA economist concludes in a new study.

“These findings suggest that the recession was three times worse — at a minimum — than it would otherwise have been, because of Hoover,” said Lee E. Ohanian, a UCLA professor of economics.

The policies, which included both propping up wages and encouraging job-sharing, also accounted for more than two-thirds of the precipitous decline in hours worked in the manufacturing sector, which was much harder hit initially than the agricultural sector, according to Ohanian.

“By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product,” Ohanian said. “His policy was the single most important event in precipitating the Great Depression.”

The findings are slated to appear in the December issue of the peer-reviewed Journal of Economic Theory and were posted today on the website of the National Bureau of Economic Reasearch (http://www.nber.org) as a working paper.

Here is the abstract from the paper:

What - or Who - Started the Great Depression?
by Lee E. Ohanian

Herbert Hoover. I develop a theory of labor market failure for the Great Depression based on Hoover’s industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.

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Posted: 01 September 2009 07:51 AM   [ Ignore ]   [ # 1 ]  
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There could actually be some validity to this theory.

If Saul’s citation of this economist is indeed correct than it would be an event worth noting on our calendars since it would mark the first time that our Saul is right about anything.

Vitriol aside, here’s why I side with Saul on this:

My uncle Gerald Jr. had the great misfortune of being raised catholic and the even greater misfortune of being raised catholic by a father who communicated with his hands, shall we say, and who, when peering into the whisky bottle too deeply, would come home and mistake his young son for his wife.

When Gerald showed up in school, once again with a bruised face and blood in his underwear, the teacher started to doubt his usual excuse of having fought one of the neighborhood kids the previous night, and she alerted the police.

After the investigation was over, Gerald Senior was relieved of his parenting duties and Junior was placed in a foster home.

Now all you liberal, bleeding-heart nincompoops probably think that this was a happy ending to an altogether sad story…

Wrong, dingbats!

The teacher and the police actually made the situation much worse.

What should have happened is that young Gerald should have picked himself up by his bootstraps and dealt with his abusive father on his own. This way, he would have overcome his trauma much faster.
It is because of the nanny-state that people like Gerald are still belly-aching about their past troubles.

Come to think of it, we have to wonder if the Geralds of the world aren’t partly responsible for the rape and the beatings they get, prancing around as they are, in front of hard-working providers who need to blow off some steam after a full day of fulfilling their industrious potential.

As Saul has so shrewdly observed, one shouldn’t interfere when one sees some kid being fucked in the ass by an abusive drunk.
It is much better to let the abuser have his way and let the invisible hand of God, excuse me,of the Market, meet out punishment and reward.
All one needs to do is bow the knee, let the carnage rage around you, and in the end all will be well.

Bravo, Saul.

[ Edited: 01 September 2009 07:56 AM by Lapin Diabolique]
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Posted: 01 September 2009 10:12 AM   [ Ignore ]   [ # 2 ]  
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Sorry BR, but really, that’s a false analogy fallacy if there ever was one.

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Posted: 01 September 2009 10:19 AM   [ Ignore ]   [ # 3 ]  
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To correct that analogy, lets say Hoover was Gerald’s father, Gerald is the economy, and the Constitution is the law that SHOULD intervene when an innocent victim is being beaten and raped.

It is the proper function of government to intervene in such situations as Bad Rabbit described. Pretending that free market economics mean the government never does anything is a strawman argument. A free market needs government to protect the individual right to life, liberty and property.

Bad Rabbit is just evading the fact that, AS USUAL, I’ve got the facts and the arguments, and he has NOTHING to answer them with.

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Posted: 01 September 2009 11:17 AM   [ Ignore ]   [ # 4 ]  
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Bad Rabbit - 01 September 2009 11:51 AM

As Saul has so shrewdly observed, one shouldn’t interfere when one sees some kid being fucked in the ass by an abusive drunk.
It is much better to let the abuser have his way and let the invisible hand of God, excuse me,of the Market, meet out punishment and reward.

zipper

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Posted: 01 September 2009 05:18 PM   [ Ignore ]   [ # 5 ]  
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Traces Elk: Since I did not say anything even vaguely resembling what Bad Rabbit is accusing me of, I am mystified about the meaning of your response to that quotation.

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Posted: 01 September 2009 06:13 PM   [ Ignore ]   [ # 6 ]  
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SaulOhio - 01 September 2009 09:18 PM

Traces Elk: Since I did not say anything even vaguely resembling what Bad Rabbit is accusing me of, I am mystified about the meaning of your response to that quotation.

