The American Spectator

Indiana Alex| 5.1.09 @ 8:08AM

The shortage of capital is going to be even more severe given the extent of government borrowing.

Of course the left isn't interested in capital formation because that can make people rich.

They only want the Kennedys, Kerrys, Rockefellers, Soros, and the rest of the trust fund aristocracy to be rich.

jim rice| 5.1.09 @ 8:32AM

The fundamental problem with the economy is that capitalism is an evil creation that only survives b/c it capitalizes on the one thing we all have: personal greed.

We try to remove the greed factor through regulation after regulation, but when the only motivation in an economic system is personal wealth, and the attainment of such is lauded as "success," people will continue to do whatever they feel like doing to achieve that goal. Whether it's stupid, reckless, or harmful to themselves or others.

No matter what either party does, they're just rearranging the deck chairs...

Becky| 5.1.09 @ 8:45AM

Capitalism in and of itself is not evil, it is inanimate as much as your tv set. The personal greed of the recent financial problems includes the greed of public officials and their meddling with the incentives (CRA, for example).

Individuals acting on their own behalf are still collectively wiser than a few self declared smart individuals acting on everyone's behalf. While mistakes will be made in both scenerios, individual choices have the greater chance of cancelling each other's out, resulting in less net damage (if any) than when an individual acting on behalf of millions makes the wrong decision.

Bob| 5.1.09 @ 9:14AM

McArdle's "analysis" is typical of Republican responses these days -- all criticism and no solutions. We are in a deep recession and the Hooverian solutions of many Republicans will cause the problem to get worse, not better.

While I don't like his solution, Obama is absolutely right that we must address health care costs in this country as according to budget projections, this is what is causing most of the budget problems in the future. Furthermore, social security and medicare need to be downsized as they represent 53% of our federal budget.

So where are Republican/Conservative solutions to these issue. The real problem is that Republicans are simply leaving a void that the Democrats are filling. Furthermore, the more Republicans move hard right, the bigger the void becomes.

The Republican budget solution of "freezing" was a copout -- and everyone knows that. It just makes the party look more foolish and incompetent.

There are conservative solutions to these issues that are actual plans. Things like tiered health care, flat taxation without deductions, means testing for entitlements, indexed benefits, etc. I've talked about many of them here. So where are Republicans on this?

The problem with extremists like RSM, is that they are so wrapped up on being critical of the opposition, that they provide no solutions. They are not open to developing new ideas because their strict ideology prevents them from doing so. In addition, extremists have no sense of compromise -- and compromise is necessary in a democracy.

John| 5.1.09 @ 9:35AM

Megan McCardle is a Republican??

I thought she was a libertarian who voted for Obama. But if Bob says it, it must be true. Megan must be a liar...

Bob| 5.1.09 @ 9:43AM

John, I didn't say she was a Republican -- only that this is typical of a Republican response. Why do you think it was posted in AmSpec in the first place? Please stop with the "inferences".

Jeff| 5.1.09 @ 9:45AM

Megan also supported the bailout of large Wall St. firms with this justification: "Money is weird. Finance is weird."

Megan is a wannabe libertarian schooled in Monetarist economics. She has yet to identify why that won't work.

Old Texican| 5.1.09 @ 9:47AM

Mr. Rice is certainly enjoying his victory lap isn't he?
He is certainly not greedy, he just wants what we have earned.
By the way, any of you with above room temperature IQs need a quick and easy answer to his definition of Capitalism: "Capitalism is simply trading value for value" . (Of course if you have nothing of value, ie: hard or smart work, or gifts of intelligence to trade...then you need to vote with Mr. Rice.)

Austin Scott| 5.1.09 @ 9:51AM

Bob: Do you know anything about what Hoover did to address the recession? Much the same kind of thing as FDR -- and Obama. And a good argument can be made that statist solutions made things worse and not better.

Just A Guy| 5.1.09 @ 9:55AM

Or, "Capitalism is simply trading in a way that benefits you". Which implies there is a system where you trade in a way that does NOT benefit you. Hmmmm, wonder who that system really benefits. Is it any wonder it has to be enforced at the point of a gun.

MattSwartz| 5.1.09 @ 9:59AM

Peacetime capitalism benefits everyone. Wartime capitalism benefits only the rich and politically connected.

The latter ruined the GOP.

If the Democrats imitate it by re-declaring their wars on poverty, carbon, scarcity, and other facts of life (while continuing the Bush occupations), then they will be soundly defeated soon enough.

