When one declares oneself to be a conservative, one is not, unfortunately, thereupon visited by tongues of fire that leave one omniscient. The acceptance of a series of premises is just the beginning. After that, we need constantly to inform ourselves, to analyze and to think through our premises and their ramifications. We need to ponder, in the light of the evidence, the strengths and the weaknesses, the consistencies and the inconsistencies, the glory and the frailty of our position, week in and week out. Otherwise, we will not hold our own in a world where informed dedication, not just dedication, is necessary for survival and growth.

William F. Buckley Jr., Feb 8, 1956, NR

Tuesday, December 2, 2008

We Reap What We Sow

A Talking Paper on Economics Basics
By Sam Huntington

Introduction

While there are some of us who find history interesting, its only real value is that it teaches us valuable lessons from the past. We know from history that there are causes and effects; we understand that there are very often unintended consequences to causes, and that over time, one effect may in turn cause yet another. Often, causes and effects are not readily apparent, so we must rely on critical thinking to sort them out. In my opinion, we Americans don’t do so well in our critical thinking skills; if we were a nation of critical thinkers, our country would not be in its present financial mess.

Economics is both an art, and a science. There are two essential parts to this topic: theoretical economics, and practical economics. The people who deal in theoretical applications are mostly university professors who have never worked in the real world, so they are prone to argue the kind of nonsense promoted by Karl Marx. Practical economists, on the other hand, have had to sink or swim in the real world of financial management; they generally know what they are talking about, but even then, it is difficult to find economists who agree on either the causes or effects of economic decisions.

It is not the intent of this essay to restate the economic development of the United States; it would take too long and few people are even interested. Rather, I will attempt to illustrate important developments that produced our present economic situation.

Background

First, understand that money is a medium of exchange. Until recently, money had a value based on standardized weights and measures. Gold and silver coins, for example, contained a certain amount of this precious metal, often certified; its weight in gold or silver gave the coin its value. The problem with heavy coins, however, is that they are heavy and somewhat inconvenient to carry around, In early America, bankers sought to create paper money, gold or silver certificates; that way, gold and silver could be retained safely in banks while allowing people to exchange these certificates for goods and services. We called this paper money certificates because it was possible to present them to a bank, and receive gold or silver upon demand.

Not everyone was in favor of paper money, however. Thomas Jefferson, for example, warned us that “Paper is poverty . . . it is only the ghost of money, and not money itself.” Over time, the US government removed currency from the gold and silver certificate standard; today, our money is simply paper. The point is that there is no longer a psychological attachment to money because it has no intrinsic value except that we can exchange this paper for some quantity of goods. If we still used twenty-dollar gold pieces, we would be less likely to exchange them for Chinese made goods at Wal-Mart. Mr. Jefferson continued: “The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals . . . it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.” Mr. Jefferson was right.

About Debt

Individual (consumer) debt has been with us for a very long time. It might have started with one neighbor borrowing a shovel from another and then giving it back later. If the borrower failed to give it back, ancient societies might have placed the borrower into bondage until “interest” to the lender was satisfied. Modern lending began in Italy during the 1300s; bankers loaned money, but demanded the payment of some amount of interest in addition to the amount borrowed. It was a penalty for borrowing . . . and it still is. Even so, consumer debt in the United States is a relatively new phenomenon, simply because until the 1920s, banks refused to loan money to middle class or poor people. When these people bought things, they had to pay cash for them; this means they had to save up their money first, and then make high-cost purchases.

But then merchants realized that they could expand sales by extending “credit” for the purchase expensive goods. Combined with exceptionally smart marketing techniques, merchants offered “time saving” conveniences, such as appliances: washing machines, refrigerators, gas or electric stoves and ovens, and electric irons. It was possible to buy them “over time.” Consumers had two options: they could put the product on interest free “lay-away,” or they could take the product home, make regular payments, and pay a surcharge for credit (interest).

Credit purchases involved some risk, however. By spending future income on purchases made in the present, there was always the possibility that a worker might lose his job and have no future income. It was a risk many people were willing to take, however. And under credit arrangements with local banks, car dealers could sell more vehicles. Under this system, car dealers profited, and so did banks. Interest rates were usually high (12% in 1928), but no one seemed to notice “over time.” During the Great Depression (1929-1941), the US government encouraged banks to increase loans for cars and homes, and in order to encourage more spending, government began to guarantee these loans.

