US Economy

[Kirkhill]

With all the talk of the New New Deal I found this 2002 lecture fascinating.  I was pointed to it by Gateway Pundit.

It is a good, easy and humourous read and needs to be read in its entirety.

Just remember FDR's Stamp Collection as you are reading this.

[Why the New Deal Failed
Speech given by Burt Folsom at Conservative University 2002
The following are remarks excerpted from Dr. Burt Folsom's lecture at AIA's Conservative University on why Franklin Roosevelt's New Deal failed.

How many of you in your history courses have talked about Franklin Roosevelt, the New Deal, the Great Depression, and the 1930s? How many of you had your professor speak about Roosevelt in a very positive sense, that he was a good president?

Well, I have thirty minutes to try to change your minds.

I realize that in the 1997 Schlesinger poll-conducted by a prominent historian-Franklin Roosevelt was ranked even ahead of Abraham Lincoln and George Washington, both. He was ranked number one. This is surprising because under FDR we're going to have unemployment that's going to reach almost 25 percent. It's going to linger throughout his first two terms. It's a dreadful time in American history.

Now before we get into the specifics of Franklin Roosevelt and the New Deal, which was the name of his government program, I wanted to begin by announcing some of the results from a Fox News poll that was done over a year ago. The poll asked, "When the government spends money for programs, does it get the money from taxpayers, or does the government have an independent source of revenue?"

Let me start with the answer this way. Eleven percent weren't sure. They were undecided. Forty percent said government gets its money from taxpayers. Forty-nine percent said they have an independent source of revenue. So the answer to the poll was 49 percent said government has an independent source of revenue that it uses to spend money for programs; 40 percent said no, every time it spends a dollar on programs it has to get the dollar from taxpayers; and 11 percent were undecided.

Can you see why after this poll, when we have government programs that fail, it does not result in throwing those who perpetrated the program out of office? You have one group that gets a sizable vote-forty percent-that is mad about it. But there are others who say: "Hey, it's not my money. It's the government's money. At least they tried."

Keeping that poll, and the results of that poll in mind, let me go over a fallacy of economics that was well developed by Henry Hazlitt. He wrote a book called Economics in One Lesson. It's a very readable book in economics, which is saying something. Now what he did in that book was to describe the broken window fallacy. Let me modify it, and present it to you this way. Let's say that we have a nice suburban area sort of like we have here in Washington, DC, out in Chevy Chase. And we have some guy there who has a nice picture window, and some kid goes by, a hoodlum, and throws a rock through that window, breaks it. And let's say that it costs $500 to replace that window. Well, our first reaction might be: What a horrible thing. Let's catch the perpetrator." But what if somebody else came up and said, "Wait a minute. The window's been broken, some time has elapsed, we haven't caught the guy, but maybe we shouldn't catch him to throw him in jail. Maybe we should catch him to pat him on the back. Because I've observed what's happened in that house and what's happened is this: He broke the window, but the guy who had the window broken called up the glassmaker and the glassmaker put the window in and installed it for $500. Then the glassmaker took that $500 and bought a DVD player. He also bought a couple DVDs. And then he bought a reclining chair to sit back and watch the movies, all with that $500. So that broken window has generated business and now we have more DVD sales, more reclining chair sales, and it's generated business all around town. So isn't this a good thing?"

Where's the problem with this argument? The valid point here is that the guy whose window was broken also might have wanted to buy a DVD player and a reclining chair. Or he might have wanted to buy a suit of clothes and some insurance. So that guy, and the tailor, is out $500 because instead of buying a suit and a shirt, he now had to pay for the window. You never generated real business because the guy who had the window broken is out $500 and the guy who had replaced the window is up $500, but the guy who had the window broken would have also been spending $500. So there's really no net gain. Hazlitt called this the broken window fallacy.

Do you see the linking of the Fox News poll and the broken window fallacy? If you have a government program, the taxpayers pay for it. You never actually generated a job with that program; you merely transferred dollars from the taxpayers to the government. The taxpayer would have bought radios, or TVs, or DVD players with that money. Or he could have put it in the bank and it would have gone out for a loan to someone. See, the point is it would have been put to use, but instead it was taken from him, given to someone else who now has a job. But the only thing that you see is the job that was created. If you understand those principles, you can understand why the New Deal failed.

The New Deal consisted of a set of programs initiated by Franklin Roosevelt and the Democrats in Congress. Those programs transferred assets from taxpayers, centralized them in the federal government, and dispersed them supposedly to create new jobs. However, every time you see a New Deal program, you need to see that money leaving a taxpayer's hand. Once you mentally see that shift taking place, you're alert that a job was never actually created. What I want to do is to go through some specific programs and then I want to go through some statistics to demonstrate the point. I'm going to hit some of the best-known programs.

The Works Projects Administration was set-up under Roosevelt with his good friend Harry Hopkins. They created, to use their rhetoric, over five million jobs. We had unemployment of eight or nine million people and this agency all by itself created five million jobs. People were building roads, putting gravel on roads, sometimes asphalt and cement, all over the country. They built courthouses in different counties. They built football stadiums for high schools around the country. Sometimes they built bridges, but mostly roads. The point is they did those kinds of projects. The people were given money. Taxpayer dollars paid for the projects. They were completed. Supposedly they created five to six million jobs. But where did the $10 billion come from that supported them? Did the government have an independent source of revenue? No, they had to get it from somewhere. I will talk after awhile about what happened to the tax rates and the taxation in this country to support these programs. But right now, just see that the $10 billion to create these five million jobs came from tax dollars that had to be raised.

Another New Deal program was the AAA, our first serious government program in farming. Typical farms back in the thirties were about 160 acres. Sometimes they were larger. But let's just say that we have a typical 160 acre farm. What the AAA did under the Agricultural Adjustment Act was to allow farmers to take one-quarter of their land out of circulation and pay them to do it. The idea here was we had overproduction of crops, so the prices were low. So you paid farmers not to produce. So a farmer takes his acreage out of production. He is often paid $10 an acre to do that. Then he grows food on the other three-quarters of his land. Did we get the ten dollars an acre from an independent source of revenue for the government to pay for this? The textbooks almost never tell you where it comes from but of course it comes from the taxpayers.

I'm working on a book on the New Deal and I'm trying to piece all of this together. The WPA and the AAA are two of the best-known programs. It's interesting that the word boondoggle was first applied to the WPA. I'm looking at this in the most charitable way. I'm assuming that a lot of what the WPA did was worthwhile. A lot of these roads were so poorly built and constructed, and were slowly built because the more slowly they were built the longer people could get paid to build them. Right? And the WPA had so many poorly built roads that other WPA workers had to come to redo those roads. It's also very interesting that so many of these were created in Democratic congressional districts. And it is very interesting also that so many of the people who got the jobs were people who were appointed to their jobs by the Democratic precinct chairman in the area. And it's also interesting how when all that money became available, many Congressmen decided to start voting more with Franklin Roosevelt so that they could get money coming in to their district. So you see the political motivation.

Let's look at AAA for a minute. In 1934, the year after AAA, one of the only industries that really prospered was the fertilizer industry. It prospered because in record numbers farmers took their $10 an acre and bought fertilizer to increase their yield on the other three quarters. When we look carefully at what farmers were doing, they were told they could take a quarter of their land out of circulation. Many of them took their swamp out of circulation. Some had a forest, or heavily treed area and they took that out of circulation. And the bureaucrats found furthermore, that some farmers were secretly growing crops even when they were paid not to do so. Isn't human nature disgusting? And so the government sent agents around, to measure the land to make sure they were taking the proper amount out. Now as a young college professor many years ago, the first time I encountered my chairman of the tenure committee and got a chance to have a long talk with him, he told me his first job was with the AAA, measuring land. And like a silly untenured professor, I said: "Oh, did you get bribes and payoffs?" And the stupidity of that occurred to me because then I thought that if he says yes, then he may expect me to give him a bribe for tenure. He was a charming Southern gentleman, and said, "Well, yeah, but the best offers I could get were a pair of new tires, but I never got too many good ones; other people got the good ones." I think you're getting the drift of my story. People were hired to measure the land, and some of them were corrupt, and so we had to pay people to look in on the people who were measuring the land. By the way, is the funding for this from an independent source of revenue that the government has, or is it from taxpayers?

Well, the next thing that happened was that even the people checking on the people couldn't be trusted. And so the government now bought a fleet of airplanes and drove over the land to do aerial photographs of the land to see if anybody was planting something where they shouldn't be and getting illegal payments. Some people finally said, "What are we doing? The government now has pictures of all of our lands and our houses and everything like that." Once you ask for the government aid, the government controls come shortly thereafter.

Now, I'm not even going to go into some of the sillier programs other than just to mention them. The Silver Purchase Act took the price of silver-the going price of silver was 40 cents an ounce-and paid silver miners 64 and a half cents an ounce for their silver. Anybody could turn in silver and the government would pay 64 and a half cents. Key Pittman, senior senator from Nevada, was chairman of the foreign relations committee and so now after passing the Silver Act Roosevelt would be able to get some of his foreign policy enacted because Pittman insisted upon getting his silver subsidy first. So you see now what you get into once the government is into the game. Also of course, what you have is unintended consequences. Sixty-four and a half cents an ounce for silver and the world price is 40 cents. Can anybody think of some ways to make money here? How about going south to Mexico, picking up some 40-cent silver and bringing it back here and selling it to the treasury. These are the types of things we are in to once we get these programs.