Don’t even start with me.

SaulOhio - 01 September 2009 02:19 PM

A free market needs government to protect the individual right to life, liberty and property.

Don’t even start with me. What would you do with your capital if the government protected it and didn’t take away an unreasonable amount to hand over to welfare cheats? What would you, as a captain of industry, employ people to create and promote?

I think that the free market can do little to assist a person who inherits a million bucks after estate taxes and cannot make it pay off. If environmental or other regulation makes life too difficult for you, the free market is going to eat you for breakfast. You fantasize that if only it weren’t for all those regulations requiring condoms not to have holes in them, your condom factory would be a roaring success, but really, you just need to shift your objectives and open a liquor store.

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Posted: 02 September 2009 06:41 AM   [ Ignore ]   [ # 7 ]  
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What the hell are you talking about? None of it makes sense, especially as criticisms of laissez-faire capitalism and economic theory.

SOme businesses succeed. Some businesses fail. This is a necessary process in a free market. This is something I accept, and have argued for at some length on this forum. Government should NOT interfere with such failure, and I never asked it to.

So you are arguing against some strawman that is a product of your own imagination.

Please get a clue.

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Posted: 02 September 2009 07:32 AM   [ Ignore ]   [ # 8 ]  
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So Saul, where would the US and the world economies be right now if our government had let the free market take it’s natural course? I grant you that in enough time the market will kill all of those that are not survivable, and stabilize and correct itself. But should we wait that amount of time? How many get drug down in the process? Do we want another 10-12 year depression instead of government intervention that prevents a depression and keeps it a recession and much more temporary?

Can you imagine the unemployment rates and the Dow if AIG, automakers, fanny mae and freddie mac, hundreds of banks and mortgage and insurance companies were left to fail?

During the great depression the unemployment rate went to 25%. FDR’s new deal got it down to 15% before the war effort, which is still not good of course, but an improvement.

If left entirely alone free markets will correct themselves, of course. But the time frame for that and the pain and suffering of untold tens of millions of people worldwide in todays global economy would not be acceptable.

Government intervention and spending ( WW2 was government spending and huge) brought America out of the great depression. Why won’t it now?

I think people like you do not understand the size and scope of this global economic situation.

This all happened in the first place because of deregulation of the derivatives market. Bill Clinton has said so himself and takes part of the blame.

So much for government staying out of the free market. This is what you get when that happens.

Personally I would gladly pay increased taxes and stabilize this situation as soon as possible rather than loose my entire savings and retirement investments and watch my real estate values collapse for perhaps decades. Thats just a no brainer at this point, although the ethics of that situation leave a lot to be desired of course. However, we are WAY past doing the right thing now. We must do what we must do to save further catastrophy for all of us.

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Posted: 02 September 2009 08:19 AM   [ Ignore ]   [ # 9 ]  
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eudemonia - 02 September 2009 11:32 AM

So Saul, where would the US and the world economies be right now if our government had let the free market take it’s natural course? I grant you that in enough time the market will kill all of those that are not survivable, and stabilize and correct itself. But should we wait that amount of time? How many get drug down in the process? Do we want another 10-12 year depression instead of government intervention that prevents a depression and keeps it a recession and much more temporary?

That’s just it though, would it have?  The economists cited by Saul assert that the government policies that Hoover and then Roosevelt put into effect actually prolonged the Depression, and it would have been shorter without them.

Now you may disagree with this; there is no unanimity of opinion here, even among economists, but it sounds as if you are accepting as a basic premise that government policies will shorten a depression, and that’s by no means certain.

eudemonia - 02 September 2009 11:32 AM

Can you imagine the unemployment rates and the Dow if AIG, automakers, fanny mae and freddie mac, hundreds of banks and mortgage and insurance companies were left to fail?

During the great depression the unemployment rate went to 25%. FDR’s new deal got it down to 15% before the war effort, which is still not good of course, but an improvement.

Once again, you simply assert as if fact, one of the points which is actually under debate—that it was government policies that were responsible for lowering unemployment.  Once again, this is not at all certain, and a case can be made that New Deal policies actually hindered recovery, and by doing so actually kept unemployment higher than it would have been had market forces been left alone, and consequently, prolonged the Depression.

eudemonia - 02 September 2009 11:32 AM

If left entirely alone free markets will correct themselves, of course. But the time frame for that and the pain and suffering of untold tens of millions of people worldwide in todays global economy would not be acceptable.

