The American Spectator

Lorna| 12.28.08 @ 6:15PM

You are so right that the government should do nothing about the financial situation. The current ideas have all been tried before and not worked. Bad businesses should be allowed to fail. People who have made bad financial decisions should take the consequences. Let the consequences happen then we can start the recovery process.

Bob| 12.28.08 @ 7:27PM

There are two ways of looking at this issue -- functionally and psychologically. The economy will not improve without consumer spending given that this spending generates about 2/3rds of the economy. Functionally, most economists agree that there is an economic return for specific stimulus items. The size of this return may be in question, but there is a return. Direct investment in unemployment compensation is at the top of this list from a pure, non-ideological, perspective. After than, infrastructure jobs do bring in 1.8 times the investment over the longer term. From a pure economic return perspective, these items do make sense. That said, there is bound to be a whole lot of pork in the stimulus bill.

The position fiscal conservatives should take is one of pragmatism, i.e., making sure the items in the stimulus bill provide a return to the electorate and to object to the pork/earmarks. For example, I would support things like bridges, roads, schools, electronic medical billing records and electricity infrastructure/grids, but object to some of the more speculative "green" environmental spending. I'd push for the building of nuclear energy sites. In addition, I would put out a list of guidelines to "help" the Obama administration make its decision.

Republicans can't stand back and do nothing. If we really think that limited government is the way to go, we should be putting out guidelines for a "limited" stimulus bill.

RSM, please get off this kick about "It won't work". That is tired, old, conservative rhetoric and is not factually correct as I've argued before. Being that simplistic just shows that Republicans should not be in power.

If I were running the loyal opposition, I would gather a group of more conservative economists to help draft this plan with econometric theories backing this up. Then I would offer the Obama economists a forum to discuss these proposals.

Taking the Rush Limbaugh approach, as you are doing, only makes Republicans look dumber and unable to manage their way out of a wet paper bag.

Bob| 12.28.08 @ 7:29PM

I didn't finish my thought in the first post -- the psychology. If people believe that the economy is stabilizing or getting better, they will be more apt to spend. So the purpose of a stimulus bill, in addition ti its functional help, is to convince people to spend.

Robert Stacy McCain| 12.28.08 @ 8:42PM

Bob, are we talking about psychology or economics? The fundamental problem with our current economy is not on the demand side. The financial meltdown was a function of capital loss, which is by definition on the supply side. That's why I keep repeating that the neo-Keynesian approach won't work. What is necessary is to replace the capital lost in the collapse of the housing bubble.

Since Democrats insist that homeowners in default can't be required to repay their ill-advised mortgages, this means that the people who "won" in the bubble were those who have (by political means) defrauded lenders. The losers are those who invested their capital in lending institutions that are thus defrauded.

You see, then, that capitalists (i.e., investors) have been ripped off, and that Democrats now propose to reward the perpetrators of this swindle. The American economy is strong enough that it will eventually recover from this, but it will take a long time, and recovery won't be shortened by anything now proposed by Democrats.

Thomas| 12.28.08 @ 9:50PM

The only thing that should have been done was for the Federal government to assume the sub-prime mortgages that they forced the lenders to provide and which they assured the lenders that they would cover through Fanny and Freddie. The government was legally and morally obligated to do that. Any other financial jaberwockies are strictly the problem of those that suffer from them.
As for having a foreign power assume our debt, just try to imagine the inflationary tsunami that would ensue if China and the other holders of large amounts of US dollars decided to dump them onto the market at a substantial loss. One loaf of bread, $20.

Roy| 12.29.08 @ 12:18AM

All I can say is, I'm going to wait to see whose money the government is going to forcibly take in order to hand to others before making any decisions. When I do those decisions will be geared towards ensuring that I am in the latter group and not the former.

Any government intervention, no matter how well mulled over by econometricians, causes that effect. So the best thing Obama could do from my perspective is make clear as soon as possible when he is going to be done screwing with the economy.

Bob| 12.29.08 @ 7:19AM

Actually, RSM, you ALWAYS talk about psychology in economics. There is always an overreaction to physical attributes that effects the economic result. For that reason, the demand side is certainly part of the equation. Greenspan, who is certainly not a Keynesian, called this "irrational exuberance". Please talk with some mainstream economists and they will back me up on this.

Furthermore, most mortgages and jobs are just fine. Most people's finances are not that different. It is fear that is driving them -- and that is NOT supply side dynamics.

Regarding the capital loss -- you are misreading what occurred. The capital was never there to begin with -- so it cannot be lost. The people that made the biggest gains also had the biggest losses. It was 30 to 1 leverage WITHOUT the capital backing it up that was the problem. Leverage is great if the underlying dynamics are strong but a real bear if the underlying dynamics go down.

The other thing I would warn you about is to stop being so simplistic and ideological when you analyze complex issues. This is what is wrong with ideologues on both the right and left and why I pick on you so much. I wish there were simple answers to these issues, but there aren't any. We've become a sound bite or tag phrase electorate rather than educated people who actually study the issues in depth. Supply side theories have not worked and neither has neo-Keynesian theories. The weakness of supply side has been that you have not seen economic growth during the most supply side administrations but you have seen a huge increase in debt. All debt really does is delay the inevitable result.

The truth is that it is worthwhile using BOTH supply side and demand side instruments to cobble together a solution. Where we have gone wrong is that there is no government restraint on the parts of either Democrats or Republicans. Politicians will always spend if they are in power. After all, isn't that what power is all about?

That's why a combination of selected stimulus with longer term effects makes sense. Even conservative economists agree with that. The issue is not whether we should do this, but how far we should go. I'm in favor of conservative limits on this.

Gee, RSM, your dependence on ideology rather than reality drives me up the wall.

VinceP1974| 12.29.08 @ 11:41AM

The writing is on the wall. It's only a matter of time.

The US Dollar is dead

We have been living in phantom prosperity since the Dot Com Phony Economy and the economy needs to collapse because nothing is really worth its current value.

Any attempt to prevent the economy from reverting to its true value will make things even worse.

The Federal Govt is bankrupt.
Once "the world" realizes the Dollar is worthless, Foreign nations will not be funding our trade deficit any longer. No one will be funding our budget deficit any more.

We in the beginning of what could be the end of the Federal Govt as well as an end to our military strength.

Bob| 12.29.08 @ 12:03PM

Vince, the U.S. debt is primarily a result of supply side economics as implemented by Reagan and Bush. Take a look at the following chart that graphs how much we owe other nations.

http://zfacts.com/p/318.html

There has always been a fallacy that supply side economics leads to growth in the economy. This is just not true as you can see by the following graph of GDP:

http://www.data360.org/dsg.aspx?Data_Set_Group_Id=230

VinceP1974 | 12.29.08 @ 1:02PM

Bob: I'm not interested in your partisan war. Tell it to someone else.

Bob| 12.29.08 @ 2:38PM

Vince, it is not a partisan war. It is an attempt to get conservatives to be fiscally conservative. The main reason we have a weak dollar is the debt. Supply side thinking only makes the debt deeper -- that was my point. Excessive spending on programs that were never intended to be part of our federal government is what we presume will be the Democrat response. In order to reduce the debt, Republicans need to change their thinking to a more pragmatic methodology and stop this supply side nonsense that has proven not to work.

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