Some of you may say: "Well, what about welfare? I mean there are people hungry, there are people starving." I want to comment on that.

Our first federal welfare program came during this time period. It actually came the first year Roosevelt ran for president and then was expanded once he was elected. The first federal aid for relief was $300 million. That was given to the states, and the state governors would tell him, "My gosh we need money." They would tell what they needed and as long as we had $300 million, we'd give it to them because there were people who were hungry. I have down here a list of all the money that every state got. Massachusetts got zero. And the reason they got zero is because they didn't apply for it. They said, "Hey, we can do it."

Back then the Atlanta Braves were in Boston, they were the Boston Braves. We'd have the Red Sox and the Braves play an exhibition game and the proceeds went to charity. John D. Rockefeller gave a large amount to local charities. They would raise it among local textile entrepreneurs and others. We can solve our own problems here in Massachusetts. So they got zero out of $300 million. The state of Illinois, especially Chicago where Al Capone ran sway for so long, was very inefficient in its operations in government. They asked for and received out of that $300 million, $55,443,721. I like that because if they said, "Hey Uncle Sam, we need $55 million." Well there's something about that, but how about, "We have come to the conclusion that we need $55,443,721." Doesn't it have that aura? The precision makes it plausible. They received it. Illinois received over $55 million of that pot, more than any other state. That is more than twice what New York received and five times what California got. They received $55 million, Massachusetts got zero. So what I want you to see is the taxpayers of Massachusetts are not only paying for their own welfare, but for Illinois as well. Where did we get the $300 million? We're getting it from taxpayers, and some of them were from Massachusetts, which means they're not only paying for their own way. Should it be any surprise that when Roosevelt expanded the amount of money that could be used, the next time Massachusetts said, "Now we have some needs." Their next request was over $114 million in federal funds. ...


/quote]

More to follow

 

[muskrat89]

I'm still curious about where this seizure of my retirement account is coming from, aside from certain fear-mongers.

http://www.carolinajournal.com/exclusives/dems-target-private-retirement-accounts.html

Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs

By Karen McMahan

November 04, 2008

RALEIGH — Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers’ personal retirement accounts — including 401(k)s and IRAs — and convert them to accounts managed by the Social Security Administration.

Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.

The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers’ retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.

Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on “The Impact of the Financial Crisis on Workers’ Retirement Security,” blamed Wall Street for the financial crisis and said his committee will “strengthen and protect Americans’ 401(k)s, pensions, and other retirement plans” and the “Democratic Congress will continue to conduct this much-needed oversight on behalf of the American people.”

Currently, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only increases workers’ retirement savings but also reduces their annual income tax. The balances are fully inheritable, subject to income tax, meaning workers pass on their wealth to their heirs, unlike Social Security. Even when they leave an employer and go to one that doesn’t offer a 401(k) or pension, workers can transfer their balances to a qualified IRA.

 

[Kirkhill]

Remainder of the above article on Roosevelt's New Deal

We changed in that short period of time from being a country of states, private charity, and solving our own problems, to a country of people who tried to get the most out of the government. In fact, the more poorly you run your city, the better case you have for getting the most out of the government. The poorly run states and cities have the best case for getting the most money.

Now, what I want to do is talk about the other side, the side the textbooks almost always omit. How did we paid for this? We have to look at the taxes. The textbooks say, "Oh, Roosevelt was trying. He had programs to help people." And then they'll mention these government programs. Well, where'd the money come from? The textbooks are quiet. Well, I am not going to be so quiet.

In 1929, when the Great Depression hit, the top marginal tax rate was 24 percent. That was the rate on top incomes. The bottom rate was one-half of one percent. In other words, the taxation started at one-half of one percent. There was an exemption, too, and the exemption was high enough to keep 98 percent of all Americans off the income tax rolls. But we had a small federal government back then.

In 1932, the marginal tax rate went up to 63 percent on top incomes. In 1935 Roosevelt pushed it up to 79 percent, and we started at five percent, and the exemption was lowered, so more people were paying taxes. But it starts at five percent and it goes up to 79 percent. Now, you could see why, right? All these programs had to have a payment. But here's something that is not explained. What about the work ethic of those people in those top brackets? In 1929, you were telling them, you get to keep three-fourths of whatever you make. Now you're telling them you give more than three-fourths to the government. What's your work ethic going to be with a 79 percent tax? Tax-exempt bonds, stamp collections-that was Roosevelt's personal exemption, he had a good stamp collection-coin collections, foreign investments, Swiss banks, anything to shelter that money. But do you see why the depression is prolonged? Who's going to invest to create the jobs to get us out when you're being taxed 79 percent? Do you think the revenue then is going to go up when the tax rate is 79 percent? Very good thinking, we have some supply-side thinking in the crowd. We raised in 1929 over $1 billion. It was almost $1.1 billion in income tax revenues. In 1935 when the tax rate was 79 percent, our take for the government on income tax was $527 million-less than one-half of what it was in 1929. Did you catch that? Twenty-four percent of something is something, and seventy-nine percent of nothing is nothing-because the high tax rates chased capital into tax-exempt investments.

Therefore in order to get money, Roosevelt had to tax poor people, so he instituted excise taxes-especially on whiskey and tobacco. Prohibition ceased to be law. He explicitly said I want that whiskey in there so we can tax it. Disproportionately middle-class and lower-class people drink. Roosevelt wanted their money. We therefore had a high excise tax on whiskey and tobacco. We instituted for the first time in our history a federal gasoline tax. See, the income tax hits the rich back in the twenties, now we are putting in excise taxes because we have to fund the New Deal. The money has to come from somewhere, and the rich people just sheltered their investments. We had other excise taxes on cars, taxes on tires, on telephone calls, telegrams, movie tickets, and bank checks. And they wanted to do it on soft drinks, but Coca-Cola was too strong a lobby, so they settled for grape concentrates. The revenue from excise taxes in this country went from $500 million in 1929 to $1.36 billion in 1935.

What I want you to see is these programs-WPA, AAA, and Silver-are funded by excise taxes on middle-class, lower-class people drinking, smoking, driving cars, going to movies. That is where much of the funding for the New Deal came from.

Now, with Roosevelt you say, "My gosh! How could he win elections?" Roosevelt went on the campaign trail in 1936 and said, "You poor people are doing your share, but the rich are avoiding the taxes. We should make them pay." And he recommended a tax to congress, on all income over one hundred thousand dollars. His recommendation in 1941 was for a 99.5 percent tax on all income over one hundred thousand dollars. And when the budget director said, "What!" Roosevelt's comment was, "Why not?"

When congress refused to pass that bill, Roosevelt was furious. Therefore he instituted a 100 percent income tax, by executive order, on all income $25,000 or more. I repeat, Roosevelt instituted an executive order on April 27, 1942 for a 100 percent income tax on all income over $25,000. How many of you knew about that? Oh good, somebody did. Actually, the Republicans won the next election and voted it out, and Roosevelt had to settle for 90 percent. He had to settle for a 90 percent marginal tax. Here's a quotation from Roosevelt, it was during World War II, "Discrepancies between low personal incomes and very high personal incomes should be lessened." Oh, and he used the war as a crisis, you see. "And I therefore believe that in this time of grave national danger, when all excess income should go to win the war, no American citizen ought to have a net income after he's paid his taxes of more than twenty-five thousand dollars."

I have made this offer to teachers and students around the country. You show me an American history textbook that tells that Roosevelt had a 100 percent tax. I would think that if you're going to rank him the number one president in American history, and he did that, that ought to be mentioned somewhere. You show me where it's mentioned in any U.S. history textbook, and I will eat the textbook. I only ask that they bring me mustard and salt. I must say that I've had a textbook free diet for every year since I've been making that offer. I have never seen a textbook bring up that fact.

Why did the New Deal fail? It never could have done anything else. You are simply transferring resources from lower and middle-class Americans on excise taxes, to programs that were doomed to fail from the first. And therefore, you're not going to increase employment.

I will finish with a quotation from Roosevelt's secretary of treasury, Henry Morganthau. He admits, the whole thing failed. Again, the quote, you will never see in a textbook, but I have it right here. I went to the Roosevelt Library and dug this one out. Henry Morganthau, Secretary of Treasury, in May, 1939, years after the New Deal, said, "We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot." That is the secretary of treasury in charge of the money disbursement and statistics collection during the 1930s, making that statement.

When we understand the Fox News poll and the broken window fallacy, we realize that the New Deal had to fail.

 

[SeaKingTacco]

So the best thing the US (and any other) government can do is cut taxes and the size of itself?

 

[TCBF]

So the best thing the US (and any other) government can do is cut taxes and the size of itself?

- Cut the RIGHT taxes, get the gummint out of places it has no business being and promote competition in all other areas.