But can action taken by politicians (many, if not most of whom, have little to no understanding of economics) actually do anything which will have a strong positive effect in correcting this?

eudemonia - 02 September 2009 11:32 AM

Government intervention and spending ( WW2 was government spending and huge) brought America out of the great depression. Why won’t it now?


Because you can’t just wave a magic wand and create demand.  You can use government subsidies to build more factories and employ more workers, for example, but if there is no demand for the goods these factories will produce, you will only manage to increase your debt.  In a bad economy, consumers tend to scale back their spending sharply as they await the return of better times.  You simply can’t make them stop doing this, no matter how much you wish they would, and no matter how much you tell them they have to.  In a bad economy, a majority of consumers are still going to limit their spending regardless.

World War Two was different.  The economy went to a total war footing, and this ratcheted demands made on industry far, far above where market forces in peacetime would have had them, and the resulting sudden explosion in the demand for labor lowered the unemployment rate to virtually nothing almost overnight.  This situation was a direct result of war, and would not have obtained had peace continued.  The war effort created a demand for all that labor, and all the war materiel that was the product of that labor.  Without the war effort, that demand would not have been there.  What force can you point to right now that will increase demand to levels comparable to those made on industry during WWII?  You have to have a market for the goods and services.  The war effort in the 1940s created that demand, and thus created that market back then; what will create it now? 

eudemonia - 02 September 2009 11:32 AM

I think people like you do not understand the size and scope of this global economic situation.

This all happened in the first place because of deregulation of the derivatives market. Bill Clinton has said so himself and takes part of the blame.

So much for government staying out of the free market. This is what you get when that happens.

Personally I would gladly pay increased taxes and stabilize this situation as soon as possible rather than loose my entire savings and retirement investments and watch my real estate values collapse for perhaps decades. Thats just a no brainer at this point, although the ethics of that situation leave a lot to be desired of course. However, we are WAY past doing the right thing now. We must do what we must do to save further catastrophy for all of us.

Once again, this is not a given as you seem to think.  In fact most economists, even Keynesian ones, would tell you that increasing taxes in a bad economy will slow your recovery, and only make things worse instead of better.

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Posted: 02 September 2009 09:06 AM   [ Ignore ]   [ # 10 ]  
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eudemonia - 02 September 2009 11:32 AM

Government intervention and spending ( WW2 was government spending and huge) brought America out of the great depression. Why won’t it now?

That’s an oversimplification.  The end of WWII left America as the only country in the free world with a significant manufacturing base.  It took years for Europe to rebuild.  During that time, we had virtually no competition.  We paid off our debts with tax revenue generated by all the stuff we built and sold.

Compare that with what we have today:  hardly any manufacturing and a foreign trade deficit.  As you point out, government spending kept the financial meltdown from becoming a second Great Depression—in the short run.  But this time around we have no way to pay for all that government spending. 

The final act of this whole fiasco has yet to play out:  inflation.  Per capita GDP in the US for 2008 was $48,000.  But our national debt is now almost 12 trillion dollars.  That’s $38,520 per person (http://www.brillig.com/debt_clock/).  The interest alone in 2008 was 451 billion dollars!  (http://treasurydirect.gov/govt/reports/ir/ir_expense.htm)  That’s $1500 per person we spent just for the privelege of having borrowod all that money.  It doesn’t produce anything.  It doesn’t pay for healthcare or education or prisons or weapons or highways or anything else.

Either one of two things is eventually going to happen:  either the government’s ability to prop up the economy will come to an end, in which case we’ll have that second Great Depression after all (because the government is “too big to fail”); or, more likely, we’ll have to print money like it’s going out of style just to break even.  True, that 401k of yours won’t lose value in terms of dollars, but your dollars will become worthless.  The end result is the same.

I believe the Bush and Obama administrations will go down as the low point in our history.  How ironic, that the Republicans and Democrats will at last be able to claim that they came together and united on something:  our own ruin.

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Posted: 02 September 2009 09:23 AM   [ Ignore ]   [ # 11 ]  
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I have never really understood why people viewed the government as anything other than a group of people who may or may not be capable (or willing) to serve the interests of the citizenry at large.
Clearly some are and clearly all in Illinois and Louisiana are not.

Likewise, I have never understood why the collective thoughts and desires of poorly evolved primates are fused, elevated and then revered as a self-correcting, nebulous yet monolithic entity.

