Category Archives: Economics

One Of The Ways The Government Caused It

Holman Jenkins explains:

Mark-to-market accounting is fine for disclosure purposes, because investors are not required to take actions based on it. It’s not so fine for regulatory purposes. It doesn’t just inform but can dictate actions that make no sense in the circumstances. Banks can be forced to raise capital when capital is unavailable or unduly expensive; regulators can be forced to treat banks as insolvent though their assets continue to perform.

What happens next is exactly what we’ve seen: Their share prices collapse; government feels obliged to inject taxpayer capital into banks simply to achieve an accounting effect, so banks can meet capital adequacy rules set by, um, government.

But wait! I thought that the problem was all of the (non-existent) “deregulation” and “tax cuts” of the Bush years!

It would help if we could get rid of, or at least reform Sarbanes-Oxley, too, but little hope of that with this gang in charge.

[Update mid afternoon]
Stop favoring the short sellers.

[Update a while later]

Michael Barone: “Ad hoc Fed, Treasury Actions Caused Crisis, Not Deregulation And Tax Cuts.”

Well, duhhh. But reality didn’t fit the Messiah’s message.

It’s Not Just Flint

Here’s a blog that tracks businesses closing in Saginaw, thirty miles up the road.

Now here you have functional commercial real estate, at bargain prices, close to scenery and abundant recreation just to the north, and a work force looking for work. Why aren’t businesses flocking there from other parts of the country?

Might the problem be fifty miles to the southwest, in Lansing? The state is spending a lot of Michigan taxpayers’ money trying to attract them — I’ve seen the television ads. What the ads don’t say is that in order to pay for the ads, it’s got high taxes, particularly on businesses, and that it’s not a right-to-work state. But Jennifer and the legislature will no doubt continue to point fingers everywhere else.

Logical Disconnect

Some of my commenters attempt to make the illogical argument that because the top marginal income tax rate was almost forty percent during the Clinton era that there is no harm in raising it back to that now. Jim Manzi dissects this foolishness. I doubt if they’ll understand it, though.

[Update a few minutes later]

Victor Davis Hanson — Oh What Debts We Will See:

Athens in the fourth century B.C. chose to mint “redheads”, silver coins with bronze cores that were quickly exposed once the patina around the coins’ imprinted busts wore off. Rome did the same thing, and by the fourth century AD simply flooded its provinces with money of little real value. Germany paid off its war debts to France in the 1920s, with deliberately inflated German marks. I lived in Greece during the oil-embargo hyperinflation of 1973, and remember buying individual eggs with three or four inked-in price figures crossed out, as the store-keeper kept upping the price each day. (And I remember farming in the early 1980s when full-strength Roundup herbicide seemed to go from $60 to $70 to $100 a gallon in a single year).

I don’t think any one knows what is quite going on. I recently gave a lecture, and a Wall Street grandee afterwards approached the dais, asking me for advice (me, who could not even turn a profit growing raisins, and was a lousy peddler of family fruit for years at Farmers’ Markets), saying in effect something like the following: “Mr. Hanson—Consider: Real estate bad—not going to put money there when I’m not sure where the bottom is. Stocks worse—had I got out at New Year’s, I’d have thousands more than I do now. Cash pathetic—the interest doesn’t even cover what’s lost to inflation. So what’s left—the dole?”

I had no advice, of course, other than some vague warning that we are in a war against capital, sort of similar to what Sallust and Cicero claim that Catiline and his band of dissolute and broke aristocrats were planning, with his calls for cancellation of debts and redistribution of property.

It seems less than vague to me.

[Evening update]

How to wage a war on business. Any resemblance to current administration policies are purely coincidental, of course.

A Recipe For Ruin

Victor Davis Hanson:

With Clinton we got high taxes (bad) but balanced budgets imposed by the spending caps in Congress (good). With Bush we got tax cuts (good) but deficits (bad). With Obama we get tax hikes (bad) and astronomical deficits (bad).

Two notes: We are not going back to the Clinton tax hikes, but something far scarier, with states raising taxes, the fed doing the same, and new proposals to lift the caps on FICA payroll taxes. And these vast increases won’t go to pay for the deficit, but to fund new spending/borrowing plans that come on top of deficit spending.

Weimar, here we come.

Moral Bankruptcy

Some thoughts on the mortgage crisis and “cram downs,” from Megan McArdle.

There seems to be a push on by the left to completely destroy crucial Anglosphere institutions, including contract law, without which we would never have built the wealthiest nation in history. How easy or cheap do you think that it will be to get a mortgage when the lenders realize that their contracts can be whimsically rewritten by an unaccountable judge?

A Lost Cause

Jim Powell, on continuing failed attempts to rehabilitate FDR’s Depression record:

Black commits one of the most familiar fallacies by reciting a litany of New Deal projects — libraries, schools, public works, and so forth — as if their funding came out of thin air. But government doesn’t have any money other than what it gets by (a) taxing people now, (b) borrowing money now and taxing people later, or (c) inflating the currency, which is another form of taxation. Every New Deal project on Black’s list meant that less money was spent elsewhere because it was taxed away. New Deal economics basically involved robbing Peter to pay Paul, with added inefficiencies along the way and a net loss for everyone.

Remember, too, that the New Deal was mainly paid for by the middle class and the poor, because the biggest revenue generator for the federal government during the 1930s was an excise tax on cigarettes, beer, chewing gum, and other cheap pleasures enjoyed disproportionately by those two groups. Until 1936, the federal excise tax generated more revenue than the federal personal income tax and the federal corporate income tax combined. Not until 1942 did the personal income tax become the biggest source of federal revenue. You can look it up in Historical Statistics of the United States, Colonial Times to 1970, volume 2, page 1107.

Perhaps Black is suggesting that politicians have a special talent for spending other people’s money in a way that will do more to stimulate the economy than if those people had spent it themselves. That proposition is laughable. All the available evidence verifies the common-sense truth that people are less careful with other people’s money than they are with their own. That’s true even when their intentions are good and their motives are pure — which was rarely the case in the New Deal. FDR’s spending programs stimulated a mad scramble among political bosses for control of the loot and the patronage.

This is an important debate to continue, because mindless and ahistorical worship of the New Deal lies at the heart of the current disastrous policies.