Following World War II, with a massive increase of consumer goods, government backed loans helped to propel the United States into a consumer-based society. Veterans received government guaranteed loans and by the 1970s, there were six government agencies in the loan guarantee business. By 1989, the US government backed more than 40% of all home loans; they also guaranteed education loans, farms, and small businesses. But even that was nothing compared to the invention of the credit card. It began with Frank McNamara’s Hamilton Credit Corporation (The Diner’s Card, 1950), and rapidly expanded to American Express cards (1958) and Bank of America. Since federal banking law limited interest charges equal to that allowed by state law, bankers made deals with South Dakota and Delaware, permitting unlimited interest charges. And then credit card companies realized that they could charge less interest and make more money by increasing their debt — smaller interest charges on higher amounts, compounded over a longer period. They also made money by charging fees . . . late payment fees times the number of irresponsible borrowers equated to millions of dollars in pure profit.

Discussion

We must now confront two psychological factors: paper money with no intrinsic value, and plastic money, which is no more than an obligation to pay. Most people do not think much about this—they simply go through the motion of working for some number of dollar bills, which they in turn exchange for goods and services . . . most of which they don’t really need. And they use their credit cards regularly, which means, “debt accumulation.” Because it is convenient to use a credit card, people give no thought to accumulating more debt than they can pay off over several years.

Most credit card debt comes from large consumer purchases: televisions, cell phones, cell phone bills, iPods, and computers. People use their credit cards for gasoline purchases, groceries, medical needs, and even sending packages through the Post Office. Every time someone uses a credit card, they incur debt against future income. There are two glitches to this process however. People not only use one credit card to its maximum limit, they often have between six and ten credit cards, and each of those is used to maximum limit as well. The second problem is people do lose their jobs; when that happens, they no longer have the ability to pay off a mountain of debt.

Psychologically, using a credit card isn’t the same thing as pulling out a twenty-dollar bill to pay for purchases, and even that is very different from giving away a twenty-dollar gold piece. Plastic and paper is easy to dispense because we subconsciously know it has no intrinsic value. It is merely a utility. And even when we pay our bills, whether we do that using online services, or writing checks — it is only key strokes or valueless paper. Either process is only a utility to transfer earned income from one account to another. Again, the system appears to work very well up until there is no more income; or when the amount of debt exceeds income potential.

Monkey See, Monkey Do

Government has been acting exactly this way since the administration of Woodrow Wilson. One administration after the other has attempted to expand “services” through debt . . . spending future revenue (income) on government programs today. But now it’s much worse; we are spending so much money not even our great grandchildren will be able to pay it off. Like most Americans who have collectively incurred 1-trillion dollars of personal debt, our government is technically bankrupt. Note that government doesn’t create wealth, people do. What government does is tax people a portion of their income in order to spend money on a wide range of programs (most of which the federal government has no business being involved with in the first place).

What are the likely consequences to government’s inability to tax people who are no longer working? Like the errant hedonist consumer, our government increases spending even in the face of diminished revenues, and they do this by going into debt. Like consumers, government must pay interest on its debt, but rather than 20% of say, $10,000.00 . . . the government is paying 10% on $10 Trillion. This obligates the American taxpayer to pay the principle and interest, of course . . . but even worse, the amount is so large that our great-grandchildren will be paying it off. It also means, eventually, much higher taxes for everyone. Our government is currently borrowing money from foreign governments to sustain outrageous spending. How can the United States maintain its internal security and national sovereignty when it is so close to outright bankruptcy?

Tying up Lose Ends

When people aren’t working, they aren’t spending. When they aren’t spending, there is a decrease in the demand for goods. When people no longer demand products, companies who make those products start laying-off their workers. An increase in unemployment means a substantial (exponential) decrease in spending and a concomitant decrease in tax revenues. Recently, Congress announced that since gasoline has dropped to less than $2.00/gallon, it would increase its federal excise tax by forty-cents per gallon. Don’t worry though . . . this is the hope and change everyone voted for.

This country is well on its way to economic collapse. I wonder what people will do with all of their expensive high-definition television sets when they have no place to live because they lost their jobs, when they can no longer afford to make their mortgage or rental payments. I wonder what people intend to do with their Lexus or GM Tahoe vehicles that carry upside-down balances: where people owe more than their toys are worth. I wonder how people will react when they finally realize that the federal government is no longer standing there with a safety net.