Jeff| 5.1.09 @ 10:04AM

Not to hog the comment space, but I failed to mention something. R.S. McCain is right. The economy will get worse. The government will continue its insane monetary policy, and the Fed will be forced to ever more dire measures to contain inflation. There is a lot of bad money in the economy. The government bailouts just created more of it. Stupid investors have to take their losses. Ultimately they will have to. I just hope they don't use the government to confiscate more wealth from me from me, until then.

John| 5.1.09 @ 10:11AM

Jeff-great point.

And let's not forget, the ever increasing monetary costs of statism. Despite Obama's grandiose plans for bigger-and-better government, someone is going to have to pay. Already the Treasury will be issuing billions more in Treasuries, and the buyers of that paper (notably China) will want higher yields. That means higher interest payments for us, the taxpayer.

Great job Barry.

Bob| 5.1.09 @ 10:19AM

Austin -- I'd like to reference two politicians you should learn something about: Senator Reed Smoot, a Republican from Utah, and Representative Willis C. Hawley, a Republican from Oregon. Are you really going to make the argument that Hoover was the same as FDR?

KevlarKevin| 5.1.09 @ 10:31AM

Bob writes above "We are in a deep recession and the Hooverian solutions of many Republicans will cause the problem to get worse, not better. "

Bob, you are an idiot and maybe a liar too. Hoover was a massive statist who helped open the door to FDR's later even bigger stampede to statism. Bush and Obama's economic program is perfectly "Hooverian." The Rs today are much less Hooverian than Bush. Tell John Podesta he should stop hiring obvious trolls to prowl TAS.

Bear1909| 5.1.09 @ 10:31AM

The fundamental issue of the economy, not even mentioned in the flurry of "symptoms" being bandied about in the press, the governments, and blogs, is the issue of Trade Imbalances.

The complex connections of trade imbalances world wide to currency manipulations, bubble creations, job loss by exportation to cheap labor markets.....yada yada yada.... are enormously important. Let's have that discussion, my fellow conservatives.

Interested Conservative| 5.1.09 @ 10:33AM

Bob - maybe we can have more hope and change in 2012 (or 2010)?

I don't discount the possibility that the popular vote could give the democrats 8-10-12 years to not find a solution (see "Depression, Great - 1929-1946"), but these are different times and different voters.

As an example, what were Reagan's first acts succeeding Carter? Tax cuts, defense, and firing Patco - very much keeping in the spirit of his campaign. FDR too made dramatic changes with even more carte blanche.

What are POTUS Obama's? Pretty much whatever drafts Reid/Pelosi and staff have had lying around for 20 years.

RSM's point being that if nationalizing the car industry, and something similar to finance, don't work, the alternatives are obvious, whether the GOP explicitly delineates them as you propose or not.

I expect POTUS Obama to start a fear and gloom campaign mid 2010, but he won't be able to blame "evil" forces - that's already claimed. It will be quite the difference from what we'll all fondly remember as hope and change.

Martin| 5.1.09 @ 10:38AM

Bob, both Hoover and FDR tried big government approaches to the Great Depression, and neither work.

If you want to see a successful approach, look at Britain, where the great Neville Chamberlain as Chancellor of the Exchequer cut government salaries 10% (because the option value of civil servants' job security was greater in a depression), fired Keynes from the Treasury, held down government spending and presided over the best 5-year growth period in 1932-37 in British history.

Keynes lost a fortune on his investments during his 1931-39 exile, and was fired from his board membership of an insurance company. Insider trading just doesn't work when you lack inside information.

daboss| 5.1.09 @ 10:40AM

Hoover = Bush
FDR = Obama

How did that recession/depression work out for everyone? Pretty poorly.

Maybe we should look at what the gov’t did during the depression of 1920 (I think). Oh wait, they did nothing. That’s why no one has heard of it. The market corrected itself without intervention. When hoover/fdr intervened, they prolonged it to 10 years?

If the core of this recession is due to DEBT – then DEBT cannot fix it.

Bob| 5.1.09 @ 11:39AM

Martin/Kevlar -- where do you get your data? What are you smoking? EVERY President has made the government larger including Reagan and Bush. All of our Presidents have been big government notwithstanding what they have said. Here is a chart of federal spending from the conservative Heritage Foundation:

http://www.heritage.org/Research/features/budgetchartbook/fed-rev-spend-2008-boc-S1-Federal-Spending-Has-Increased.html

If you don't understand that, you don't understand economics. Hoover's stance on the economy was based on volunteerism. He was afraid that too much government would hurt the economy and thus pushed public-private partnerships. He was concerned about the mounting debt and thus implemented tariffs. Hoover declined to pursue legislative relief, believing that it would make people dependent on the federal government. It was only at the very end of his Presidency, when his hands off position produced no results, that he finally started some government help. But that was too little too late and not representative of what he did for the great majority of his Presidency. And it didn't work!!!

