Category Archives: Economics

The President’s Distractions

Thoughts from Mark Steyn:

Only a week ago, the North Korean missile test was an “annoying distraction” from Barack Obama’s call for a world without nuclear weapons and his pledge that America would lead the way in disarming. And only a couple of days earlier the president insisted Iraq was a “distraction” — from what, I forget: The cooing press coverage of Michelle’s wardrobe? No doubt when the Iranians nuke Israel, that, too, will be an unwelcome distraction from the administration’s plans for federally subsidized daycare, just as Pearl Harbor was an annoying distraction from the New Deal, and the First World War was an annoying distraction from the Archduke Franz Ferdinand’s dinner plans.

…Er, okay. So the North Korean test is a “distraction,” the Iranian nuclear program is a “distraction,” and the seizure of a U.S.-flagged vessel in international waters is a “distraction.” Maybe it would be easier just to have the official State Department maps reprinted with the Rest of the World relabeled “Distractions.” Oh, to be sure, you could still have occasional oases of presidential photo-opportunities — Buckingham Palace, that square in Prague — but with the land beyond the edge of the Queen’s gardens ominously marked “Here be distractions . . . ”

As it happens, Somali piracy is not a distraction, but a glimpse of the world the day after tomorrow. In my book America Alone, I quote Robert D. Kaplan referring to the lawless fringes of the map as “Indian Territory.” It’s a droll jest but a misleading one, since the very phrase presumes that the badlands will one day be brought within the bounds of the ordered world. In fact, a lot of today’s badlands were relatively ordered not so long ago, and many of them are getting badder and badder by the day.

As I’ve noted in the past, the main thing that finally saved the economy from Roosevelt’s tinkering was the “distraction” of World War II, and then his death. It recovered nicely after the war, once the economic sage of Hyde Park could no longer prevent it. I hope that the current president finds lots of distractions from his own plans for the economy.

Some Thoughts On Charity

Arnold Kling:

From a libertarian perspective, your generosity is reflected in what you do with your own money, not in what you do with other people’s money. If I give a lot of money to charity, then I am generous. If you give a smaller fraction of your money to charity, then you are less generous. But if you want to tax me in order to give my money to charity, that does not make you generous.

But it does seem to make you self righteous.

A New Nominee For Car Czar

Iowahawk nominates himself:

As such, I realize the industry is not suffering from a lack of law professors — it is suffering from a lack of imagination. They gave us cup holders and electric seat warmers when we wanted angel fur and bubble tops. They pushed micro-clown cars and hybrids when the market was rife for chromed 8-deuce Chrysler Hemis. Well, Bucko, all that outmoded thinking is going to end during the reign of Czar Dave. Saving the American auto industry is going to be a big job, but I won’t be doing it alone. I have already appointed my own shadow Council of Automotive Advisors, a select group of successful auto manufacturers whose qualifications appear after the jump. Many are close personal friends of mine, and I can attest to their patriotism, integrity, ingenuity, and wonderful lack of law degrees.

Why not? We could do worse. And almost certainly will.

And as you can see, his advisory council is without peer. I particularly like the discreet tasteful town car to get him to important meetings in our nation’s capital.

Arrogance

More projection from a leftist:

Just a few days ago in a meeting with American CEOs of American banks, President Obama’s tone and attitude were rife with the arrogance, dismissiveness, and derision he had just criticized in Europe. A participant in the meeting told Politico that when the CEOs tried to explain that the nature, complexities, and competition of the finance and banking industries required that they continue retention bonuses for their employees, the president became impatient. He interrupted them and said, “Be careful how you make those statements, gentlemen. The public isn’t buying that. My administration is the only thing between you and the pitchforks.”

The imagery behind Obama’s threat couldn’t be more obvious: comply with my demands or I will make sure you are harassed, intimidated, and run out of town on a rail. He made them an offer they couldn’t refuse. Don Corleone couldn’t have said it better.

We can not forget, however, that it was Barack Obama himself along with his fellow Democrats who agitated this mob-like frenzy about the banks, the CEOs, and the bonuses. It was Obama who said the bonuses were an “outrage” and a “violation of our fundamental values.” Democrat Barney Frank hauled AIG’s CEO in front of the House Financial Services Committee and interrogated him, demanding to know why he approved the hundreds of millions of dollars of bonuses. Conveniently, Congressman Frank failed to mention that the approval was inside the very stimulus bill Obama championed and the Democrats overwhelmingly voted for.