I remember learning about the various economic theories in college; my first year economics teacher, not devoid of a sense of humor, rattled off all the Theories that we were about to encounter that year and then added “ and afterwards we will learn why none of these models actually work in the real world”.

While loitering in the halls of academia, I developed a penchant for chasing after unattainable women and doing much-needed field research on the effects of THC on the human mind, so I may have missed some of the details about the wonders of supply-side ululations, trickle down urology, or whatever else was taught that year, by I am quite certain that human biology and the shape of our genome trumps lofty economic theory every bleeping time.

Why is our economy so unstable?
Why do we go through highs and lows practically every decade?

I’d say mainly because people themselves are unstable, partly rational and born to accept the word of mom and dad as gospel, no matter how retarded that gospel (J. Smith) may be.

The United States is arguably the most ‘unregulated’ industrialized country on the planet, and it shows.

If nimrods like Saul the Destroyer would have their demented way, we would spiral down into an abyss of misery and beggary, while at each lower ring of unregulated Dickensian Hell the screams for even less regulation would rise to a cacophony of lunacy until Saul would stand in the wasteland of his making, not unlike the deformed Lord Humungus, with a hockey mask on to cover the boils and mutations, demanding total chaos, I mean total laissez-fair capitalism.

Our wealth inequality is appalling, our wastefulness knows no bounds and we are getting fatter and dumber by the decade.

All of these things are exactly what you would expect if you would set a bunch of hominids loose in civilization after telling them that looking out for themselves and their kin is the highest possible good.

It seems impossible to get unbelievers to agree on anything but our rejection of Jebus and assorted fuckweasels, but how nice it would be if we could at least take away the moral high ground from the faithful, some of whom rightfully object to our shallow, commercialized celebrity culture, filled as it is with worker drones who care for nothing else but eating and buying useless crap.

Greed is not good.

We are only going to waddle into the next century if we actually give a damn about people who are not directly related to us. This is the very essence of civilization.

Saul is a dangerous lunatic and I will resist the likes of him with every fiber of my being.

[ Edited: 02 September 2009 10:05 AM by Lapin Diabolique]
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Posted: 02 September 2009 09:46 AM   [ Ignore ]   [ # 12 ]  
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eudemonia - 02 September 2009 11:32 AM

I think people like you do not understand the size and scope of this global economic situation.

I think people like you are drinking the wrong kind of Koolaid.

Consider this.  I read an article in the New Yorker last year in which the author showed that the total value of all the derivatives in the world was an order of magnitude (literally, ten times!) greater than the value of the world’s total combined GDP.  Here’s an example to show you what that means and why it’s so incredible.

Let’s suppose (hypothetically, of course) that I’m growing cannabis this year.  In May, you come along and say you want to buy my entire crop at a certain price after I harvest it in October.  We agree on $2,000 per pound and sign a contract.  That contract is known as a derivative.

In July, it becomes clear that the going price for cannabis is likely to be $3,000 per pound, and that my crop will likely yield ten pounds.  Now our contract has value in and of itself:  (3,000 - 2,000) x 10 = $10,000.  So you go to Lehman Brothers and sell the contract to them.  Now, you’d think that Lehman Brothers wouldn’t pay more than $10,000 for it, but for whatever reason, some genius over there pays you $300,000!  And borrows the money to pay for it!  The entire crop (ten pounds at $3,000 per pound) is only worth $30,000, but Lehman Brothers paid $300,000 for the contract you and I signed, which does nothing more than give the holder the right to buy my cannabis at $2,000 per pound.  That’s what it means when the value of the derivative is ten times that of the underlying asset.  And that’s what’s meant by a “toxic asset.”

Isn’t that unfuckingbelievable?  Infuckingcredible?  There are no superlatives to describe it, profanity laced or not.  And yet, that’s exactly what we have today (or had, last year when the article came out).  The total value of all the derivatives in the world (I think it was 660 trillion dollars) was ten times the value of the total combined GDP of all the countries in the world.

And you think it was a good idea to bail out the same companies that paid $300,000 for a contract to buy $30,000 worth of underlying assets?  I’ve got some beachfront property in Kansas you might be interested in.

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Posted: 02 September 2009 10:01 AM   [ Ignore ]   [ # 13 ]  
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‘The United States is arguably the most ‘unregulated’ industrialized country on the planet, and it shows.’

This is the bottom line in all of this.

We are already underregulated compared to other advanced nations and economies and we are the most unstable. Huge up and down cycles which help some people and destroy others that cannot or have not figured out how to play the game.