 

[a_majoor]

As usual, the wron people and policies are getting the blame for today's problems. Lets remember to write the MSM and correct their amneisia wherever and whenever we can:

http://reason.com/news/show/130222.html

Obama's Clinton Problem
Deregulation made the prosperity of the 1990s possible. Just ask Bill Clinton.
John Berlau | November 21, 2008

Republicans had many things going against them this election, but the financial market implosion in September proved to be the final blow that sealed their losses, as voters almost always associate the economy with the party in power. And when the credit crisis emerged as the top campaign issue, Sen. Barack Obama (D-Ill.) pounced on his opponent with two basic messages. One was to blame the policies of deregulation that Sen. John McCain (R-Ariz.) voted for. And the second was to hug former rivals Bill and Hillary Clinton as hard as he could and harken back to the prosperity and economic growth of the 1990s.

In the presidential debates, Obama charged that McCain "believes in deregulation in every circumstance" and claimed, "That's what we've been going through for the last eight years."

And as a contrast to the last eight years, Obama said in a speech that his administration would go back to the "shared prosperity...when Bill Clinton was president." When campaigning for the first time with Bill Clinton at a Florida rally in late October, Obama gushed that, "in case all of you forgot, this is what it's like to have a great president."

But now that he has won the presidency and must, as the cliché goes, shift from campaigning to governing, Obama and his economic team will have to face up to a paradox that most of the media overlooked during the campaign. Namely, the Obama campaign's twin messages of bashing deregulation and embracing the Clinton years were inherently contradictory. Bill Clinton signed nearly every deregulatory measure that John McCain backed—the same measures that are now being blamed (wrongly) for helping cause the current crisis. What's more, Clinton administration officials have credited these policies for contributing to the ‘90s economic boom—the very "shared prosperity" that Obama says he wants to go back to.

Late in Clinton's tenure, the White House put forth a document celebrating "Historic Economic Growth" during the administration and pointing to the policy accomplishments it deemed responsible for this growth. Among the achievements on Clinton's list were "Modernizing for the New Economy through Technology and Consensus Deregulation." That's right, a Clinton White House document credited part of the administration's success to that now dreaded d-word, deregulation.

"In 1993," the document explained, "the laws that governed America's financial service sector were antiquated and anti-competitive. The Clinton-Gore Administration fought to modernize those laws to increase competition in traditional banking, insurance, and securities industries to give consumers and small businesses more choices and lower costs."

Everything in those passages is true. All that's missing is credit to the GOP-controlled Congress elected in 1994 for passing most of the policies that led to the prosperity. But the Clinton administration, whatever its personal and policy flaws, should indeed be praised for signing and advocating this deregulation. These bipartisan financial policies, however, were the very same policies that Obama, running mate Sen. Joe Biden (D-Del.) and other Democrats attacked during the campaign. "Let's, first of all, understand that the biggest problem in this whole process was the deregulation of the financial system," Obama proclaimed in the second presidential debate.

But if Obama follows through on his campaign rhetoric on regulation, it will not be the Bush economic policies he will be overturning. In the financial area, ironically, Clinton was actually the more deregulatory president. As James Gattuso of the Heritage Foundation points out, while there may have been flawed oversight, there really was no financial deregulation under Bush. Indeed, Bush's signature achievement in the financial area was the signing and implementing of the costly and counterproductive Sarbanes-Oxley accounting mandates.

When it comes to overall regulation, as my Competitive Enterprise Institute colleague Wayne Crews notes in his study "10,000 Commandments," the Bush administration has set records with the tens of thousands of pages it put in the Federal Register. So to the extent that Obama has said he would reverse financial deregulation, what he would largely be overturning are the financial modernizations Bill Clinton signed into law and that Clinton administration officials agree led to the ‘90s prosperity.

To be sure, Obama hasn't been too specific on what exactly he would reregulate. He spoke vaguely, as did McCain, of more oversight and a regulatory framework for the 21st century. And McCain further blurred this distinction with his misguided attacks on Wall Street "greed" and on the short-sellers who actually should be praised for recognizing the mortgage market's weakness before other players did.

To the extent that Obama's campaign attacked the specific deregulation policies that McCain backed, Obama ended up doing more than just running against McCain and his advisers, such as the much-vilified former Texas Sen. Phil Gramm. Obama was also campaigning against Bill Clinton, Robert Rubin, Larry Summers and virtually all of the Clinton administration's economic officials. The same folks, it's worth nothing, that now often surround Barack Obama.

Take Gramm-Leach-Bliley, the 1999 law Clinton signed repealing the Depression-era Glass-Steagall Act, which had strictly separated traditional commercial banking from investment banking. Obama's supporters, claiming that getting rid of Glass-Steagall led to the credit blowup, have seized on the first name on the law, that of former Sen. Gramm, to bash it as a piece of Republican deregulation. Never mind that the Senate passed the legislation by a vote of 90-8, with many Democrats voting for the final bill, including Obama running mate Joe Biden.

Obama specifically bashed this bipartisan achievement in a March speech on the economy in New York. There he said, "By the time the Glass-Steagall Act was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework."

But then-Clinton Treasury Secretary and now-Obama adviser Larry Summers had a different view. Summers told the Wall Street Journal in 1999 that the new law would spur economic growth "by promoting financial innovation, lower capital costs and greater international competitiveness."

What's more, Clinton himself defends the law to this day. In a recent Business Week interview with CNBC personality Maria Bartiromo, Clinton said plainly, "I don't see that signing that bill had anything to do with the current crisis." He even added that its lifting of barriers to financial service mergers may have lessened the crisis' impact, pointing out, "Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill."

Summers and Clinton were—and are—correct. The law benefited the economy by creating more choice and competition, and there is little evidence of Glass-Steagall's repeal playing a role in the mortgage crisis. As the American Enterprise Institute's Peter Wallison noted in The Wall Street Journal, "None of the investment banks that have gotten into trouble—Bear, Lehman, Merrill, Goldman or Morgan Stanley—were affiliated with commercial banks." He also pointed out that "the banks that have succumbed to financial problems—Wachovia, Washington Mutual and IndyMac, among others—got into trouble by investing in bad mortgages or mortgage-backed securities, not because of the securities activities of an affiliated securities firm."

Even stranger than the Obama camp's attack on McCain's support of the bipartisan Gramm-Leach-Bliley was their slap at his support for a bill that cleared barriers to interstate banking. This law, the Riegle-Neal Interstate Banking and Branching Efficiency Act, was passed in 1994, before Republicans even took over Congress. As the previously mentioned Clinton White House "Historic Economic Growth" document put it, "in 1994, the Clinton-Gore Administration broke another decades-old logjam by allowing banks to branch across state lines."

Riegle-Neal finally allowed the U.S. to have nationwide banking chains, as virtually every other developed country does. Anyone who remembers the inconvenience of not being able to access your own bank's ATM when driving into another state can attest to the benefits this law brought. Federal Reserve Governor Randall Kroszner has credited the law for a myriad of economic benefits including "higher economic and employment growth, spurred by more-efficient and more-diverse banks" and "more entrepreneurial activity, as the more bank-dependent sectors of the economy, such as small businesses and entrepreneurs, achieve greater access to credit."

Yet when McCain advocated letting individuals purchase insurance across state lines and wrote in a journal article that "opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products," the Obama campaign hit the roof. "McCain just published an article praising Wall Street deregulation," Obama's attack ad exclaimed. "Said he'd reduce oversight of the health insurance industry, too."

FactCheck.org lambasted this ad for quoting McCain "out of context on health care." But the greater worry is that the attacks on the bipartisan deregulation that led to prosperity appeared to be quite in context for Obama, at least during the campaign. But if President-elect Obama wants to pull the U.S. economy out of its rut, he must face up to the fact that '90s deregulation was an essential ingredient in Clinton's recipe for an economic boom. He also must recognize that substantially undoing the liberalizations that Clinton and the GOP Congress achieved would crimp recovery as well as create new problems

Deregulation has never meant non-regulation, and my boss, Competitive Enterprise Institute President Fred L. Smith, Jr., has stressed the "competitive regulation" that comes from market discipline. Creating a modernized regulatory regime for some of the new challenges we face would have been an urgent task of any new administration, but the key is what type of updating would be done. Good updating would take into account government subsidized institutions—such as Fannie Mae and Freddie Mac—that have weakened market discipline, as well as existing regulations that encourage perverse incentives, such as Clinton's expansion of the Community Reinvestment Act, an area where the administration was not deregulatory and actually encouraged bad loans to be made.

Nevertheless, the Clinton-GOP governance, despite the constant bickering and backbiting, ironically left a shining legacy of prosperity, which bipartisan deregulation was so much a part of. In terms of economic growth, there are few better examples of bipartisan success than this tenure.

John Berlau is director of the Center for Entrepreneurship at the Competitive Enterprise Institute.

 

[HunterADA]

http://www.carolinajournal.com/exclusives/dems-target-private-retirement-accounts.html

While it makes great political fodder, the Carolina Journal is being a little less than truthful. Actually, that's not quite right. It's being a lot less than truthful, worse than any wooden puppet ever was. But on the bright side, its stories are getting spread all over the nation!