Funny, that.

How We Got Here

A useful talk on the cause of the financial crisis:

Before talking about how we did get here, let me say a quick word about what didn’t cause this mess. Those who wish to blame greed for the crisis need to explain how and why it is that greed seems to causes crises only at specific times, despite the fact that it is omnipresent as a feature of human nature and market economies. As the economist Larry White has noted, if we saw a bunch of planes crash all on the same day, we wouldn’t blame gravity. It’s always there. Something else must be at work. I would argue that the key is the set of institutions through which greed or self-interest is channeled. That is, good institutions can cause self-interest to generate desirable unintended consequences, and bad ones can cause undesirable ones. So perhaps we should be looking at institutions and policy.

Those who wish to blame deregulation or the supposed “laissez-faire” philosophy of the Bush Administration are going to have to identify the deregulation in question, which will be a challenge given that the last deregulatory legislation in the financial industry was in 1999 under Clinton. These folks will also have to explain how the enormous growth in the Federal Register and domestic spending over Bush’s two terms reconciles with his supposed belief in laissez-faire. Answer: it doesn’t.

The two key causes of this crisis are expansionary monetary policy on the part of the Fed and a series of regulatory and institutional interventions that channeled that excess credit into the housing market, creating a bubble that eventually had to burst. In other words, the boom (and the inevitable bust) are the product of misguided government policy, not unbridled capitalism.

The Fed drove up the money supply and drove down interest rates very consistently since 9/11. When central banks do so, they make long-term investments relatively cheaper than short-term ones, thus the excess funds flow toward such goods. Historically, these were producer goods in capital industries, but in this particular case, a set of other government interventions and policies pushed those funds toward housing.

A state-sponsored push for more affordable housing has been a staple of several prior administrations. Fannie Mae and Freddie Mac are key players here. Although they did not orginate the questionable mortgages, they did develop a number of the low down-payment instruments that came into vogue during the boom. More important, they were primarily responsible for the secondary mortgage market as they promoted the mortgage-backed securities that became the investment vehicle du jour during the boom. Both Fannie and Freddie are, we must remember, not “free-market” firms. They are “government-sponsored entities,” at one time nominally privately owned, but granted a number of government privileges, in addition to carrying an implicit promise of government support should they ever get into trouble. With such a promise in place, the market for mortgage-backed securities was able to tolerate a level of risk that truly free markets would not. As we now know, that turned out to be a big problem.

Read all. It also points out the ways that this mess is the debris of the New Deal and the depression.

And yet the lies that got Obama elected — that this was caused by “greed,” “deregulation,” and “tax cuts” continue, and continue to be used to justify running up the national debt to insane levels and nationalizing vast swathes of the economy.

[Update at 9 PM Pacific]

Richard Epstein:

…we take [failing enterprises] away from bankruptcy judges, who are experts, and give them to a collection of congressional individuals who are charitably called clowns. When you bring commercial decisions to Congress they become politicized, and politicized decisions become destructive decisions.

Charitably indeed.

Who Controls The Means Of Production?

We now see the consequences of government bailouts and “too big to fail”:

I think anyone who owns auto-sector debt (whether directly or through a pension or life insurance policy) should be very concerned — they can only find their interests made subject to the political interests of organized labor. Further the American people should probably also be concerned, as we will continue to support with tax dollars a company that has simply proven itself incapable of competing in a free market for the last several decades.

Secondly, we should all be very, very concerned that the White House had decided that it is within its writ to decide who the captains of industry are. The CEO of any company should be chosen by its Board, as elected by its shareholders. The shareholders of GM have just been disenfranchised by a Presidential phone call.

Chief Executives being chosen by politicos is probably common in China or Russia, but those are not countries we want to be emulating. I do not like this at all.

Neither do I. And there’s a word for it.

It starts with “f.”

[Update a few minutes later]

Kaus: Obama’s Diem?

And Lileks twitters: “Maybe I’m old-school, but ‘President fires CEO’ looks as wrong as ‘Pope fires Missile.’ Does not compute.”