So please guys, learn your economics and some history. And by the way, as I've stated here, economists generally do not make good investors -- they are completely different disciplines.

IC -- Over the past four months we have seen the economic indicators on production, inventory, and business sentiment consistently improve. While we will see some wobble in results over this next year or two, there is no doubt that we are in the beginning stages of a recovery. For that reason, the timing for 2010 is perfect for the Obama administration. Unemployment, being a lagging indicator, will continue to rise until probably the end of this year, beginning of next. However, currently with demand being greater than production, we will see a drop in unemployment in anywhere from 6 months to 1.5 years.

And remember, tax cuts are NOT stimulative over the short term. So referring to Reagan's actions have little meaning. Again, here are the charts:

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

http://www.heritage.org/Research/features/budgetchartbook/fed-rev-spend-2008-boc-T1-Income-Tax-Receipts-Stay-Constant.html

Obama, just like FDR, will not have to make any "doom and gloom" efforts in his campaign. Besides, he has already learned so much information, that he will make any Republican opponent look dumb. Unless the economy really tanks -- and the economic indicators tell the exact opposite story -- Obama will win by a comfortable margin.

normally I post as Bob| 5.1.09 @ 11:42AM

Extremist? Capitalism…evil?
Actually conservatives are consistently offering solutions; you just pretend not to hear them.
Most of our current economic trouble has at its root central planning i.e. government intervention into the market distorting prudent risk calculations in favor of social engineering and political outcomes.
A further government intrusion into the market that compounded the crisis many fold was the accounting rules crafted in response to previously banking crisis (also caused by government action).. Government is always writing laws after the fact to “correct” or punish the last time they screwed something up… the rules congress put in place that forced all of these institutions to aggressively write down their portfolio values accelerated and compounded the evaporation of capital.
Then to fix the problem the government got even more aggressively involved and further disrupted markets. The door opened by the previous administration (yes it was Republican but decided not conservative) starts to decide which company should and should not fail. The Market has a time proven mechanism for correcting problems when companies take imprudent risks it is called bankruptcy.
All of these companies had a combination of valuable assets and worthless assets, in bankruptcy investors would have purchased the better assets and those perceived as worthless would have sold at a lower price to firms for whom the risk reward calculation made sense. Government’s intrusion had two very corrosive effects; first in choosing who would and would not fail created uncertainty as to the actual condition of the entire banking industry secondly and more corrosively the value of troubled assets was further distorted. to the point of destroying the market for them. Holders were unwilling to sell in the belief that the government would pay a higher price. Since then a new administration has taken office which more aggressively embraces intervention and we are witnessing the nationalization of the banking, auto and health industries.
The conservative plans have been simple, to immediately increase demand for products put money in the hands of consumers and businesses. DO this by an immediate tax holiday suspending all taxes, suspend the income tax, social security and Medicare taxes. For business suspend matching social security and Medicare taxes, as well as all business income taxes. for investor suspend all capital gains taxes. This would immediately increase money available for spending and investment and job creation.
The problem for the left is they would not be able to control who gets how much or spends what they have on some extraneous social objective.
Conservatives trust the market, that people acting in their own best interest will more efficiently choose how and where to apply their resources, rather than some government official.
What Obama and the democrats are doing is sowing the seeds of the collapse of our economy while ceasing as much control of the economy as possible. Inflation is going to explode at some point in the not too distant future. There is no doubt that it will happen only when. No country or individual ever borrowed their way to prosperity; no centrally planned economy has ever worked or been as prosperous as its free market competitor.
Take your victory lap proclaim your ascendance over market forces and deny reality all you wish. The free market is the most fair and efficient model ever conceived, it has provided greater wealth to more people in more places than any alternative. Your socialist utopia does not and will not exist because at its core it is flawed. It is primarily driven by how the pie is divided and ‘fairness’ and ‘justice’ as defined as equality or leveling of outcomes. The darker inner core is its distrust of the individual which must be controlled by the enlightened elite. Capitalism has at is foundation the trust individual, its primary focus is growing the whole pie so that everyone has more. There have always been and will always be differences in how much any individual is able to accumulate. Because some are willing to get up earlier work harder and longer and smarter. But compare the under privileged in this country to anywhere that has a controlled economy and you will see that our poor while far less well off than our rich, have material and wealth than their counter parts and even the middle class in much of the world. It is capitalism that you hate that has provided this and our system of government that made it possible.

