GREAT article from American Thinker.

Seth

I have made a number of posts the last few days of people who legitimately call themselves moderates who are having second thoughts about this administration.  And, for the record, I believe the number of moderates who are going to become angry in the weeks ahead is going to grow.  Maybe even Andrew Sullivan will come around.

Scott, during the election cycle, assured us that Obama is “left of center”.  And, in fact, I believe there was some anecdotal evidence to suggest that to be the truth.  (Some public comments, and some advisors on his campaign come to mind.)  Nevertheless, Steve and I argued back and forth with Scott that Obama is pretty far left and some concessions were made on both sides along the way…and I would say that we ended the discussion with some HOPE that maybe Scott was right.

And with that as the context I have to say this…I am EXTREMELY disappointed in his first 45 days in office.  EXTREMELY.  Perhaps I haven’t looked hard enough or perhaps I have looked in all the wrong places…but I have not seen the slightest moderate impulse from Obama.  (With the possible exception of foreign policy.)

Which brings me to my main point.  What does it mean to be a moderate?  And why is their a growing unease among them about Obama’s start?

Here is my analysis.  (This is all over-simplified to make my point.)

There are really two kinds of moderates.  Conservative Moderates (right-of-center) and Liberal Moderates (left-of-center).  They are really two different groups.  Generally speaking, conservative moderates are fiscal conservatives who are socially progressive (and therefore part ways with right-conservatives on social issues).  Liberal moderates are fiscal conservatives who are socially progressive (and therefore part ways with liberals on economics issues.)

So, of the four groups–left liberals, center liberals, center conservatives, and right conservatives–3 OF THEM ARE FISCAL CONSERVATIVES.  This is VERY TELLING.

As I said…I realize that this is a little simplistic so let me grant a little complexity.  Both of the center groups may in fact be for higher taxes or minimum wages or other anti-Austrian economic principles.

So, in what sense are these three groups fiscally conservative.  For the purposes of my post…by fiscally conservative here is what I mean…DRUM ROLL PLEASE BECAUSE THIS IS MY MAIN POINT…fiscal conservatives are people who believe that Business and Free Enterprise and Entrepreneurship are the engine of the American economy.  In other words, when it comes to the economic recovery…they don’t trust in Government…they trust in people and private sector organizations.  People and organizations who put their fortunes and capital at risk to start new ventures, invent new gadgets, produce new whatzits, propose new ideas, expand the plant’s capacity, supply a need and otherwise fill in what’s lacking.  It is predicated on two almost axiomatic principles.  One, is that the government doesn’t produce anything and, two, the government can’t employ everyone, even if Obama wants to try.  So, in order to fulfill it’s good intentions the government has to TAX (confiscate people’s property through the threat of imprisonment) which removes money from the economy and use that to hire more employees who actually don’t produce anything.

My hope and the hope of moderates everywhere was that there would be some indication at some level that Obama realizes this.  We were hoping to detect some impulse somewhere in his policy-making that understands that in the end that there is only so much hiring that the government can do (whether through government jobs or temporary make-work) and that it is up to the private sector to do the real hiring of real people doing real jobs providing real goods or services.

In his time in office Obama has demonstrated ALMOST NONE of that impulse.  Certainly nothing that will make a real difference.  This is made VERY clear through everything he has done but mostly through the $1,000,000,000,000 spendulus bill (which Republicans were right to say lacked enough stimulative provisions) and now his $3,500,000,000,000 budget proposal.  The budget proposal. particularly is what is beginning to alarm people.  There is NO SIGN of compromise in that bill.  There is absolutely NO INDICATION in the bill that Obama believes that business is the key to the recovery.  Nothing.  Nil.  Nada. Nyet.  Zip.

Let’s make my point personal.  Do you work?  Do you work for the government or a business?  What about most of your friends…government or business?  Of those who you know who have entered the unemployment rolls…did they used to work for government or business?  (I know the answer.  Government employees never lose their jobs…even when they are incompetent and there is a recession.)  Are they more likely to find a job working for a business or the government?