The number one rule of good government should be, “First, do no harm.” It may also be fitting to consider the saying, “The road to hell is paved with good intentions.” Government does great harm when, in attempting to provide a wide range of human services to the American people, it tramples on the Constitution of the United States. As we have seen, the road to hell in this case is extraordinary debt and the loss of national sovereignty to foreign creditors.

If this realization finally takes hold, people will understand that it isn’t the purpose of government to provide safety nets. People would not be losing their jobs right now if government had not intruded in areas that are not the business of the federal government. Similarly, people might also realize that had they not spent themselves into oblivion, they would have real savings to sustain them through periods of economic recession.

Recommendations

It is time to learn the lessons of history, even if only recent history. Federal spending on programs that clearly fall outside the purview of constitutional intent of federal government must stop. But there are only three options to stop that wasteful, meddlesome spending: (1) States must tell the federal government to “butt out” of areas that our founders intended to be within the realm of states’ rights. (2) American voters must demand that their elected officials focus more on reduced spending than increasing taxes; enough is enough. We do not need a federal department of education, or Indian affairs, or any number of other programs that do little more than spend our money, and (3) the federal government must acknowledge that they do not have all the answers to the problems that confront us.

Presently, there are more than 26 major federal departments . . . all of them arguing for a percentage of your hard-earned income. These huge bureaucracies employ hundreds of employees who do little more than gobble up our tax dollars. They are very much like the charity organizations that spend enormous sums of money on everything but the charity they advertise. Every dollar collected by the government represents a dollar less available for spending, saving, or investing. Beyond the budget, your federal government has spent $2.7 Trillion on “bail out” provisions; and half of that is money borrowed from foreign governments.

The cost of our consumerism is at hand. Your debt is about to catch up with you. And so too is government debt . . . only it will plague you for the rest of your life, your children’s lives, and for two generations beyond that. There is a long-term solution, though . . . but it must start today with a reorientation in the way we think about money and our economy: Debt is bad even when necessary (such as mortgage loans). High debt places people in a bondage situation: they must work for n years in order to pay off their loans. And because of our artificial monetary system, over-use of plastic credit cards, and uncontrolled government and consumer spending, we are no longer in control of our economic destiny.



21 comments:

Biased Girl said...

Excellent read! America'a financial crisis is a reflection of Americans financial irresponsiblity.

CB said...

There is a proper use of debt for individuals or businesses but not to purchase appliances, boats or cars, electronics or meals. Most people have no idea about how to properly use debt and this is not the forum to expound on its proper application. Most of us, as you point out, have been playing a losing game.

A fundamental question we must answer for ourselves as Americans is do we want a government that facilitates our free exchanges and protects our property and contract rights or do we want our free exchanges, property and contract rights to support the functioning of our government? On the face of it, some may think that the government is supporting the economy with these bailouts but that is only how it appears. The reverse is actually true.

It is the age old debate between Hamilton and Jefferson. Hamilton wanted to replicate the mercantilism of England, whereby the agency of government would support those industries he and others deemed to be important to the viability of America (i.e. today's bank and maybe auto industry bailouts). Jefferson thought such thinking was dangerous. It had been rejected by John Locke as short sighted and doomed to failure by Adam Smith a century later, both of whom Jefferson read and admired.

The debate was taken up after them by Andrew Jackson, who opposed Hamilton's idea of a central bank (something by the way, that Karl Marx supported). Jackson stopped depositing federal funds into the 2nd Bank of the United States and allowed its charter to expire, un-renewed.

There had been currency disruptions before and after that, that led to calls for a central bank to mitigate currency swings. The railroad failures of the 1890s and the American depression of the mid 1890s and the currency instability of the early 1900s allowed Woodrow Wilson to push through the idea of a central bank, hence the birth of the federal reserve system (Hamilton's dream fulfilled), a private central bank with a government monopoly.

It was an immediate and total failure, inflating the money supply in the 1920s and then failing to provide liquidity after the 1929 stock market crash. Nixon abrogated the Bretton Woods agreement in 1971 which moved the dollar off of the gold standard and turned the federal government into a printing press to "finance" the Vietnam war. That, of course led to the stagflation of the late 1970s and hyper inflation of the early 1980s.