The truth is available at factcheck.org for anyone to read. If you'd rather get your information straight from the primary source instead of taking my or anyone else's word for it, the video of the House committee meeting is available to watch. The exact issue is at about 33:23, though she starts speaking shortly after the half-hour mark.

The Democrats are not trying to seize my retirement account or anyone else's. Ghilarducci herself is not proposing that. The sky is not falling, the Obama-worshipping jackbooted thugs are not coming, and Chicken Little tastes pretty darn good once he's been deep-fried. However, some people are lying and fear-mongering, and hoping others will buy what they're pandering. You were sold a bill of goods.

 

[Kirkhill]

And on the subject of comfort food......

Here comes the new boss, same as the old boss....

Rubinomics Recalculated

By JACKIE CALMES
Published: November 23, 2008
WASHINGTON — It is testament to former Treasury Secretary Robert E. Rubin’s star power among many Democrats that as President-elect Barack Obama fills out his economic team, a virtual Rubin constellation is taking shape.

The president-elect’s choices for his top economic advisers — Timothy F. Geithner as Treasury secretary, Lawrence H. Summers as senior White House economics adviser and Peter R. Orszag as budget director — are past protégés of Mr. Rubin, who held two of those jobs under President Bill Clinton. Even the headhunters for Mr. Obama have Rubin ties: Michael Froman, Mr. Rubin’s chief of staff in the Treasury Department who followed him to Citigroup, and James Rubin, Mr. Rubin’s son.

All three advisers — whom Mr. Obama will officially name on Monday and Tuesday — have been followers of the economic formula that came to be called Rubinomics: balanced budgets, free trade and financial deregulation, a combination that was credited with fueling the prosperity of the 1990s.


But times have changed since then. On Wall Street, Mr. Rubin is facing questions about his role as director of Citigroup given the bank’s current woes. And in Washington, he and his acolytes are calling for a new formulation to address the global economic crisis that Mr. Obama will inherit — and rejecting or setting aside, for now, some of their old orthodoxies.

Instead of deregulation, Mr. Obama has sworn to usher in a period of re-regulation, to avoid the freewheeling risks that Citigroup and the rest of the financial industry undertook after Mr. Rubin, with Mr. Summers, helped tear down the regulatory walls between banks, brokerages and insurance companies, and freed them to trade in unregulated and little-understood derivatives worth trillions of dollars. Mr. Geithner spent his first years as president of the Federal Reserve Bank of New York seeking ways to at least monitor those markets better.

Instead of balancing budgets, the Obama team will be going deeper into debt for at least two years by spending hundreds of billions of dollars more to stimulate the economy, without concern for deficits, for aid to the jobless, states and cities; tax cuts for workers; and job-creating construction of roads, schools and other public works. Nor, given the downturn, is Mr. Obama expected to try to quickly bring in more revenue by repealing the Bush tax cuts for those making more than $250,000.

Mr. Summers, who may well end up being Mr. Obama’s closest economic adviser, has been especially public in calling for a big stimulus package. Many saw his touch in Mr. Obama’s call this weekend for the stimulus plan to create or save 2.5 million jobs.

“Everyone recognizes that we’re looking at deficits of considerable magnitude,” said Jared Bernstein, an economist at the liberal Economic Policy Institute. “Whether it’s Bob Rubin, Larry Summers or the most conservative economist, that is a widely shared recognition.”

Liberals like Mr. Bernstein had long had an aversion to the kind of centrist economic policies of the Clinton years, which they felt were too concerned with deficit reduction and not focused enough on investment programs for labor and the middle class.

But Mr. Bernstein’s past differences with Mr. Rubin have so softened that the two men recently wrote a column together about their new common ground on spending, regulation and trade protections for workers.

As for Mr. Summers, he has “truly evolved,” Mr. Bernstein said, based on his reading of Mr. Summers’s columns in the Financial Times this year. Both men have been advisers to Mr. Obama, and at a recent meeting, Mr. Bernstein recalled: “I told him, ‘Boy, Larry, your views on trade, on income inequality, on stimulus spending, they’re approaching ours at E.P.I.’ And he sort of huffed and puffed, and said, ‘Oh well, changing circumstances.’ ”

Yet Rubin critics remain, mostly in Mr. Obama’s own Democratic Party among liberals and union members who favor even more domestic spending and more protectionist trade policies.

“What worries me is there is not one person in the senior group who is the outsider to this club,” said Robert Kuttner, a colleague of Mr. Bernstein’s at the liberal Economic Policy Institute who has written a book, “Obama’s Challenge,” about approaches to the economic crisis. “Where is the diversity of opinion in this economic team?” Mr. Kuttner asked.

Yet even Mr. Kuttner has warmed to some he calls Rubinistas. He praises Mr. Geithner for not hailing from a Wall Street investment bank and for being “among the toughest on the need to re-regulate” the financial industry from his perch at the New York Federal Reserve.

Mr. Kuttner calls Mr. Summers brilliant and notes that he has been out front in proposing big stimulus spending. But he disapprovingly noted that in recent meetings of economists advising Congressional Democrats, Mr. Summers has argued against restricting banks’ ability to issue dividends to stockholders as a condition of receiving federal bailout money.

By all accounts, the trait that ties the 70-year-old Mr. Rubin and the younger men is their braininess. All but Mr. Summers are seen as cautious about policy. And all but Mr. Summers share their mentor’s low-key affability and conversational ease; many wonder just how Mr. Summers, whose brusque ways left a trail of enemies when he was president of Harvard, will perform as director of the National Economic Council in the White House when the job demands someone who can coordinate with others, listen to them and fairly represent their views to the president.

“There’s no way he will be confined to the N.E.C.’s turf; he will be sticking his nose into everything,” said Bruce Bartlett, a Treasury veteran of the Reagan administration and a Summers admirer. “Personally, I think that’s more good than bad.”

Mr. Rubin used to recall privately that when he led the National Economic Council, his White House office gave him easy access to the president as well as to Hillary Rodham Clinton, then the first lady — and in turn, influence. Mr. Summers is sure to use his proximity to the Oval Office to the same end, past associates agree.

That could mean tensions between him and Mr. Geithner, 47, who was Mr. Summer’s only rival for another stint as Treasury secretary under Mr. Obama. Yet people who know both men say they got along well at the Treasury Department in the 1990s. It was Mr. Summers, as Mr. Rubin’s deputy secretary, who first mentored Mr. Geithner and later promoted him to be under secretary for international affairs.

Mr. Rubin, also an adviser to Mr. Obama, supported both men but privately favored giving Mr. Summers, who turns 54 this month, a second chance. Mr. Rubin has long been invested in promoting Mr. Summers, vouching for him against those who object to his personality. He endorsed Mr. Summers to be his successor as Treasury secretary.

As a member of the Harvard University board, Mr. Rubin next helped Mr. Summers become university president. When Mr. Summers became embroiled in controversies with faculty and some women’s groups and African-Americans over his perceived insensitivity, Mr. Rubin lobbied on his behalf. He was unsuccessful, and Mr. Summers was forced to resign.

The Harvard controversies were a factor in Mr. Obama’s consideration of Mr. Summers for Treasury secretary. Leaders of several women’s groups said they warned Obama advisers that a 2005 furor over remarks that some interpreted as Mr. Summers questioning women’s intelligence in math and science relative to men’s, would be revived if he were nominated. The Treasury post requires Senate confirmation; the National Economic Council director does not.

Yet Kim Gandy, president of the National Organization for Women, said her group’s research actually produced material that recommended him. “One good thing about Larry Summers,” she said, “is that he has written and spoken fairly extensively on the issue of women’s wage inequality and the impact that has on the country.”

So Thucydides, the Dems are "owning" deregulation, free trade and balanced budgets - Bill's legacy.  And Obama has hired all these guys to fix the current problem.  They are about as radical as Stephen Harper.

Of course the fact that as a Bank Director Rubin seems to have been less than sterling..... and Obama is engaging in the tried and true Chicago formula of nepotism.

Daltry had it right.  I starting to feel much better now. ;D >

Meanwhile the moonbats are getting nervous - that is those that aren't true believers and are convinced that The Saviour has a plan.

Loachman called it right.  Empty Suit.

Edit:

Oops - forgot the Source

And while I'm here I may as well add this from the Left (Huffington Post)

As progressives, we can view President-Elect Obama's emerging economic team in one of two ways. Either he has disappointed us by picking a group of Clinton retreads--the very people who brought us the deregulation that produced the financial collapse; the fiscal conservatives who in the 1990s put budget balance ahead of rebuilding public institutions. Or we can conclude that he has very shrewdly named a team of technically competent centrists so that he can govern as a progressive in pragmatist's clothing--as he moves the political center to the left.

And this from Salon

One of the first things Barack Obama did after winning the election two weeks ago was put an old-school political brawler in charge of his White House. Next, he saved Joe Lieberman. Then, he met with John McCain, and asked Hillary Clinton to run his State Department. For good measure, he's also apparently weighing whether to keep George W. Bush's Defense secretary, Robert Gates, on at the Pentagon.