Everything Obama has done screams, “In Government We Trust.”  He could have done SO MUCH to stimulate this ecomomy and he is missing his opportunity.  He could have temporarily suspended payroll taxes (which has the double effect of putting more money into consumers hands and freeing up business capital at the same time).  He could have cut corporate tax rates which are the highest in the world.  He could have suspended some of his more progressive programs until the economy recovers and could absorb them easier.  For example, he could have suspended the HUGE TAX increase he is about to foist on everyone in America through his Energy Cap and Trade policy.  He could have avoided putting a cap on charitable giving (still part of the private sector economy who unlike government actually will do some good in these times), he could avoid tinkering with the home mortgage deduction when the housing industry is in a shambles, he could have avoided taxing the wealthiest people in America who need to spend their money to build new business or expand existing ones.  He could have avoided demonizing whole sectors of our economy (banking and healthcare come to mind–not all of them behaved wrongly) and demonstrated speech and behavior that didn’t demonize America’s most successful people and businesses.  He could have asked unions to concede more to companies in these difficult times rather than promising a nationwide push for unionization of more industries across every state in the union.

But now I know. Obama can’t have done any of these things because at his core he doesn’t believe in them.  In other words, he is not a moderate.  AND he has to do the political payback to all of those exreme leftists who got him elected which he is doing in spades.  AND he has to seize the opportunity of this downturn to accomplish as much of the leftist wish-list as he can.

Do you think I am wrong.  For you Obama supporters out there (Scott, are you listening) could you please present to me 3 things that Obama has done in the last 50 days that are “”business friendly”.  Only 3.  Not 10.  Not 50.  Just 3.  Leave a comment.

Now…here is the upside of all of this.  Obama will either have to shift-to-the-center (which is good for the country) or he will keep us in recession/depression long enough that Republicans will sweep the 2010 elections (which will be good for the country).   And then he might just become a decent president.

Do you agree?  If not, tell me please, what has been moderate about Obama so far?

Seth

PS.   One closing thought.  I will start with where I began.  I have said in earlier posts that the Daily Kos has their head in the sand.  What I say in this post is WHAT THEY DON’T GET.  Remember the 3 of 4 segments I mentioned earlier in the post that all hold some form of fiscal conservatism in common.  The 2 center groups and the right group.  TOGETHER these three groups EASILY represent enough voters to defeat ANY democrat.  The Daily Kos thinks we are leftist country.  But at best we are a left-moderate-to-right-moderate country.  True progressives account for less than 30% of the voting electorate.  I hope Kos and other lefties keep NOT getting this.  It will help us in 2010.

During the Fall 2009 TARP debate we here at FatTriplets got into some pretty intense debate about the cause of the banking debacle.  And if we concluded anything, I would say it was that there was plenty of blame to spread around — to both Democrats and Republicans.

And then a few days ago I compared American Thinker (Conservative) to Daily Kos (Liberal).

I take that back.

Show me the Daily Kos equivalent to THIS American Thinker article which posits the same point…there is plenty of blame to share.  Daily Kos is worse than partisan.  They are utopian ideologues who JUST DON’T GET IT.  In Government We Trust is there mantra.  !@%$& idiots.  Now arguing that the Tea Parties (40 in toto)held across the country this past Friday was a grand conspiracy orchestrated by CNBC, Rick Santelli, and the Republican party.

The upside of all of this is that while they continue to think that the 2008 election represent a sea-change in American attitudes and beliefs rather than an endorsement of an excellent communicator who ran as a Clintonesque moderate.  They can keep their head in the sand if they like.  And Obama will get in 2010 the exact same thing that Clinton got in 1994, a Republican controlled congress.

As Steve opined earlier…it just might save the Obama presidency.

Seth

This letter by Steven Horwitz, Professor of Economics at St. Lawrence University, beautifully rebuts the notion that the current economic meltdown was a failure of free-markets.  He indicts five government interventions in the market as being largely culpable:

• Fannie Mae and Freddie Mac insured loans that would never have happened in a truly free-market while forcing banks to underwrite loans to “distressed areas” that never would have gotten approved using traditional underwriting standards.
• With the  1994 renewal and revision of the Community Reinvestment Act, “Congress explicitly directed Fannie and Freddie to expand their lending to borrowers with marginal credit as a way of expanding homeownership.”
• The worst hit areas in the country are characterized by significant land use regulations which drove up the prices of homes and contributed to risky borrowing.
• The Federal Reserve, “nominally private but granted enormous monopoly” powers to regulate the currency, drove down interest rates and fueled the borrowing binge.
• Finally, in 2004 and 2005, as penance for an accounting scandal, Fannie and Freddie agreed to expand their lending to low income customers.  “Both agreed to acquire greater amounts of subprime and Alt-A loans, sending the green light to banks to originate them. From 2003 [corrected on 10/19/08] to 2006, the percentage of loans in those riskier categories grew from 8% to 20% of all US mortgage originations“