The government has been picking economic winners and losers since Wilson and inflating the currency since Nixon. It is a knowledge problem for voters and not that easy to explain. It competes with sob stories of government largesse and will be one of the central challenges to salvaging our republic. We who believe in property and contract rights, free exchange, sound money and the principles upon which the nation was founded have the harder task but we must rise to the occasion.

Patrick M said...

As someone who has proven he can't manage debt (just ask the student loan people), it's all too easy to be eaten up by the availability of things you don't have to pay for.

And the fact that we're trying to bail out the credit market and get banks to loan more again (despite the fact that credit dried up for a reason) is simply insanity gone Washington.

TAO said...

This cross posting is driving me nuts!

The real issue is do we slowly glide down to a tremendously lower standard of living or do we kind of free fall until we crash. But no matter what our standard of living will be dramatically lowered for everyone...as no one can escape this.

As our standard of living falls so does our GDP and thus the tax base available to the government becomes smaller..thus, we have seen our last war for a long time.

It isn't just consumers who used credit to the hilt...soon announcements will be made about companies that have mortgaged themselves up to the hilt and all of that has to start unwinding.

Its easy to sit and blame everything on Government but lets not forget that most of our economic policies over the last 20 years have been made by "experts" in the Federal Reserve and in the Treasury Department.

What you really should be asking is what kind of people are these "experts" and where are their loyalties? What can a Rubin or a Paulsen see when they look to Wall Street? When you have a Federal Reserve Chairman who takes his worldview from a novel, Atlas Shrugged, which is FICTION!

Lets get real, in a recent poll well over half of all kids in high school admit that they have stolen, lied, or cheated in the last few months but that they still believed that they were "ethical."

I sure would like to sit down with a few of them and have that logic explained to me.

Most conservatives constantly hammer home the inefficencies and ineffectiveness of big government. But, let me ask, if you believe that government as big is bad...what about big business...its not much different.

I think everything started to tank when our shift of focus went from "Main Street" to "Wall Street", and when we quit seeing ourselves as a country but rather as a superpower.

We let our swagger get the best of us and we lost sight of the fact that it was individuals, acting individually, that made the namebrand "American" great and we started to believe that the namebrand had a life of its own.

Now we will pay for our hubris with humility....lots of humility.

Jennifer said...

Good post Sam. I am certainly no expert in this area but I will give my opinion anyway, uneducated as it may be. The government for years has been spending money that it just doesn't have. What they need to do is figure out what is important and what is not. I know, easier said then done. If there are consumers out there that can do it responsibly, why shouldn't we expect the same out of the so called "experts?" The government has been guilty of wasteful spending for a long time, republican and democrat and unless it is stopped we will spiral out of control. The bailout is just one example of this.

I'm not so sure that I would spend gold any differently then I do the dollar. I am so thrifty, it's not even funny.

Another issue is when people use their credit for emergencies. Not all those with credit card debt just got in over their heads. If you don't have insurance and you find yourself needing a $10,000 procedure, you have to come up with it somehow. Also, weddings, school loans, car repairs, there are many other factors at work here. A lot of people are living paycheck to paycheck and don't have the cushion to fall back on it some of these instances.

I would think though that there are many though that just have expensive taste and as long as it is plastic, they don't consider it real money. Credit cards give people a false sense of security and that is a dangerous thing in our economy right now!

Sam Huntington said...

Tao:

If you’ll contact Jennifer or Robert, I’m sure we’d very much enjoy a post from you about “big business.” I happen to agree with what you say, and I will say that most of those crooks in Washington (Paulson, Gorelick, and too many more to mention) made tens of millions of dollars bilking the same companies they now want to bail out.

Something smells in Denmark.

At the same time, these mega-companies are a concern because they evolved into monopolies that drive a slew of people out of productive employment. I’m thinking about ADM and their quest to buy-out small farmers and manipulate food production. Wal-Mart and Home Depot have driven mom and pop business into oblivion.

We generally think that poorly run companies will go belly-up, but that isn’t what’s happened so far. With all the bailouts, it isn’t likely to happen any time soon, either. We might wonder what happened to all the textile factories and furniture industries in SW Virginia . . . and think about the fact that thanks to the bust in housing industries, entire regions of the US are unemployed now.

There will be a solution, because I firmly believe that necessity is the mother of invention. There will a great deal of economic pain, and a lot of human suffering. It will be a hard lesson to learn, but we must learn it. Please consider my suggestion (above) about a guest post.

Thank you for your comment.