[Noon update]

More on why this is such a bad idea:

GM is now Obama’s company. If it closes, it will be on his say-so. But Obama is a politician, not a CEO. So his first concern is to avoid bad political fallout, which means he will prop up the company for as long as it takes, regardless of what makes economic sense. This, in turn, will likely make the company either less economically sound or, it will rebound — but only by getting special breaks other companies won’t get. Either way, bad practices will be rewarded and/or good practices will be punished. More firms will see that gaming Washington pays off and the cycle will continue.

Of course, the good news is that being a law professor and community organizer totally prepares you to run huge white elephant multinational corporations.

The country’s in the very best of hands.

[Another a couple minutes later]

Mark Steyn:

The first quid pro quo for the government giving you money (or “investing”, as President Obama and David Brooks say) is that it gets to regulate your behavior. Not just who sits on your board or (see Sarkozy last week) where your factory has to be. When the government “pays” for your health care, it reserves the right to deny (as in parts of Britain) heart disease treatment for smokers or hip replacement for the obese. Why be surprised? When the state’s “paying” for your health, your lifestyle directly impacts its “investment.”

The next stage is that, having gotten you used to having your behavior regulated, the state advances to approving not just what you do but what you’re allowed to read, see, hear, think: See the “Canadian Content” regulations up north, and the enforcers of the “human rights” commissions. Or Britain’s recent criminalization of “homophobic jokes.”

You’d be surprised how painlessly and smoothly once-free peoples slip from government “investing” to government control.

There is such a thing as American exceptionalism, but the current regime is doing everything possible to obliterate it as quickly as possible. Don’t think it can’t happen here. It can, if we let it.

[Update a few minutes later]

OK, one more — the fascist bargain:

The fascist bargain goes something like this. The state says to the industrialist, “You may stay in business and own your factories. In the spirit of cooperation and unity, we will even guarantee you profits and a lack of serious competition. In exchange, we expect you to agree with—and help implement—our political agenda.” The moral and economic content of the agenda depends on the nature of the regime. The left looked at German business’s support for the Nazi war machine and leaped to the conclusion that business always supports war. They did the same with American business after World War I, arguing that because arms manufacturers benefited from the war, the armaments industry was therefore responsible for it.

It’s fine to say that incestuous relationships between corporations and governments are fascistic. The problem comes when you claim that such arrangements are inherently right-wing. If the collusion of big business and government is right-wing, then FDR was a rightwinger. If corporatism and propagandistic militarism are fascist, then Woodrow Wilson was a fascist and so were the New Dealers. If you understand the right-wing or conservative position to be that of those who argue for free markets, competition, property rights, and the other political values inscribed in the original intent of the American founding fathers, then big business in Fascist Italy, Nazi Germany, and New Deal America was not right-wing; it was left-wing, and it was fascistic. What’s more, it still is.

What’s amazing is how blind they are to it.

[Update after noon]

I feel much better now:

…starting today, the United States government will stand behind your warrantee [sic].

Yes, because, you know, that’s the proper role of the federal government under the Constitution. To stand behind GM owners’ warranties. To provide for the care-free pursuit of car ownership.

[Late afternoon update]

The Wall-Street/Washington Industrial Complex.

I’d Love To Change The World

The old Ten Years After standard should have been the Obama campaign’s theme song, since they told us that’s what would happen if we elected them:

One popular song when I was young was from one of those one-hit-wonder bands who are all but forgotten except for one great tune. The band’s name was Ten Years After and the song was “I’d Love to Change the World.” One memorable line went like this:

Tax the rich, feed the poor
Till there are no rich no more

I can’t tell you how many hundreds of times I sang along to that song before it dawned on me: “Hey, that ain’t right! Shouldn’t it be: tax the rich, feed the poor, till there are no poor no more?”

I have no way of knowing whether or not Ten Years After advocated the abolition of wealth, or if the line was a tongue-in-cheek way of sniping at the simplicity of the argument that removing the wealthy made the poor better off. But what I did know then was that I finally understood the definition of covet. It was to want something so much that if I couldn’t have it, then I wanted to deny it to anyone else.

That’s the politics of envy in a nutshell. Unfortunately, there’s evidence that it’s an evolutionarily evolved feature of human nature, and one of the reasons that the false promises of Marxism remain attractive and enduring, despite the vast amount of empirical evidence that it not only doesn’t work, but is disastrous from a humanitarian perspective whenever it’s seriously attempted. Read the whole thing