Interested Conservative| 5.1.09 @ 12:03PM

Bob - wow - just wow.

"Obama, just like FDR, will not have to make any "doom and gloom" efforts in his campaign. Besides, he has already learned so much information, that he will make any Republican opponent look dumb. Unless the economy really tanks -- and the economic indicators tell the exact opposite story -- Obama will win by a comfortable margin."

That's going onto the fridge. It's right out of the Bush 92 re-election strategy.

Interested Conservative| 5.1.09 @ 12:05PM

But don't get me wrong, the GOP could find a completely incompetent candidate or run another also-ran a la McCain or Dole '96. That would make it easier for POTUS Obama, but that 15% inflation will be quite a headwind.

Bob| 5.1.09 @ 12:09PM

Normally -- again, you post rhetoric without the data to back it up. As I have proved with data, tax cuts are not stimulative in the shorter term, and may not even be stimulative in the longer term. In fact, GDP growth was greater under that tax increases of Clinton than the tax decreases of Reagan or Bush.

You certainly don't understand the fundamentals of economic analysis in your remarks. The problem is that most people use the "flat earth" argument that if you put more money in people's hands, it will improve investment and productivity. In fact, that is just not true. If you look out your front door you will say the earth is flat. However, if you fly at 50,000 feet, you know it is round.

The reason for this is that capital flows to where it can get the greatest returns. Given that 40% of people do not pay income taxes, these cuts primarily go to the wealthy. They put that capital into international companies and growth countries -- IT DOES NOT COME BACK TO THE U.S.!!! That just pushes these companies and countries to grow faster and take more jobs away from our country. Furthermore, the taxes paid on these investments go to other countries, not us. Your simplistic view of a complicated structure is your problem.

And by the way, China and Singapore are centrally planned economies and it is working quite well over the longer term. Now, I'm not arguing that China's structure will work for us -- it won't. However, your simplistic statements are just not true.

Bob| 5.1.09 @ 12:15PM

IC -- Bush 92 fought against an economic downturn. Obama 2012 will show an economic recovery. If the economy tanks, Obama might lose. If it gets better than it is now, even though it is only marginally better, then he will win. "It's the economy, stupid." (not you, that was a Clinton quote)

Again, I explained that you won't see 15% inflation. Only uneducated extremists believe it will be that high. I do expect inflation to reach the 5-10% range, however, from all of the numbers I've seen. And by the way, seniors getting interest like some inflation. Inflation will also effect housing prices making that market work a bit better. Inflation has many negatives, but some positives.

Normally bob| 5.1.09 @ 12:45PM

Actually if in the short term as proposed you include SSI and Medicare tax cash would go to virtually everyone working.
Why do you think that Capital leaves the country... could it be because of how we tax it.
China has prospered in direct proportion to its relaxing central control on the economy. As they have allowed more market freedoms their economy has exploded.... I believe that China actually helps make my argument rather than refutes it. It clearly will never achieve its full potential until it dramatically increases both political and economic freedom.
Not rhetoric fact... Singapore is a city state uniquely positioned geographically on an important trading route not sure that is a real good comparison.
I love the tactic you use to disparage and dismiss a reply. Too simplistic, empty rhetoric, where sir are your facts? IS it because you utter them it is fact?
You failed to address the central point that government inefficiency and intrusion is the central cause of this entire debacle. In fact you actually refer to a government caused phenomenon as a problem with my answer; namely that due to tax policy in this country capital is being driven off shore.
I believe a far argument can be made that the economic expansion that took place from the 80s until this contraction are largely the result of the Reagan tax cuts. How do refute that tax receipts to the government actually increased after the tax cuts? The cause of the deficits was the spending that has been increasing out of control and now is epic in its irresponsibility.
Drop the class envy equality of outcomes tint to your glass and look at the real world for a few moments. Tell me which agencies of this massive bloated monstrosity of a government effectively and efficiently accomplish anything. EPA, HHS, DHS, Energy, education? Which one of these do you want designing your next car? Which one do you want deciding whether or not you should get a loan? More importantly which one do you want making the decision as to what treatment is most appropriate for your son or daughter or your mother or father.