This is the guy Republicans called a socialist, maybe a Marxist, and National Journal said was the most liberal member of the U.S. Senate? McCain aides were saying on Election Night that their own polling showed 60 percent of the country thought Obama was a liberal (and many voted for him anyway). Barely two weeks into the transition, that number might already be dropping fast.

In fact, in his appointments, and in what can be divined of his foreign policy, there are loud echoes of the last Democratic administration, and also of that lady he beat in the primaries, the one the netroots didn't like very much. Certainly, some of Obama's supporters are getting a little nervous about what this all presages about an Obama White House. "The list [of disappointments] is getting awfully long," wrote the blogger bmaz at Firedoglake. "Almost as long as Barack Obama's arm that he used to take our money and efforts to get himself elected. All we have seen is the short arm he has used to punch us in the face and collect street cred with villagers for having done so." Open Left's Chris Bowers wrote on Friday that he felt "incredibly frustrated ... [W]hy isn't there a single member of Obama's cabinet who will be advising him from the left?" Even Pat Buchanan -- not exactly the world's most liberal guy -- apparently thinks Obama needs to throw a bone to progressives after the start the transition is off to.


....

Couple all this with the rave reviews for the House Slave from Zawahri and Ahmadinejad's handlers as well as the extremely mobile Hillary and I am starting to see why the Stock Market is rallying.

 

[muskrat89]

HunterADA - "Sold a bill of goods"? You certainly are a smug one. I wasn't sold anything. You asked where people were getting it, and I gave you a link.

As far as FactCheck.org.... please. For every link I post discrediting FactCheck, you can find one countering the discredits. I'm sure we can link, and counter-link, til the cows come home. In the end, no one is going to change your mind and well - you seem to believe you already know what I think anyway...

http://patterico.com/2008/09/23/unmitigated-garbage-from-factcheckorg-on-obamas-second-amendment-record/

Perhaps you were "sold a bill of goods" when it comes to the objectivity of FactCheck?

 

[GAP]

Obama won.......period

He has earned the right to give it a try....period

bitch about it in 4 years

 

[HunterADA]

HunterADA - "Sold a bill of goods"? You certainly are a smug one. I wasn't sold anything. You asked where people were getting it, and I gave you a link.

It's more polite to say "Someone lied to you" than "Why are you lying to us?". I figure that's a little hostile for me to start out with in my first half-dozen posts on this board. If I'm wrong, and that's the correct question to be asking, please let me know.

I also included the primary source, a video recording of the actual hearing. If you don't believe me and you don't believe Factcheck.org, you can watch that. The entire statement that's been circulating around was made up out of whole cloth. It's false, and actually listening to the hearing proves that. If you don't  have a few hours to watch Congressional hearings, the summary is there for your convenience.

 

[a_majoor]

While the President Elect gives me "Hope" that he will "Change" the way he governs from the electoral rhetoric, there is still good reason to believe otherwise:

http://www.slate.com/id/2200667/

Why Washington Hates Wall Street
An 80-year rivalry explained.
By Timothy Noah
Posted Monday, Sept. 22, 2008, at 3:47 PM ET
Read more about Wall Street's ongoing crisis.

"When financial institutions are suffering a crisis in faith about themselves, journalists are inherently a little bit more prudent and cautious."—Marcus Brauchli, newly installed executive editor of the Washington Post, as quoted in the Sept. 21 New York Times.

The turmoil in the financial markets may occasion prudence in financial journalism, most especially at the Wall Street Journal, where during the previous 24 years Brauchli worked his way up from copy editor to foreign correspondent to managing editor before being squeezed out by Rupert Murdoch. But it's a sign of Brauchli's newbie status in Washington, where he has never previously worked, that he should think reporters at the Washington Post feel anything other than schadenfreude about Wall Street's tumble in fortunes. They can't help it—they're Washingtonians. Washington is a city that glories in Wall Street's misfortunes.

"Isn't this exciting?" Rep. Ed Markey enthused to me on Oct. 19, 1987 ("Black Monday"). A young congressional correspondent for Newsweek with nary a stock or bond to my name, even I was taken aback by Markey's undisguised pleasure. When you stop and think about it, though, it makes perfect sense. Modern Washington owes its very existence to the 1929 crash, which occasioned a vast expansion of the federal government under President Franklin D. Roosevelt. A legacy of the increase in federal power during that era, largely undiminished during a 28-year electoral backlash against big government, is that Washington became Wall Street's principal rival when it came to running the world. Which wielded more power—the financial markets or the government? Uncle Sam had the world's largest military, but Wall Street had all that goddamned money. The mansions in Greenwich, Conn.; the trophy wives; the private jets—by comparison, the people who wielded power in Washington—including most presidents—were petits bourgeois. Even libertarian conservatives resent, on a personal level, the Wall Street swells whose interests they fight for daily. There aren't a lot of millionaires working at the Cato Institute.

For Wall Street, a way of life may be coming to an end. For Washington, a new era of government activism has already begun. Treasury Secretary Henry Paulson, after presiding over an unprecedented sequence of receiverships, bailouts, and liquidations, is urging Congress to commit up to $700 billion to unfreeze the credit markets. The CEOs of once-powerful investment banks will be called down to Congress and subjected to humiliating questions. Journalists will sign six-figure contracts to write books about the events of what is already being dubbed "Black September." Think-tankers will hold conferences to fight over the proper role government should assume in the new financial world. The Washington Post—which, like all big-city dailies, has been experiencing some circulation difficulty—will sell more papers than it would otherwise. Presidential candidates are already demanding, and will probably receive, curbs on CEO pay as a condition of restoring liquidity to Wall Street. (Paulson, who's more a Wall Street guy than a Washington guy, resists this because he fears it may limit CEOs' willingness to sell their bum loans to Treasury. What he doesn't realize is that once Congress grasps that these CEOs would literally rather see their companies fail than take a pay cut, it will answer as one: "All right, then. Fail away.")

Let me put it in terms a smart financial journalist like Brauchli can readily understand. On Wall Street, financial crisis destroys jobs. Here in Washington, it creates them. The rest is just details.

Email Timothy Noah at chatterbox@slate.com.

People respond to incentiveswithout fail , and the incentive to increase personal power and privilege is (aka Greed) is one of the most powerful of all. Democrats, following the "Progressive" formula, will also try and tap into the other powerhouse emotion: Envy of Wall Street, which drives the class warfare rhetoric.

WRT 401 accounts, there are powerful incentives for the government to seize them, regardless of who you link to. This is approx $2 trillion in wealth, which can fuel various government programs for the next 1-4 years. The Progressive movement truly believes that private savings are inferior to having the State provide [remember Beer and Popcorn?](and the other half of the coin is citizens with private savings do not need the state, therefore will not have any reason to support increases in State power and influence). Making people dependants is the name of the game, only historically, the American people have never played along. There is even lots of political cover right now to do the deed: if investors are losing money in their 401's because they haven't diversified their holdings, the rational for the Social Security Administration to take the accounts is to "save" the investors....its for their own good... really.....

Instapundit gets mail. this may actually work out in the long run (as the law of unintended consequences kicks in yet again):

http://pajamasmedia.com/instapundit/ (Nov 25 2008)

UPDATE: A cheerful reader emails:


There are three scenarios for what comes after the bailout spasm:

The gold bugs predict hyperinflation and the collapse of paper monies around the world.

The Keynesians predict a rerun of the pre-New Deal depression.

Libertarians predict the further emergence of a corporatist fascist state in the mold of continental Europe circa 1936.

The reported panic gun buying and gold coin shortages tell us the US public fears centrally planned evil of some kind.

Happy Holidays!

Oh, goody. Well, usually people's fears turn out to be exaggerated. Let's hope this is one of those times.

ANOTHER UPDATE: Reader Lou Minatti offers a sort-of cheerful analysis:


One thing to keep in mind about all of those dollars being created out of thin air by the Fed: This volume of this new money pales in comparison to the amount of wealth that has been destroyed over the past year, particularly since this past summer. There are fewer dollars chasing after goods, hence we are seeing deflation. Housing, energy, commodities… it’s all declining as wealth is evaporating. Things that don't decline in price, like health care and education are heavily supported/subsidized/controlled by various governments. But these too will eventually be hit by deflation.

It’s no coincidence Bernanke, a student of the Great Depression, was brought in. The White House knew what was in store two years down the road. Bernanke will continue to flood the market with liquidity as dollars evaporate in time bombs such as hedge funds.

Cheerful, at least, in that it suggests that those in charge know what they're doing . . . .(Interpolation: well probably not. Most people have no idea of the real or even relative sizes of the various markets, or the underlying "stocks" of wealth. A deflationary spiral might be what is needed to kick the "State" out of education, healthcare and so on, allowing market principles to work in wider areas of the economy again)

Meanwhile, reader Ric Locke emails:


I somewhat resent the characterization of the current wave of gun buying as “panic”. Prices are going up, yes, but everything’s quite orderly, calm, and reasoned.