Sam Huntington said...

Jennifer:

I think you are making an important point. I know that people are forced in to using credit and accumulating debt for medical reasons. Who won’t do whatever is necessary to see to the needs of their wives and children? On the other hand, I don’t know that weddings qualify as “needs.” There are times when we have to eat hot dogs rather than steak; we have to know the difference between needs and wants, and make discretionary decisions about such things. Medical treatment isn’t discretionary spending, in my view.

Some debt is unavoidable. Few people pay cash for a home, but it is discretionary when people buy a three-hundred dollar home when something much cheaper would meet their needs. Few people pay cash for an automobile, but it is a discretionary decision about whether to purchase a new luxury car, or a used car with low mileage. We don’t need to load up the kids with toys and gadgets that they’ll break, lose, or get into trouble using within the first year. School loans are debt that makes sense because it actually contributes to income enhancement over many years.

So I think we agree that people aren’t using their heads, and as I mentioned in the essay and to Tao (above), it is going to be a very painful experience for too many people. Thank you for inspiring this long comment.

AI said...

Intriguing is it not, the manner and way Governments across the globe are addressing the current crises with more spending under the guise of economic stimulus packaging. Of course, it is not just intriguing but entirely mistaken to bail out those individuals and companies big and small unable to get it right, or more to the point, unable to compete and/or downright irresponsible. Perhaps it is time we the people reevaluated our relationship with money at the micro - individuals and families – and macro level - big business.

Here's a timely quote from Rand. It's almost as if she could see the future - though in reality, she was simply restating what she had seen in Communist Russia.

"Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed."

Apologies if this quote has been displayed at this blog previously. In addition, and while here, congratulations to all those involved in setting up, managing and contributing to this fine blog, I expect nothing short of a Google PageRank of six within months, and that's just the beginning. .

CB said...

Two big problems with the concept of bailout: 1) the government doesn't possess enough information to know what to do 2) Government insistence on doing something prevents actors with the knowledge and ability to do what needs to be done from doing from getting started and the longer the government stays involved, the longer the pain will last.

The Soviet Union at one point was managing some 12 million prices daily and the results were comical. They produced giant bullets and giant windows, they ran short of gloves and provided incentives to pelt producers for fur required to make the gloves. The information got to the pelt producers late and pelts stacked warehouses and rotted before the central planners could change the incentive.

Markets create spontaneous order that private actors, businesses and individuals, can respond to, those who do so most effectively are rewarded, those who don't are not. What we've go now is what got us in this mess on a cocktail of crack and steroids. Now instead of spontaneous order, we've got a political economy, where lobbying and connections to the politically powerful matter more than your effectiveness or ability to produce.

Soon Nancy Pelosi will be talking about fairness, equity and she will try to morph the auto makers bailout into national health care. Everyone by now knows Detroit's model is not sustainable and part of that are the overly coddling health care plans that must go away, along with other legacy costs. She doesn't want them to go through the bankruptcy process, which is the only viable way to salvage any of it because salaries will have to be renegotiated and the legacy health and pension costs will get flushed away. As Rahm Emmanuel said, this is there opportunity to do things they could never get done otherwise.

Jennifer said...

Sam, I agree with your comparison with want vs need. I think with all the things you mentioned, houses, cars , and even weddings (mine was a bad example), if you buy within your means, you will still be in debt, but rightly so.

Joe said...

I am the proud owner of a "silver certificate."

I wonder what would happen if I turned it in and demanded its value in silver?

In today's monetary climate, the only real value to a dollar is that it, in a sense, represents a unit of labor, either an hourly wage or a professional salary.

As far as the good faith and credit of the U.S. Government, there is very little left.

TAO said...

Unlike most conservatives I do not "blame" individuals for the credit situation of this country. Lets be realistic, think of all the purchases we make on a daily basis that we can ONLY make with a credit card. I paid cash for my last two cars and the sales people looked at me like I was from a foreign country...not only that it through their whole discount scheme out the windown because all discounts are based upon the assumption of interest income.

A company can look up your credit report and get a real good financial picture of you but this information does not stop banks from issuing you credit cards, in fact the more debt you have the more credit they want to issue you.

Ever try to explain to people why an interest only mortgage is a bad idea? Ever try to explain to people why renting to own a microwave or furniture is stupid. Try doing this when society as a whole is believing that both of these options are the next great and best thing.

