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Ben Stein's Diary
From Coolidge to Harding
Tuesday
I am sitting in the study of my home in Rancho Mirage. My glorious dogs, Brigid and Cleo, are sitting on the couch staring at me. Words cannot describe the love I feel for them. No. Not if I were Shakespeare. Not if I were Samuel Johnson. Nothing can describe the love I feel for these hounds. Loyal. Beautiful. Intelligent. Modest. Perfect. I love them. On the other hand, I am doing a rapid burn about the state of the economy. Maybe by the time this appears, we will be in better shape. But for right now, here’s what I see.
It is true enough that the Bush administration did a poor job on the economy. They cut supervision of the markets to a bare minimum, if that. (This started long before Mr. Bush, by the way.) They allowed a true historic incompetent, Henry Paulson, to be secretary of the treasury and to staff it with other boobs. They did not woodshed Ben Bernanke when he turned out to be too slow to respond adequately to the growing crisis.
They allowed simply criminal self-dealing in the form of executive compensation—and just plain stealing—from Wall Street to Main Street. They did not stop the pools of manipulators and looters on Wall Street and in Greenwich from running wild. Essentially, they took the community swimming pool that had been the playground of people planning retirement—the stock market—and allowed sharks to swim in it.
The pitiful destruction of Americans’ hopes for retirement is the result. The demolition of American hopes for a brighter tomorrow is the result. It did not happen by accident. It happened because criminals and fast talkers were running the system that “served” American savers and robbing it blind. (See the new book Enough, by John Bogle, which lays this out in brilliant detail.) This was all a grievous set of faults by Mr. Bush, and grievously hath he answered for it.
But now we have Mr. Obama as president. He promised “change you can believe in.” He said he had a plan. He said he knew what to do. Now, somehow, some of us were dubious. Here was a guy with zero serious training in economics, with no academic accomplishments in this field that anyone knows about. But supposedly he was surrounded by geniuses and they would show him the way to prosperity. (And, let’s be fair, Sen. McCain was not surrounded by economics rocket scientists…perhaps that’s the clue: maybe there are no rocket scientists.) And, of course, he was partly black and in some way, that might have made people feel there was some “black approach” to economics that might work. After all, the “white” ways had been tried and found seriously wanting. So, people took him on faith and he was elected.
Now, what do we get? A stimulus package that has many meritorious parts—especially the ones that have the taxpayers in Kansas in 2030 bailing out California in 2009. In fact, we in California love that. I am not sure how fair it is to the people in Kansas; however, we in Los Angeles love it. But it also has pork, pork, pork for the teachers, the service workers’ international union, the communications workers. And it’s not even the right kind of measure. Our problem is a financial-monetary problem. It requires a fix of the banks, not a fix for the teachers’ union.
I wonder if Mr. Obama even knows that. Somehow, his choice of Mr. Geithner to run Treasury scares me to death. Mr. Geithner, I am sure, is a fine fellow. But his background has been in creating the credit crisis—not in solving the crisis. He was head of the New York Federal Reserve Bank when the shenanigans were going on in a huge way. He argued for more deregulation. He argued against saving Lehman Brothers, which was probably the biggest financial mistake of all time. Now, somehow, the man with the dynamite is responsible for rebuilding the building. I don’t get it. If there were just deserts, he would be fired, not made head of Treasury.
Mr. Obama is just floundering around here. He could take decisive action. The banking crisis is really largely about “marking to market” securities owned by banks and other lenders. If speculators sell short those instruments and drive down their price, the banks have to write down the value on their books of those same securities. That requires them to raise more capital to plug that hole. That, in turn, makes them appear to be insolvent when in fact many of those securities are “cash flowing positive” and still making most, if not all, of their payments. Why not cut out the “mark to market” rule? The only people it’s helping right now are speculators. When the ship is righted, we can consider when to apply it in the future. For now, we don’t need it at all. Then there’s another matter. The government is spending money wildly, creating immense deficits. To be fair, this continues a trend begun with Mr. Bush, whose party (my party) had the strange idea that “deficits don’t matter.” Mr. Bush spent money like it was water and allowed the deficits to balloon.
Now, Mr. Obama is following that same sad path. The deficits could be paid for by the Fed “printing money”—actually just expanding its balance sheet; it does not even need to use a printing press. This would eventually be inflationary, but we live in such deflationary times that the likelihood of much inflation soon is small. If the Fed just bought the debt with its imaginary/real money, we would flood the country with new money—which is exactly what we need right now. Plus, we would not be adding hugely to the government debt. Interest on debt owned by the Fed is mostly returned to the Treasury.