We know for sure they're going to foul it up, and use the situation as a justification to aggrandize themselves and enrich their cronies. Being able to fight back might not help, but it won't hurt.

Yes, an armed populace raises the cost of some stupid government actions.

 

[a_majoor]

The future as a "political economy"?

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/27/AR2008112702052.html

From Market Economy to Political Economy

By Charles Krauthammer
Friday, November 28, 2008; Page A29

In the old days -- from the Venetian Republic to, oh, the Bear Stearns rescue -- if you wanted to get rich, you did it the Warren Buffett way: You learned to read balance sheets. Today you learn to read political tea leaves. If you want to make money on Wall Street (or keep from losing your shirt), you do it not by anticipating Intel's third-quarter earnings but by guessing instead what side of the bed Henry Paulson will wake up on tomorrow.

Today's extreme stock market volatility is not just a symptom of fear -- fear cannot account for days of wild market swings upward -- but a reaction to meta-economic events: political decisions that have vast economic effects.

As economist Irwin Stelzer argues, we have gone from a market-driven economy to a politically driven economy. Consider seven days in November. On Tuesday, Nov. 18, Paulson broadly implies that he's using only half the $700 billion bailout money. Having already spent most of his $350 billion, he's going to leave the rest to his successor. The message received on Wall Street -- I'm done, I'm gone.

Facing the prospect of two months of political limbo, the market craters. Led by the banks (whose balance sheets did not change between Tuesday and Wednesday), the market sees the largest two-day drop in the S&P since 1933, not a very good year.

The next day (Friday) at 3 p.m., word leaks of Timothy Geithner's impending nomination as Treasury secretary. The mere suggestion of continuity -- and continued authoritative intervention during the interregnum by the guy who'd been working hand in glove with Paulson all along -- sends the Dow up 500 points in one hour.

Monday sees a 400-point increase, the biggest two-day (percentage) rise since 1987. Why? Three political events: Paulson's weekend Citigroup bailout; the official rollout of Barack Obama's economic team, Geithner and Larry Summers; and Paulson quietly walking back from his earlier de facto resignation by indicating that he would be ready to use the remaining $350 billion (with Team Obama input) over the next two months.

That undid the market swoon -- and dramatically demonstrated how politically driven the economy has become.

We may one day go back to a market economy. Meanwhile, we need to face the two most important implications of our newly politicized economy: the vastly increased importance of lobbying and the massive market inefficiencies that political directives will introduce.

Lobbying used to be about advantages at the margin -- a regulatory break here, a subsidy there. Now lobbying is about life and death. Your lending institution or industry gets a bailout -- or it dies.

You used to go to New York for capital. Now Wall Street, broke, is coming to Washington. With unimaginably large sums of money being given out by Washington, the Obama administration, through no fault of its own, will be subject to the most intense, most frenzied lobbying in American history. (interpolation: Democrats and "Progressives" in general like to hold the whip hand. Think of this as trying to curry favors at the royal court rather than "lobbying" and you will see how the future will unfold)

That will introduce one kind of economic distortion. The other kind will come from the political directives issued by newly empowered politicians.

First, bank presidents are gravely warned by one senator after another about "hoarding" their bailout money. But hoarding is another word for recapitalizing to shore up your balance sheet to ensure solvency. Is that not the fiduciary responsibility of bank directors? And isn't pushing money out the window with too little capital precisely the lending laxity that produced this crisis in the first place? Never mind. The banks will knuckle under to the commissars of Capitol Hill. They control the purse. Prudence will yield to politics.

Even more egregious will be the directives to a nationalized Detroit. Sen. Charles Schumer, the noted automotive engineer, declared "unacceptable" last week "a business model based on gas." Instead, "We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car."

The Chevy Volt, for example? It has huge remaining technological hurdles, gets 40 miles on a charge and will sell for about $40,000, necessitating a $7,500 outright government subsidy. Who but the rich and politically correct will choose that over a $12,000 gas-powered Hyundai? The new Detroit churning out Schumer-mobiles will make the steel mills of the Soviet Union look the model of efficiency.

The ruling Democrats have a choice: Rescue this economy to return it to market control. Or use this crisis to seize the commanding heights of the economy for the greater social good. Note: The latter has already been tried. The results are filed under "History, ash heap of."

letters@charleskrauthammer.com

[/quote]

 

[a_majoor]

Here is a true p[lan to reboot the US economy and thus unwind the global financial crisis. Anyone care to start a petition for the same thing in Canada?

http://www.humanevents.com/article.php?id=29733

Sign the 2-Month Tax Holiday Petition Today!
by  Human Events
12/02/2008

Sign the petition today! HUMAN EVENTS and its sister website RedState are fighting to get Rep. Louie Gohmert's income tax break proposal enacted. This saves the typical American family around $2,000 -- we think it makes sense for you to keep the money rather than throwing $350 million at bailout programs that don't help the American people.

Sign today -- just click here.

HUMAN EVENTS will use this petition to help force Congress to pass this tax break proposal. It's for you -- and worth trying, rather than sitting on our hands while Congress acts irresponsibly with the American people's money.

And some economic analysis by a Keynsian (as a follower of Classical economics, I feel vindicated):

http://gregmankiw.blogspot.com/2008/12/fiscal-policy-puzzles.html

Fiscal Policy Puzzles

As a student of Alan Blinder, Larry Summers, and Stanley Fischer, I was trained to view the short-run effects of fiscal policy through the lens of Keynesian macroeconomic theory. I am sure that many of the economists in the new Obama administration share that intellectual framework. After all, they are being drawn from my teachers (Larry Summers), my fellow students (Christina Romer), and my own students (Jason Furman).

Many macroeconomists, however, are skeptical of the Keynesian model. And even among modern Keynesians, there is disagreement about specifics. I think it is fair to say that short-run business cycle theory remains one of least settled parts of economics. Any economist approaching the subject should bring an ample dose of humility. (The alternative is a surfeit of hubris--a character trait all too common among economic commentators.)

The Keynesian model has some clear, practical insights about how to think about fiscal policy during economic downturns. But are those insights true?

One approach to answering this question is to examine the data using the techniques of time-series econometrics without imposing much a priori theory. For monetary policy, there is a large literature that does this; for fiscal policy, the literature is smaller but growing. The results from this exercise, however, do not always confirm the predictions from textbook Keynesian models.

For example, here is the conclusion of Andrew Mountford and Harald Uhlig (a prominent econometrician now at the University of Chicago) in an empirical study called "What are the Effects of Fiscal Policy Shocks?":

    Our main results are that

    * a surprise deficit-financed tax cut is the best fiscal policy to stimulate the economy
    * a deficit[-financed government] spending shock weakly stimulates the economy.
    * government spending shocks crowd out both residential and non-residential investment without causing interest rates to rise.

These finding are not consistent with standard Keynesian theory, according to which government spending multipliers are larger than tax multipliers and crowding out occurs through increases in interest rates.

An earlier, related paper by Olivier Blanchard and Roberto Perotti called "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output" reported similar anomalous results: (interpolation: anomalous only if you are a Keynsian)

  we find that both increases in taxes and increases in government spending have a strong negative effect on private investment spending. This effect is consistent with a neoclassical model with distortionary taxes, but more difficult to reconcile with Keynesian theory: while agnostic about the sign, Keynesian theory predicts opposite effects of tax and spending increases on private investment. This does not appear to be the case.

Blanchard, incidentally, is now the chief economist at the IMF.

I am not sure how convinced I am by these findings. And even if they are correct, I am not sure what model I should use to explain them and to what extent that model would apply to the extraordinary economic circumstances we now face. At the very least, these puzzles should give us reason to pause when using the Keynesian framework for policy analysis. There is still a lot about macroeconomics that remains deeply puzzling.

 

[muskrat89]

New campaign from the Big 3

 

[a_majoor]

Well, since honest historians know how well the "New Deal" worked, we should start thinking about how to cope with this "New, New Deal"

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/11/AR2008121102951.html

The Real Obama
A Centrist? No. A Transformer

By Charles Krauthammer
Friday, December 12, 2008; Page A27

Barack Obama has garnered praise from center to right -- and has highly irritated the left -- with the centrism of his major appointments. Because Obama's own beliefs remain largely opaque, his appointments have led to the conclusion that he intends to govern from the center.

Obama the centrist? I'm not so sure. Take the foreign policy team: Hillary Clinton, James Jones and Bush holdover Robert Gates. As centrist as you can get. But the choice was far less ideological than practical. Obama has no intention of being a foreign policy president. Unlike, say, Nixon or Reagan, he does not have aspirations abroad. He simply wants quiet on his eastern and western fronts so that he can proceed with what he really cares about -- his domestic agenda.

Similarly his senior economic team, the brilliant trio of Tim Geithner, Larry Summers and Paul Volcker: centrist, experienced and mainstream. But their principal task is to stabilize the financial system, a highly pragmatic task in which Obama has no particular ideological stake.

A functioning financial system is a necessary condition for a successful Obama presidency. As in foreign policy, Obama wants experts and veterans to manage and pacify universes in which he has little experience and less personal commitment. Their job is to keep credit flowing and the world at bay so that Obama can address his real ambition: to effect a domestic transformation as grand and ambitious as Franklin Roosevelt's.