I love the new ARM mortgages...where the interest rate isn't tied to the prime rate plus like most of us think about as traditional ARM's...they are tied to nothing but the interest rate will always go up.

The traditional matrix of government intervention or not no longer is valid because the reality is that government is married and tied and in partnership with business interests. That is what lobbyists have done to this country. It is not government that writes and proposes legislation but rather legislation is proposed and written by lobbyists.

On Main Street, where you and I live and work we play by a different set of rules than does the government and big business.

We believe in fair play, justice, logic and all of that but the trouble is our country is run by a bunch of people who are looking for advantages. Unfair competitive advantages. NAFTA did not benefit the United States as a country. It benefited companies who were willing and able to relocate overseas and it made their shareholders very profitable and it made running those companies very easy. It does not take a genious or an MBA to make a profit when a company is able to cut their payroll costs by 90%.

The company that owns Crysler is headed by Snow and Qualyle...one was the last treasury secretary and the other was VP. Now what do they know about making cars? Nothing. But they are well connected in Washington. As much as all of us love to quote Ayn Rand and love to sit back and read "Atlas Shrugged" for God's knows how many times the truth of the matter is that Jim Taggart runs our economic system not John Galt.

We all love Walmart, but do you realize that if they quit opening new stores they would actually have to report lower sales? There success has only been based the last seven years on the fact that they keep opening stores, not because they are increasing sales at exisitng stores. Then when you realize that most of their vendors are paid on consignment (when Walmart sells their goods) and that Walmart dictates every aspect of the vendor/store relationship then you realize that our economy has been sick for quite sometime.

All of our growth over the last few years has been due to easy credit and increased debt.

Now that that rubber band has been stretched beyond what anyone can imagine we all are going to suffer.

One thing about welfare is that those people that get those checks turn around and spend the money immediately. But when you look at our corporate welfare system you realize that we have made a whole generation of corporations lazy and dependent upon government support and tax credits to produce anything.

I think the whole mad rush to bailout Wall Street...not with a logical plan (which I always believed should have been bypassing Wall Street and funneling more money into small community banks) but with a desire to do something, anything shows exactly the relationship between big business and big government at its best....and worst.

Its not poor people or liberals that will drive this country to socialism but rather it is big business and capitalists that HAVE done so.

Its not Obama but rather Bush, the champion of free markets, that ushered in the age of socialism in this country. Socialism for big business.

You know your economic system and political system is totally out of touch when AIG executives did not see anything wrong with a company sponsored spa retreat after getting billions of US taxpayer dollars. Or when the top executives of Detroit fly to Washington in private jets to ask for a bailout...

We saw the absurdity of it but they did not. I know that everyone loves to blame government interference and regulations for everything that is wrong with our country...I just think we all need to accept the fact that the lobbyists wrote the laws and the regulations and they did so so someone would benefit and most likely the beneficiary was the companies that were paying them.

Thats why I do not get all worked up over welfare, it is pocket change in regards to government spending....look at the agriculture bill or the defense industry to find true welfare, and the big bucks.

I know everyone has stories about waste in government...but I can tell stories about waste in corporations. I remember once having my boss come to me complaining because I had not spent all the funds I was budgeted. I had "saved" over 5 million dollars which I was not planning on spending....well, in two days my boss spent the money and the next year my budget was increased...

Of course that was almost 30 years ago...but the individual and the taxpayer have been lost over the years and sacrificed to crony capitalism.

We lost our way when we lost Main Street Capitalism and replaced it with Wall Street Capitalism.

Robert said...

Otto, thanks for visiting. I am always interested in your international perspective. Your support for the US, and my particular efforts as well, has always been outstanding.

I have no idea what a Google pagerank of six means, but I presume it to be a good thing. I suppose I need to go and school myself a bit today....

I am going to have to do some more research into Craig's topics. His presence is very welcome here, but I didn't begin this venture with the intention of actually working around here....lol.

The Liberal Lie The Conservative Truth said...

Well written Sam. While your solutions are obvious and exactely what is needed, the likelyhood of it happening are almost non-existant.

First consumers have become accostumed to and technology has advanced to the point that plastic is the prefered means of payment for everything. I have actually been in retail outlets where money was no longer accepted.

If this pay by plastic mentality was confined to debit cards which require funds in the bank to allow purchase it would not pose as serious a problem But unfortunatly credit cards are far more popular form of payment because the financial impact is not immediate and gives the illisuon of having more than the available means.