Bob| 5.1.09 @ 1:30PM

Normally, I have see absolutely no data that would support the proposition that capital leaves the country because of taxation. Here is a chart of total taxation as a percent of GDP by country:

http://www.nationmaster.com/graph/tax_tot_tax_as_of_gdp-taxation-total-as-of-gdp

We are nowhere near the top of this list. Again, you are taking the rhetoric without looking at the data. Please do your homework. Remember that marginal rates are not the same as effective rates.

Regarding the current problem, it is NOT government intervention that was the main cause. If you believe that, you certainly don't understand economics. The problem arose because of securitization, risk transfer, leverage, and a housing bubble. It was a market driven bubble, not a government driven bubble. Philip Klein wrote a good explanation of this a couple of weeks ago. If you think it was Fannie/Freddie/CRA then you certainly don't understand the basics of the market and risk transference.

Bob| 5.1.09 @ 4:09PM

Bob.
Actually I do understand risk transference and securitization. What caused the over leveraging, what blew up securitization?
Lending institutions were forced to make loans that were outside of traditional risk norms. I work in the financial services industry, I am aware of the pressure put on institutions by the likes of the Office of thrift supervision and others for lenders to make loans to people and in places they did not want to make them.
Do not miss interpret my statements to mean I do not see responsibility in the private sector as well, I am not saying that at all. I am saying that what created the market in the first place was a government mandate that kept pushing less qualified borrowers into the system. Freddy and Fannies implied backing of these instruments was taken as a green light to unbelievable excesses. The government lit the match… the banking industry and investors provided the powder. It was just a matter of time. The proper fix to this explosion is not more market intrusion but bankruptcy, business that take imprudent risks fail are liquidated and new opportunities created.

Normally Bob| 5.1.09 @ 4:27PM

Oops left out the normally in my last.
Bob, I have found a number of articles including a 10/2008 earnst and young study a reuters artcle and litterally thousands of others in support of my views. When you add the capital gains tax to the double taxation of corpoarte income we are at a particular disadvantage.

But many countries have a capital gains tax far lower than our own with many have no tax on capital gains.

I was referring to capital gains tax you link compares tot taxation. I think in terms of the specifics of our discussion relating to capital flight the tax on capital gains your refernce is meaningless.

Bob| 5.1.09 @ 4:28PM

Normally, we both worked in the financial services industry. I was involved in securitizations in the 80's. Lending institutions were NOT forced to make these kinds of loans, but they were allowed to transfer all of the risk for these loans. Remember the vast majority of these loans were not Fannie and Freddie. The GSA's only accounted for about 30% of the subprime loans. The rest were marketed as derivatives to investors. Also remember that Fannie and Freddie got the best of these. The fact that you could transfer potentially high risk into highly rated CDO's was the thing that made this whole scheme work. Governmental "pushing" was just a minor element. The OTS could not have pushed anything if risk transference was not there.

I agree that bankruptcy is part of the answer. But before you do that, you need to have the mortgage originators take some of the risk. I know that the companies I worked for (and I've attended many lending meetings), would not have been as free with lending standards if they could not securitize.

The basic principle here in a free market system is that companies who create risk should be responsible for the risk they created. Once you transfer the risk, you no longer have a free market system -- you have a Ponzi scheme.

Bob| 5.1.09 @ 4:40PM

Normally -- I believe that having a differential in capital gains taxation is part of the problem. We should have a flat tax that is nondiscriminatory. Cap gains is a way that government intervenes into market. I don't like government intervention which is why I believe that all income should be treated the same notwithstanding the source. We need to get government out of the incentive business. For that reason, a flat tax makes sense which would get rid of almost all deductions and include social security and medicare. Then I would let the market determine whether people are successful or not -- not the tax code. Neither Republicans or Democrats like these ideas because it would reduce their influence. I happen to believe that is a good thing.

But then again, I am a confirmed RINO so I don't care what the ideological right, or left, thinks.

Normally | 5.1.09 @ 4:44PM

I think the surities that got a slice for guaranteing the spread were a major factor as well. Talk about funny money, who ever ran a total on their exposure...

We will differ as to cause my experience was in working with insitutions more recently as OTS tried to force them to 'broaden' their portfolios into makets that had no desire to be in and in which they had no experience .

My overall belief is that government involvement equals waste and inefficieny at best and generally outright incompetence.

Bob| 5.1.09 @ 5:10PM

Normally, where we differ is in timing. I worked in the industry from the late 80's until 2004. I believe by the time I left in 2004, this downturn was set in stone. AIG already had more than 60% of their swaps done. By 2006, they stopped doing swaps. Anything that occurred after 2006 was just flailing and had little to do with any causes. Take a look at the housing bubble. By 2004 it was already a huge problem.

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