As Obama revealingly said just last week, "This painful crisis also provides us with an opportunity to transform our economy to improve the lives of ordinary people." Transformation is his mission. Crisis provides the opportunity. The election provides him the power.

The deepening recession creates the opportunity for federal intervention and government experimentation on a scale unseen since the New Deal. A Republican administration has already done the ideological groundwork with its unprecedented intervention, culminating in the forced partial nationalization of nine of the largest banks, the kind of stuff that happens in Peronist Argentina with a gun on the table. Additionally, Henry Paulson's invention of the number $700 billion forever altered our perception of imaginable government expenditure. Twenty billion more for Citigroup? Lunch money.

Moreover, no one in Congress even pretends that spending should be pay as you go (i.e., new expenditures balanced by higher taxes or lower spending), as the Democrats disingenuously promised when they took over Congress last year. Even some conservative economists are urging stimulus (although structured far differently from Democratic proposals). And public opinion, demanding action, will buy any stimulus package of any size. The result: undreamed-of amounts of money at Obama's disposal.

To meet the opportunity, Obama has the political power that comes from a smashing electoral victory. It not only gave him a personal mandate. It increased Democratic majorities in both houses, thereby demonstrating coattails and giving him clout. And by running on nothing much more than change and (often contradictory) hopes, he has given himself enormous freedom of action.

Obama was quite serious when he said he was going to change the world. And now he has a national crisis, a personal mandate, a pliant Congress, a desperate public -- and, at his disposal, the greatest pot of money in galactic history. (I include here the extrasolar planets.)

It begins with a near $1 trillion stimulus package. This is where Obama will show himself ideologically. It is his one great opportunity to plant the seeds for everything he cares about: a new green economy, universal health care, a labor resurgence, government as benevolent private-sector "partner." The first hint came yesterday, when Obama claimed, "If we want to overcome our economic challenges, we must also finally address our health care challenge" -- the perfect non sequitur that gives carte blanche to whatever health-care reform and spending the Obama team dreams up. It is the community organizer's ultimate dream.

Ironically, when the economy tanked in mid-September, it was assumed that both presidential candidates could simply forget about their domestic agendas because with $700 billion drained by financial system rescues, not a penny would be left to spend on anything else.

On the contrary. With the country clamoring for action and with all psychological barriers to government intervention obliterated (by the conservative party, no less), the stage is set for a young, ambitious, supremely confident president -- who sees himself as a world-historical figure before even having been sworn in -- to begin a restructuring of the American economy and the forging of a new relationship between government and people.

Don't be fooled by Bob Gates staying on. Obama didn't get elected to manage Afghanistan. He intends to transform America. And he has the money, the mandate and the moxie to go for it.

letters@charleskrauthammer.com

 

[Kirkhill]

An interesting defenc(s)e of the US economy from James Moore in The Washington Post via Real Clear Politics

[5 Myths About Our Sputtering Economy

By James P. Moore Jr.
Sunday, December 14, 2008; Page B03

For months now, the nation's economic obituary has been splashed across the front pages of nearly every newspaper in the country. Journalists and pundits alike have warned that America's long-running global dominance has come to a screeching halt, eclipsed by growing markets in such places as China and India and frittered away by our own mismanagement, excesses and myopic approach to the future. We're long past due for a reality check. The United States and the incoming Obama administration face formidable challenges, but the country is by no means on its last legs. Here are a few key myths that need to be dispelled.

1. The United States has lost its competitive edge.

Not by a long shot. By almost any measure, the United States continues to outperform other countries around the globe (including rising giants China and India) in such areas as innovation, technology, higher education, worker training, the ability of the labor force to move from job to job, and more. Just this fall, the Swiss-based World Economic Forum released its latest global competitiveness report, and once again, the United States easily topped the list. The study noted that despite the current financial turmoil, the United States is blessed with strong productivity and can "ride out business-cycle shifts and economic shocks" better than other countries.


2. The United States long ago gave up its global lead in manufacturing to China.

Not yet. Yes, U.S. production plummeted this fall, and yes, the domestic auto industry -- the poster child for America's aging manufacturing infrastructure -- will never return to the output it could manage a decade ago. But even with all this grim news, the United States has held onto its manufacturing lead -- particularly in such key sectors as pharmaceuticals and aerospace, in which it produces almost 25 percent of the world's output, according to the World Bank. China produces roughly two-thirds that amount, the bank notes, and the global downturn has badly hurt its manufacturing sector over the past several months. Sure, China and India have been closing the gap, but with a little bit of creativity, vision and determination on the part of U.S. industry, the Obama administration and Congress, we can hold our own.

3. The U.S. economy is about to be eclipsed by China's.

Not for some time to come. The World Bank estimates that global GDP last year was more than $56 trillion dollars. The United States contributed almost $14 trillion (or 25 percent) of that amount. China's total economy amounted to a bit more than $3 trillion.

Of course, China and other countries such as India and Brazil are growing far faster than the United States, but then again, we were wealthier to begin with. Let's be realistic. The turmoil in the financial markets will reduce U.S. GDP in 2008 and 2009, but China's economy will contract too. No matter how you calculate growth projections, realistically, it will be decades before China is within striking distance of the United States.

And as for those other budding economies now coming on line, don't expect them to outstrip us any time soon, either. Despite its strong growth rates, Brazil has an economy that's approximately the size of Florida's and Illinois's combined. Russia, which spans 11 time zones and has vast natural resources, had an economy that was on a par with that of Texas last year. Even India, a bright spot on the global stage for almost a decade now, still has a GDP that's less than half of California's. These countries will be formidable indeed at some point, but they still have a long way to go.

4. The United States is no longer the economic engine of world trade.

Not true. For three decades now, we have amassed staggering trade deficits, amounting to several trillion dollars (and growing), but U.S. consumers have still helped add substantially to the growth of most countries around the world.

When it comes to imports, of course, the United States buys far more products from overseas than either China or Germany. But in terms of exports, all three countries are closely bunched together, at just over $1 trillion each. There is simply no country, now or in the immediate future, that can replace the United States' sheer global buying power.

5. The United States is no longer an attractive market for investment.


Hardly. Investments here are transparent, well protected and have a long track record of healthy returns. So even with Wall Street reeling, the United States is a compelling place to invest. Of course, today's liquidity crisis originated here, but the value of the U.S. dollar has risen dramatically over the past few weeks, and foreign investors have flocked to U.S. investments and financial instruments as a (relatively) safe haven amid global uncertainties. No wonder the United States attracted more than $2 trillion worth of foreign direct investment last year, according to the World Bank and the International Monetary Fund. (The United Kingdom, Hong Kong and France -- the next three top finishers -- each registered just over $1 trillion.)

So where does that leave us? As Warren Buffett put it recently, the U.S. economy has gone from springing a few leaks to spewing one big gusher. But given our history and unique ability to adapt, we are anything but down and out. The world has changed, and the United States must respond more nimbly to the hard realities of global interdependence. But as "the sage of Omaha" reminded us, this is a fine time to buy into the long-term future of America -- not out of blind patriotism but because it makes good, sound business sense.

jpm23@georgetown.edu



James P. Moore Jr. is a professor at Georgetown University's McDonough School of Business and the director of the school's Global Leadership Initiative



/quote]

I find it noteworthy that while the US still out manufactures the rest of the world China is at 2/3 of the US level....pretty remarkable given the 30 to 40 years since the Cultural Revolution.

But I also find the foreign investment numbers striking:

The US, followed Britain, Hong Kong and France - quite an interesting assortment of Safe Havens: Hong Kong in particular.  Do you suppose that is Western Money betting on Hong Kong or Chinese Money seeking a secure waypoint to the West?

 

[a_majoor]

The US economy can thrive and prosper unless money and resources are diverted away from the market's solutions:

Crash in trash creates mountains of unwanted recyclables in US
American towns are being forced to abandon recycling their household waste after the global economic downturn has crashed the once profitable market for "trash".


By Philip Sherwell in New York
Last Updated: 11:27PM GMT 13 Dec 2008
Rubbish: Crash in trash creates mountain of unwanted recyclables
Financial crisis is rubbish for trash Photo: EDDIE MULHOLLAND

Mountains of used plastics, paper, metals and cardboard are piling up in the warehouses and yards of recycling companies across the US. Some contractors are negotiating to rent old military hangars and abandoned railway depots because they have run out of storage space for the glut of suddenly unwanted rubbish.

The collapse in the recycling market is a direct by-product of the financial crisis, as demand has slumped for material to be converted into everything from boxes for electronics to car parts and house fittings.

Householders have long been able to feel virtuous about their impact on the environment by sorting out their rubbish each week. But now the great trash market crash has even raised the environmentally alarming spectre that some waste intended for recycling may end up in landfills.

"The crash is all the more dramatic because as recently as mid-October the prices for recyclables stood at record highs," said Bruce Parker, president of the National Solid Wastes Management Association (NSWMA).