This is important indeed. If too much interest is owed by the government on our national debt, we could wind up with a ratings downgrade on the sovereign debt of the U.S. That would mean higher interest charges, probably a fall in the dollar, and general instability.
So, why isn’t the Fed buying the debt? Who knows?
I keep going back to a line from Machiavelli, also adapted by Douglas MacArthur: “Councils of war breed timidity and irresolution.” Possibly what’s happening at the White House and at 15th and Penn (Treasury) is a fear that if they take truly heroic measures, they will get yelled at. That’s just my guess.
What I do know is that Professor Milton Friedman and top-grade economist Anna Jacobson Schwartz showed in A Monetary History of the United States that the Depression was created by allowing banks to fail (see Lehman Brothers), among other things, and was prolonged by (among other things) repeatedly taking “half measures” when full measures were needed. As the saying goes, “Half measures availed us nothing.”
Plus, I am not sure why we are bailing out homeowners who are in foreclosure. “They hired the money, didn’t they?” as President Coolidge famously said about Allied war debts to the U.S. after World War I. (Actually, he probably made a big mistake about that.…) But why should a taxpayer in Oklahoma who has been perfectly responsible about her mortgage be taxed to pay the mortgage of a homeowner in Phoenix who has not been responsible? That doesn’t make much sense.
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Aaron| 4.14.09 @ 7:29AM
Great article, scares the hell out of me to hear Mr. Stein say that he is scared, holly crap!
The line "I wonder if Mr. Obama even knows that" really says it all about the man. What it comes down to is not what he knows, its only about the agenda that he has already layed out in front of us and the quickest way to get there.
Steve | 4.14.09 @ 8:33AM
Ben, my brother in law is a bona fide rocket scientist. He is a Republican, and detests Obama's policies.
Steve| 4.14.09 @ 9:19AM
Steve and Aaron,
Obama's "agenda" was a reaction to the agenda started on January 20, 1981. Let me think, the national debt was a mere 1 trillion. In between then and now was to lower taxes and increase spending by the reps. The one democrat, Clinton raised taxes on those folks that could afford it and bang, what happened by the end of the 90s, EVERYBODY benefited! And there was a surplus. For the record, in 2001 I tore up my 300 bucks I got when Bushie issued those tax rebate checks and sent it back to the WH.
Big J| 4.14.09 @ 9:42AM
"This was all a grievous set of faults by Mr. Bush, and grievously hath he answered for it."
Not really surprising - "It's George Bush's fault".
" And, of course, he was partly black and in some way, that might have made people feel there was some “black approach” to economics that might work. After all, the “white” ways had been tried and found seriously wanting. So, people took him on faith and he was elected." Again, not surprising. Besides, Jesse Jackson and Al Sharpton still have jobs, right?
The first few paragraphs of your article, Mr. Stein, would normally have disqualified it from reading. I did continue reading, however. I was desperately searching for your point. Unfortunately, I found none, other than the love you have for your dogs (I love my pets, as well), and the fact that you have somehow come to the conclusion that government, not the free market is the economic savior we are all in need of. Ummmm..... not quite sure I get it, but whatever.
GK| 4.14.09 @ 10:13AM
I quit reading after the blaming of GW was paramount in the first couple of paragraphs and on and on. GW had a war to fight, to say he spent money foolishly is wrong. We have been safe in this country for 8 years. I am not confident about the next 2 years with bammy in the Oval Office.
ARealist| 4.14.09 @ 11:14AM
Ben is correct; Bush and the Republicans spent money like there was no tomorrow. The democrats excoriated Bush about his spending and they were right to do so.
True, 9/11 had to be dealt with, but Iraq was a war of choice. Saddam was merely an Arab version of Hitler or Stalin, but the USA cannot, nor should have entered into that war.
Also true is that Saddam would still be there, and, with the help of the Europeans, would be building up his nuclear capability - as are the Iranians.
But let those two tyrannical regimes duke it out. We cannot afford to get involved in these conflicts around the world; doing so always produces unpredictable results. Witness the mess in Pakistan where we are sending billions of dollars into a country whose populace hates the USA with zero results to show for the bucks.
Let India worry about them.
As for Obama, he is simply a Marxist. He knows exactly what he needs to do - decapitate militarily and economically the USA, who, in his mind, is the root of all evil in the world and whose economic system, once upon a time, capitalism, is the engine that drives the American "empire."