Horwitz letter does not deny or mitigate the place that “greed” played in this crisis.  Indeed, profit seeking and maximization are like the air we breathe or gravity, ever-present and unavoidable.  He opines:

No free market economist thinks “greed is always good.” What we think is good are institutions that play to the self-interest of private actors by rewarding them for serving the public, not just themselves. We believe that’s what genuinely free markets do. Market exchanges are mutually beneficial. When the law messes up by either poorly defining the rules of the game or trying to override them through regulation, self-interested behavior is no longer economically mutually beneficial. The private sector then profits by serving narrow political ends rather than serving the public. In such cases, greed leads to bad consequences. But it’s bad not because it’s greed/self-interest rather because the institutional context within which it operates channels self-interest in socially unproductive ways.

Near the end of the letter Horwitz states:

We can disagree in good faith about what to do next, and we can disagree in good faith about the degree to which government intervention caused the problems, but blaming a non-existent free market for a crisis that clearly was to some extent the result of government’s extensive interventions in that market is unfair. So if I have persuaded you of nothing else, I hope deeply that I have persuaded you of that.

In the end, all I can ask of you is that you continue to think this through. Explaining this crisis by greed won’t get you far as greed, like gravity, is a constant in our world. Explaining it as a failure of free markets faces the obvious truth that these markets were far from free of government. Consider that you may be mistaken. Consider that perhaps government intervention, not free markets, caused profit-seekers to undertake activities that harmed the economy. Consider that government intervention might have led banks and other organizations to take on risks that they never should have. Consider that government central banks are the only organizations capable of fueling this fire with excess credit. And consider that various regulations might have forced banks into bad loans and artificially pushed up home prices. Lastly, consider that private sector actors are quite happy to support such intervention and regulation because it is profitable.

Horwitz also superbly explains why industry often supports regulatory regimes (it reduces competition) and often tend to “capture” the regulatory mechanisms that are supposed to be overseeing their activities. Read the whole thing.

Steve

HT to Don at Cafe Hayek

I’ve discovered THIS BLOG - BailoutSleuth.com, which is staying on top of the details of how our taxpayer bailout money is being used.

They’ve pointed out that the new contracts that are being signed with banks for the bailout are BEING HEAVILY REDACTED so we can’t know the details. That sucks and is wrong.
************
On a side note, I have also decided to buy a blue suit and shave my head in the hopes of being chosen as the next bailout executive.

This article, written on Friday before yesterdays recovery is an evenhanded analysis of the Markets response to the crisis and is contrasted with the Great Depression in 1932:

In fact, the market is probably wrong again in its obsession over whether this decline will turn into a cataclysmic collapse. Eugene White, an economics professor at Rutgers University who is an expert on the crash of 1929 and its aftermath, thinks that the only real similarity between today’s climate and the Great Depression is that, once again, “the market is moving on fear, not facts.” As bumbling as its response so far may seem, the government’s actions in 2008 are “way different” from the hands-off mentality of the Hoover administration and the rigid detachment of the Federal Reserve in 1929 through 1932. “Policymakers are making much wiser decisions,” says Prof. White, “and we are moving in the right direction.”

One of the things that economists who study monetary policy and the money supply have learned by studying the Great Depression (most notably Milton Friedman and Anna Schwartz in their A Monetary History of the United States) is that the Federal Reserve completely botched the handling of the crisis and greatly exacerbated the increased the misery it caused by contracting the money supply and not providing liquidity to the banks when the “runs” were occurring.  TARP was a bad rescue plan (because it should have gone about recapitalizing the banks differently and allowed the industry to shrink).  But it least it was a step in the right direction in recognizing the role the Federal Reserve needed to play.

Steve

In this section of his speech yesterday, Obama includes “Main Street” as part of the problem we are currently facing. He says we need to discourage debt and encourage savings.

It also means promoting a new ethic of responsibility. Part of the reason this crisis occurred is that everyone was living beyond their means - from Wall Street to Washington to even some on Main Street. CEOs got greedy. Politicians spent money they didn’t have. Lenders tricked people into buying home they couldn’t afford and some folks knew they couldn’t afford them and bought them anyway.

We’ve lived through an era of easy money, in which we were allowed and even encouraged to spend without limits; to borrow instead of save.

Now, I know that in an age of declining wages and skyrocketing costs, for many folks this was not a choice but a necessity. People have been forced to turn to credit cards and home equity loans to keep up, just like our government has borrowed from China and other creditors to help pay its bills.