Newsprint is now fetching less than $60 (£40) a ton, down from $160; corrugated boxing has slumped from $50 a ton to $10; while tin fetches $5 a pound compared to about $25.

Other materials are performing even worse, Mr Parker said. His members are now having to pay for the removal of low-grade mixed paper that two months ago was bringing in $120 a ton. "And plastics, you cannot even give them away," he added with a sigh.

The previous surge in prices had largely been driven by soaring demand from China and India. The emerging economic powerhouses were swallowing up rubbish as soon Americans were discarding it - often to turn into goods and packing that were then sold back to the US.

But the demand from Asia has now collapsed as the economic crisis has spread around the globe. "We truly live in a global economy where what happens at one end of the earth directly affects business at the other end," said Mr Parker.

The impact is devastating commercially - and not just for recycling businesses. Already confronting crippling budget shortfalls, local and state authorities have now seen a lucrative source of income dry up as recycling centres are no longer paying for their rubbish.

Some towns have even suspended their recycling operations, although in much of the country those programmes are required by law.

Residents in West Virginia's Kanawha county, which includes the state capital Charleston, have been told to stockpile plastics and metals, the materials worst hit by the crash, as they will no longer be collected. Small towns with tight budgets are particularly badly affected – Frackville in Pennsylvania has recently suspended its recycling programme.

The collapse has even hit the nation's most prestigious academic institutions. Harvard University used to receive $10 a ton for mixed recyclables from a nearby centre, but last month was told that it would have to start paying $20 a ton to send students' discarded newspapers and empty bottles there.

"I have been in the recycling business for 30 years and never seen a time as bad as this," said Johnny Gold, senior vice-president of the Newark Group, one of America's biggest recycling companies.

"It's a combination of the economic collapse and Chinese over-capacity.

"Our industry is a textbook case of supply and demand. We sell our product to paper mills that make boxes to supply companies making goods and if those goods are not selling, then they don't need the boxes and they don't buy our product."

Mr Parker believes that the market may not bounce back until late 2010 - and by then the mountains of unwanted rubbish would have turned into major mountain ranges. The NSWMA argues that to handle the crisis, the US will have to step up investment in its own recycling mills to fill the gap left by Asia and that contractors may have to impose recycling surcharges.

"It may cost communities more in the meantime but from an environmental point of views, the savings in terms of reducing greenhouse emissions and other benefits are still much greater," he said. (interpolation: the "savings" here are the "feel good" savings as opposed to true monetary, energy or resource savings)

 

[tomahawk6]

I think converting trash to electricity would help to eliminate trash and provide green electricity. A waste to electricity plant can produce 520 kilowatts of electricity per ton.

 

[a_majoor]

Progressia comes home to roost. The most amazing thing to consider is the timeline; the "Great Society" programs which kicked off this destructive spiral were enacted starting in the mid 1960's, so the largest and most productive economy in history was backrupted in just 40 years:

http://www.dcexaminer.com/opinion/Who_Will_Bail_Out_Uncle_Sam_121608.html

Who Will Bail Out Uncle Sam?

By EXAMINER EDITORIAL HOT ZONE
- 12/16/08

The United States of America is bankrupt. Don’t believe it? Consider this: Federal obligations now exceed the collective net worth of all Americans, according to the New York-based Peter G. Peterson Foundation. Washington politicians and bureaucrats have essentially mortgaged everything We the People own so they can keep spending our tax dollars like there’s no tomorrow.

The foundation’s grim calculations are based on Sept. 30 consolidated federal statements, which showed that Americans’ total household net worth, diminished by falling stock prices and home equity, is $56.5 trillion. But rising costs for unfunded social programs like Medicare, Medicaid and Social Security increased to $56.4 trillion – and that was before the more recent stock market crash, $700 billion bank bailout, and monster federal deficits chalked up in October and November.

“Given more recent developments, it’s clear that America now owes more than its citizens are worth,” said Foundation president David M. Walker, the former Comptroller-General of the United States who has been trying to warn Americans of the coming financial tsunami for years, to no avail. So, after Uncle Sam bails out bankers, Wall Street gamblers, carmakers and over-their-head homeowners, who’ll bail out Uncle Sam?

And some possible consequences:

http://www.politico.com/news/stories/1208/16663.html

Four really, really bad scenarios
By: Eamon Javers
December 17, 2008 09:10 AM EST

What’s the worst that could happen?

That’s a question that James Rickards spends a lot of time pondering these days, as he sifts through the national security implications of the financial crisis facing the United States.

Rickards will lay out his worst case scenarios in a lecture sponsored by the Navy and the Office of the Secretary of Defense for Policy tonight. And his forecasts aren’t for the faint of heart.

Rickards calls it the “A to Z” problem: What are the threats that could make the U.S. economy look less like America and more like Zimbabwe? He sees them everywhere – in the Chinese ownership of vast amounts of American debt, in Russia’s increased centralization of its economy, in Al Qaeda’s long-established fascination with damaging the U.S. economy.

In many ways, Rickards is the ultimate bear. He’s not just thinking about whether the stock market will decline, but whether or not the stock market will survive.

All that puts Rickards decidedly outside mainstream economic and political thinking in America. But he does have an influential audience: the United States intelligence and defense communities.

Rickards is a regular adviser on financial issues to the director of national intelligence's office, and he lends his financial advice to the national security community.

His lecture comes as part of an annual “Rethinking Seminar” produced by the Johns Hopkins University Applied Physics Laboratory. Rickards argues that government is not doing nearly enough to prepare for the worst. “Here’s the policy problem for the United States,” he said in an interview. “We have experts in defense and intelligence, and huge depth in capital markets experience at the Fed and at Treasury. But they’re separated by the Potomac River. And they’re not talking to each other.”

Rickards came by his economic experience the hard way. He was the general counsel at Long Term Capital Management, the hedge fund that collapsed in spectacular fashion in the late 1990s and nearly took the global economy along with it. That near-economic death experience gave him a healthy appreciation for risk. Today, he’s the senior managing director for research at Omnis, an applied research firm.

Four of the scenarios keep him up at night:

The Bait Effect

Terrorists, and al Qaeda in particular, are fascinated with the idea of destroying the U.S. economy. Rickards worries that the economic meltdown in the United States could serve as bait of sorts for a terrorist attack, as plotters calculate that a strike now could have a “force multiplier” effect because of the already skittish U.S. stock market.

The China Syndrome

The Chinese own more than $500 billion worth of U.S. Treasury bonds, and billons more in the debt of other U.S. entities such as those held by Freddie Mac and Fannie Mae. And a general sense of mutually assured financial destruction keeps them from wielding that debt like a weapon: if the Chinese dumped U.S. debt on the global market, their own holdings of U.S. debt would decline in value, the U.S. economy would be damaged, ultimately harming the Chinese economy by reducing American ability to buy more Chinese goods.

They’d have to be crazy to try it. But Rickards points out that governments don’t always do the rational thing. And in the meantime, their holdings give the Chinese incredible power over American decision making.

“It gives the Chinese de facto veto power over certain U.S. interest rate and exchange rate decisions,” Rickards explained. “For example, there’s a limit to how much dollar depreciation the Chinese would tolerate.”

That potentially closes off one American economic strategy: allowing the dollar to decline in value in order to help boost U.S. exporters. And China’s leverage is only growing as each federal bailout adds to the U.S. deficit.

The Existential Crash

A pessimist by nature, Rickards believes that many economic forecasters are wrong, and the recession will get far worse than predicted.

He sees an epic disaster scenario in which the U.S. gross domestic product declines by a staggering 35 percent over the next six to seven years. Crippling deflation could take hold. Unemployment, he says, could approach 15 percent.

That’s a calamitous rate, but it would not be an all-time high: unemployment hit 25 percent during the Great Depression.

“The national security community needs to be conversant with this,” Rickards said. “In defense, intelligence, and national security, you earn your money by preparing for things that may be remote, but pose an existential threat if they come to pass.”

In this scenario, the possibilities for global unrest increase dramatically as a staggering United States retreats from foreign aid and global diplomacy and the list of dangerous failed states grows sharply.

The Alternate-Dollar Nightmare

“The Number One vulnerability is the dollar itself,” Rickards concluded. “We’re printing them and shoving them out the door, and the Fed is basically out of bullets. So why hasn’t the dollar collapsed? The short answer is, global investors don’t have any other choice.” That is, there simply aren’t enough Euro- or Yen-backed securities for investors to shift their money out of dollars and into some other currency.

But what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?

Rickards says investors – many of whom already resent that they have no alternative to the dollar – would sell American currency in huge numbers to take advantage of the new opportunity. “If that happens, that’s the end of the dollar,” Rickards said. “You’d have high unemployment, deflation, and interest rates would go up. It would take what already looks like a strong recession and make it a Great Depression or worse.”

Still, even Rickards sees a silver lining to all this. He looks around the world to the problems facing other countries such as Russia, China, Iran, and those in the Middle East.

“There are vulnerabilities for the United States, but also opportunities,” he said. “I’d rather be the United States than any of these other countries.”

© 2008 Capitol News Company, LLC