As far as the government is concerned. With the incoming administration combined with a Pelosi/Reid Congress spending and government growth will grow dramatically since both the Executive and Legislative Branches are now under the leadership of people who believe that ONLY government can find solutions to all problems.

Both the consumer and the government situation are not going to be subject to change in the near and most likely further reaching future.

Mustang said...

I know LLCT is correct; the obvious solution isn't likely until "we the people" start doing something besides griping. You may be interested in my article, Somebody Understands. All comments are welcome, of course.

Semper Fi

Arthurstone said...

Sam Huntington opined:

"The people who deal in theoretical applications are mostly university professors who have never worked in the real world, so they are prone to argue the kind of nonsense promoted by Karl Marx."

Actually you couldn't be farther off the mark.

'The people who deal in theoretical applications...' in academe (and especially government)for the most part are from the Chicago School of Economics and their views have held say for the past forty or so years. Eight Nobel prizes and huge influence in the field. Various Bush presidencies as well as the two Reagan ones & Nixon all held to these views.

And much of the current mess we find ourselves in is a result of Chicago School policies. Probably the best example of the Chicago School is Chile 1973 - 1989 under Pinochet, MIlton Friedman, the World Bank and the IMF. A complete disaster. And the virus spread to other Latin Nations who, only now, are emerging from the effects of the Chicago School. And many are choosing a different path based more on Northern European social democracy and less American predatory capitalism.

Cheers!

(O)CT(O)PUS said...

I will have to agree with Arthurstone. For a full exposé on the effect and influence of the Chicago school, I recommend: Naomi Klein. The Shock Doctrine: The Rise of Disaster Capitalism.

When Arthurstone refers to Northern European social democracy, he is probably referring to its leading proponent, John Maynard Keynes who pioneered the concept of "mixed" economics to smooth out the bumps and grinds of the business cycle.

If we had more Keynes today, and LESS Friedman, we wouldn't be in this meltdown pickle.

One more thing. Please don't cite Marx as an exemplar of academic economics. This is just name calling ... and very stupid.

Robert said...

Arthurstone and 8pus, welcome to both of you. 8pus is a long time blogging acquaintance, but I hope both of you continue to come back and visit.

Don't have time at the moment to respond to posts, but wanted to drop a welcome note to you..

If nothing else is going on, come back at 900 eastern for a few minutes, or for the entire hour!

CB said...

Naomi Klein? Keynes? Conflating Pinochet with Freidman? We've been practicing Chicago school economics in America?

I guess it stands to reason that liberals and leftists would visit this site to troll. Naomi Klein's book contains a logical fallacy on every page, Chile has surpassed every South American command economy for good reason. Our government policy has never been Chicago school. Even Arthur Laffer was talking about revenue to the treasury not so much benefiting the economy at the expense of government as Chicago school adherents would promote.

The current crisis is a failure of government intervention in the markets, government corruption and over regulation. The markets have not been allowed to properly function and operate. Even with Clinton Justice department interference, Clinton appointee corruption at the leadership of the GSEs including Rahm Emmanuel, corrupt Congressional oversight and the failed concept of a Central Bank (which is something Marx proposed in his manifesto) this could have been better mitigated if the imprimatur of a government "moral obligation" had not been allowed to be applied to the toxic waste MBS, the securitization of which FNMA requested, not Wall Street, created a shell game of obfuscation.

Private ratings agencies were pressured to assign investment grade status to this garbage and they did so because of the "moral obligation." Investors wanted further assurance, knowing that it was junk and AIG provided credit default swaps because they relied on rating agency and government "moral obligation" rather than looking to the underlying paper. Investors, including institutional buyers, like banks, bond and money funds, because of requirements they have for holding investment grade paper. As it began to fall apart, government regulation exacerbated the problem, requiring securities to be marked to market, which is entirely inappropriate for non liquid assets like real estate.

So, no, not a failure of the markets a failure of government meddling in the markets is what we're struggling through and just like Hoover and FDR did our politicians are only making things worse by trying to appear to fix it.

Arthurstone said...

Heh. Heh.

Still upset about the 'Central Bank' I see.

Well that horse has long left the barn.

But thanks for the chuckle.

Chile's economy began to improve once Pinochet and his Chicago School buddies left.

http://www.zmag.org/znet/viewArticle/2538

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