The derivatives market was tried once in the 1920’s, and it failed miserably then also. But, with pressure from people who ignorantly think that the government cannot do anything helpful, we let the Lassire-fare boys on Wall Street and throughout our economic system to have free rein once again. In 2000 the republican congress and Bill Clinton thought that we had matured as an economic system, and the big boys would do the right thing, without the nanny state looking over their shoulder. COMPLETELY WRONG!!! They fucked most of the world yet again!

The people at the top, running a free market economic system simply cannot be trusted without government oversight. This has been proven time after time after time. Why do we keep going through this?

Unregulated capitalism turns into, in very quick order, nothing less than organized crime. Oh it’s great if you are one of the players, but if not, you take it in the ass along with millions of others eventually.

Amazingly this derivatives market fiasco got it’s start right in the same time frame as what? ENRON, WORLD COM!! the dot com meltdown.

Why do we as a nation keep putting ourselves through this?

If government is bad or evil or incompetent, what is Wall Street and Corporate America? Are they any more trustworthy? At the very least our government leaders are elected and can be held accountable for what they do but….corporate America is only accountable to the stock holders. And when companies collapse, it’s ‘oh well’ and the boys at the top take off with millions leaving the economy for someone else to straighten out.

After the events of last fall I do not see how anyboys eyes cannot be really open to all of this now.

Our society is too big, too diverse and too complex for boom and bust cycles of a pure free market economy. Too many lives are at stake and too many people get seriously hurt in this process in todays world. Mainstreet America is not only affected today, the entire planet is.

The future of the global economy must look for stability….not just growth. We cannot continue forever to grow our way out of every economic situation. Markets need stability, individuals need stability, governments need stability.

Life does not have to be a roller coaster ride.

For those who insist on that, there is Las Vegas and amusement parks everywhere.

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Posted: 02 September 2009 10:13 AM   [ Ignore ]   [ # 14 ]  
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eudemonia - 02 September 2009 02:01 PM

If government is bad or evil or incompetent, what is Wall Street and Corporate America? Are they any more trustworthy? At the very least our government leaders are elected and can be held accountable for what they do but….corporate America is only accountable to the stock holders. And when companies collapse, it’s ‘oh well’ and the boys at the top take off with millions leaving the economy for someone else to straighten out.

More Koolaid.  There is no difference between the government and Wall Street.  Our government is bought and paid for by Corporate America.  Differentiating between the two is like differentiating between our two political parties.

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Posted: 02 September 2009 10:46 AM   [ Ignore ]   [ # 15 ]  
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Antisocialdarwinist - 02 September 2009 02:13 PM
eudemonia - 02 September 2009 02:01 PM

If government is bad or evil or incompetent, what is Wall Street and Corporate America? Are they any more trustworthy? At the very least our government leaders are elected and can be held accountable for what they do but….corporate America is only accountable to the stock holders. And when companies collapse, it’s ‘oh well’ and the boys at the top take off with millions leaving the economy for someone else to straighten out.

More Koolaid.  There is no difference between the government and Wall Street.  Our government is bought and paid for by Corporate America.  Differentiating between the two is like differentiating between our two political parties.

True.  I don’t know why some people take it as an article of faith that corporate executives are greedy bastards who are not to be trusted, but government bureaucrats, on the other hand, can be trusted.  Since when does a government career advance on the basis of virtue?  How are nepotism, cronyism, backscratching, pandering to special interests, and much more, less of a problem for government than greed is for corporate America?

And as for government being accountable and corporations not being so… frankly this is laughable.  In the first place, corporations are accountable to the public, its just that the public votes for or against them with dollars instead of ballots.  Politicians who annoy or outrage their constituents lose their seats to rival candidates.  Companies that annoy or outrage their customers lose business to rival companies.  In the second place, government accountability to the electorate applies only to elected officials, which make up a tiny minority of government jobs.  The vast majority of government employees are either appointed, and are about as insulated from accountability to Mr. John Q. Public as it is possible to get in our society, or they are hirees that enjoy only slightly less immunity from public ire.  Seriously, hasn’t anyone here ever noticed how rude or unmotivated or lazy or difficult to reach government employees often are?

Government employees, taken as a whole, absolutely are not more trustworthy or accountable than corporate ones.  They may not any worse in these respects, but they are also no better.

[ Edited: 02 September 2009 10:48 AM by Billy Shears]
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