His goal, literally, is to turn the USA into a Cuba with, of course, himself and his other millionaire communist Wall Street financiers - almost all democrats by the way - running the show.
Aided by our reprehensible left wing media - who have never spotted a left wing tyrant they could not abide - Obama conducted the perfect coup d'etat, while the American electorate was simply melted into submission by his skin color , gifted oratory, charismatic personality and media encouraged and inspired hatred of Bush.
Obama is your typical Chomskian hate America firster. When viewed from this point of view, ALL his political decisions and goals are crystal clear.
Ben has a right to be scared, and so am I, for the first time in my life. Obama WILL destroy this country and everything that made it great.
Just like FDR and his "brain trust" retained their million dollar bank accounts and maintained their elite , aristocratic life styles in the midst of the Great Depression,while the American public was forced to live in misery and many in abject poverty because of FDRs Bolshevik inspired soical engineering, the millionaire Obama and his millionaire minions will also live like the aristocrats of Medieval Europe, while the average American citizen, will be reduced to serfdom.
This is Obama's goal; achieve and maintain absolute power over the masses - at any cost - while he retains the power and influence and riches due him.
God help the USA.
Marc Jeric| 4.14.09 @ 12:51PM
Bravo, Ben Steyn, good article as always. But - he forgot to mention the Carter's "Community Redevelopment Act" enforced by threats of fines and prison by Frank and Dobbs under Clinton and by ACORN brownshirts demonstrations - which gave 11 million houses to "underserved minorities" without credit, without jobs, without a hope of paying those inflated mortgages ever. That artificial demand caused the housing bubble and the economic crisis we are now living under.
Tim| 4.14.09 @ 2:53PM
Owning ten houses seems about as useful to me as owning ten coffins. You thought you owned them but it turns out that they own you.
Metaphorically speaking, you'll never make it out of Egypt trying to carry all that sh*T on your back. You may not even get a night's sleep.
I begrudge you neither your wealth or your success but the vast majority of us live all our lives in one house and never travel, we get along just fine.
Get your head out of Egypt, and God bless.
Hank Rearden| 4.14.09 @ 10:05PM
Ben, I agree with your points about Bush starting this trend. Ironic considering Obama blames everything on the last eight years. What surprised me though is that you offer no real solution? Bush's first terms he sought tax cuts across the board and boom, a recession was avoided. However, why he chose this stimulus/welfare junk in his second term is beyond me. Follow the Kennedy/Reagan example as was mentioned on this site last week.
Guy| 4.14.09 @ 11:19PM
von Mises, Ben.
If interest rates are functionally zero, what incentive did you or I have to save other than the good old Protestant work ethic?
We could have survived everything else but a miscalculation by two Fed chairmen in a row. Greenspan kept rates too low, for too long, and Bernanke thinks more of the same spendthrift ways are somehow the solution. Of course, if we were on the gold standard, none of this would have been possible but I'm no Jack Kemp and I know you know Jack Kemp.
I doubt we're over-regulated, very possibly incompetently regulated though.
We're both too old to "live in interesting times".
Don Carlson| 4.15.09 @ 11:06AM
Who are these speculators you decry, Mr. Stein? Are they not the investors and finance houses that have served American capitalism well? Who is it assumes risk and does not speculate? If you wanted the government to "keep an even keel," you wanted too much. It was goverenment that determined the banks should make loans to people who had no hope of repaying the loan. It was government that decided the financial system needed to accomodate those unable to fend for themselves by giving them houses on terms ridiculous to both the borrowers and lenders. If you wished your investments--your speculations--to be secure, you wished for too much. You are risk averse, Mr. Stein, and, although we adore you, you are not a serious conservative. You are a whiner, and you belong in the other party.
Tim | 4.15.09 @ 11:51AM
That was uncalled for.
Guy| 4.16.09 @ 12:01AM
It was not only uncalled for, it cast his earlier points in a bad light as well. Mr. Stein is, if anything, a serious conservative. Are serious conservatives required to agree on everything, down to the jot and tittle? And if Ben Stein whines any more than the rest of us, which I do not find to be the case, he leavens it with a continuous revelation to us of the true joy found in life itself. Economies rise and fall, as do nations, yet dog's remain faithful for no apparent good reason, while consorting with the youth of America reassures us that all is not lost either. Ben Stein get's that and so, belongs right here, on the right.
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