But we now know how dangerous that can be. Once we get past the present emergency, which requires immediate new investments, we have to break that cycle of debt. Our long-term future requires that we do what’s necessary to scale down our deficits, grow wages and encourage personal savings again.

It’s a serious challenge. But we can do it if we act now, and if we act as one nation. We can bring a new era of responsibility and accountability to Wall Street and to Washington. We can put in place common-sense regulations to prevent a crisis like this from ever happening again. We can make investments in the technology and innovation that will restore prosperity and lead to new jobs and a new economy for the 21st century. We can restore a sense of fairness and balance that will give ever American a fair shot at the American dream. And above all, we can restore confidence - confidence in America, confidence in our economy, and confidence in ourselves.

Sullivan has the whole text of the speech

I first watched this last December when Mankiw linked to it. It hits home even harder today then it did then. If you can’t watch the whole thing, then fast forward to the 7:45 mark. They must have read their tea leaves!

Steve

What is IT? I don’t know. I just liked the metaphor. What do you think it is? Or should be?

Steve

In case you missed it.

LINK

Seth

Sebastian Mallaby, one of my favorite columnists, betrays both wisdom and economic sense in yesterday’s column exhorting readers, and Obama, not to give into those that would decry markets as one of the tools to lead us out of this mess. Money quote:

So blaming deregulation for the financial mess is misguided. But it is dangerous, too, because one of the big challenges for the next president will be to defend markets against the inevitable backlash that follows this crisis. Even before finance went haywire, the Doha trade negotiations had collapsed; wage stagnation for middle-class Americans had raised legitimate questions about whom the market system served; and the food-price spike had driven many emerging economies to give up on global agricultural markets as a source of food security. Coming on top of all these challenges, the financial turmoil is bound to intensify skepticism about markets. Framing the mess as the product of deregulation will make the backlash nastier.

The first half of his column makes some technical assertions about trade that I thought I might be able to unravel a bit for Fat Triplet readers. Mallaby states:

The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China’s export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets ’round the world, driving up the price of everything from Florida condos to Latin American stocks.

The United States has had a trade deficit with China for many years. This means that we imported more goods from China than we exported to China. Most people know this and it is a cause of alarm to many people (although I am in the camp that thinks that the problem with trade deficits are frequently overstated). But anytime there is a trade deficit it is offset by a “capital surplus”. We buy Chinese goods and those goods are paid for with US Dollars. A country with a trade surplus, such as China, will accumulate the currency of the country with whom they have the trade surplus, in this case the US Dollar. Because those dollars can only be used to buy items denominated in US Dollars, China has used the money to buy assets in the United States. These assets may be things like commercial or non-commercial real estate, corporations, land, etc. Increased demand for these products from foreign investors helped to drive up the price of these assets while helping to keep a lid on the price of consumer products and the overall rate of inflation. Another asset that has been purchased in huge quantities by the Chinese is US Treasury Bills. In other words, the Chinese have been funding the US National Debt. This means is that things are going to get very ugly for the Chinese. Especially, if the Federal Reserve has to fire the bullet of last resort to get the economy going, the printing of money. I think that is a distinct possibility at this point.

Steve

LINK

I loved this letter to the editor that Don Boudreaux sent last week. In its entirety:

Mr. Scott Simon, Host
Weekend Edition
National Public Radio

Dear Mr. Simon:

John Lithgow is a fine actor, but his explanation of the current financial turmoil — as being caused by “greed” — is inadequate (Weekend Edition, Oct. 4). Saying that “greed” caused today’s problems is like saying that gravity caused the death of someone pushed from the top floor of the Empire State building. Some things are sufficiently constant in human affairs - and self-interest, even greed, is among them - that they explain nothing.

“Greed” certainly can be unleashed to do harm, but it can also be harnessed to do good. Any compelling explanation of any observed economic reality must take “greed” as a given while identifying the specific incentives provided by prevailing social institutions. If these institutions make serving the needs of others the best path to personal gain, then “greed” is harnessed for human betterment. But if these institutions make predating on others - either through force or fraud, or either intentionally or unintentionally - the best path to personal gain, then “greed” will indeed lead people to act destructively. In either case, though, it is the institutions and their accompanying incentives, rather than “greed,” that explain economic reality.

Sincerely,
Donald J. Boudreaux

I think the letter is brilliant and spot on. But it raises, in my mind, questions of semantics: is their a substantive difference between greed and self-interest? When does self-interest become greed?

Steve

LINK