Category Archives: economy

Neither a borrower nor a lender be

Is it just me, or does the new credit card consumer protection legislation protect less responsible cardholders (those who accumulate a lot of debt or exceed spending limits) at the expense of more responsible ones who usually pay off their bills on time, and who are likely to get hit with new fees or have rewards canceled as banks try to make up for lost revenue?  Transparency is generally good, and requiring credit card companies to notify cardholders in advance of an interest rate hike seems unobjectionable — but what if the bank has to respond quickly to changing market conditions or lose money?   Is there really anyone who doesn’t know that credit card companies generally have fines for spending over the credit limit or paying by phone?  And is it really such a good idea to impose extra hurdles on young men and women between 18 and 21 — old enough to marry, vote, drive,  join the Army — before they can apply for a credit card?  (One of the options is to have a parent or guardian as a guarantor; apparently, parental control is oppressive when it comes to sex or contraception, but  not money.)  

Meanwhile, on HuffPo, Arianna rails against the evil of usury, invoking the Bible, the Koran, and St. Thomas Aquinas (inter alia).  Apparently, invoking religious texts as justification from social policy is also fine when the policy in question is a politically liberal one.  It seems that some scripturally condemned activities between consenting adults are not okay after all.

8 Comments

Filed under economy, freedom, liberalism

Not enough government?

On TNR.com a few days ago, William Galston criticizes David Brooks’ “Moderate Manifesto,” which accuses Obama of overreaching on an ambitious government-expanding agenda.  Says Galston:

[T]here is no question that the Obama budget contemplates a growth of the federal government relative to both the states and civil society. This is what happened under FDR, driving the conservatives of the time to paroxysms of rage. Today’s conservatives are doing what Ronald Reagan never did–namely, relitigating the merits of the New Deal. It’s not clear whether Brooks intends to join them. If so, he should either argue explicitly that the New Deal was a mistake, or distinguish between today’s needs and those of the 1930s. If not, it’s hard to see the prima facie case against Obama’s course.

Well, leaving aside the merits of the New Deal, there is one major difference.  In 1940, total federal, state and local spending in the United States equalled about 19% of the GDP (up from 13% in 1930).  Today, it’s close to 37%.  (The data can be found here.)  Growing government from a small base is — to point out the obvious — not the same as growing it from a large base.  A Rooseveltian expansion of government today would push its size to some 56% of the GDP.

Meanwhile, on Salon.com, Michael Lind castigates Obama for not being pro-big-government enough and for espousing market-oriented “neoliberalism,” a liberal adaptation to the tyranny of conservative free-market fundamentalists.  (Back in June, Lind wrote that conservatism had already been defeated.  Never mind.)   He dislikes the cap-and-trade approach to pollution, preferring command-and-control.  He is angry that Obama wants to encourage private initiative and investment to develop “green” energy, instead of organizing a government research program civilar to the one FDR created to develop the atomic bomb.  (If Lind cannot see the difference between a weapons program with a very specific goal and the development of alternative energy sources in a vast and complex economy, trying to explain is hopeless.)  He hails FDR as the model of centralized action that Obama is failling to emulate, since FDR “imposed a single, simple, efficient tax to pay for a single, simple, efficient public system of retirement benefits.”   You’d think it was only “free-market fundamentalists” who have warned about the problems an aging population creates for Social Security.

By the way, here, Lind says that “socialism” is a racial code word in the same manner as “welfare queen.”  But of course; that’s why there’s all this talk of “European” or “Swedish” socialism.  Because when Americans think “Sweden,” they think “lazy shiftless blacks.”  Makes perfect sense.  Does anyone take Lind seriously?

And here on Slate.com, Jacob Weisberg explains why Obama is not a European-style social democrat and why “European socialism” wouldn’t work here even if Obama endorsed it.  He makes an interesting case.

(Cross-posted on RealClearPolitics.com.)

5 Comments

Filed under conservatism, economy, liberalism, socialism, the left

The morality of bailouts: A solution?

Lately, there has been a lot of discussion of the moral aspect of anti-crisis measures that, in effect, allow people to get away with bad or at least irresponsible behavior — specifically, bailing out homeowners who took out mortage loans they couldn’t realistically afford.  Today’s New York Times has letters in response to a David Brooks column on the topic.  Says Brooks:

The financial bailouts reward bankers who took insane risks. The auto bailouts subsidize companies and unions that made self-indulgent decisions a few decades ago that drove their industry into the ground. The stimulus package handed tens of billions of dollars to states that spent profligately during the prosperity years. The Obama housing plan will force people who bought sensible homes to subsidize the mortgages of people who bought houses they could not afford. It will almost certainly force people who were honest on their loan forms to subsidize people who were dishonest on theirs.

Unfair?  Maybe, says, Brooks, but necessary for the greater good of all:

[G]overnment isn’t fundamentally in the Last Judgment business, making sure everybody serves penance for their sins. In times like these, government is fundamentally in the business of stabilizing the economic system as a whole. … Individual responsibility doesn’t mean much in an economy like this one. We all know people who have been laid off through no fault of their own. The responsible have been punished along with the profligate. It makes sense for the government to intervene to try to reduce the oscillation. It makes sense for government to try to restore some communal order.  …

…. To stabilize that communal landscape, sometimes you have to shower money upon those who have been foolish or self-indulgent. The greedy idiots may be greedy idiots, but they are our countrymen. And at some level, we’re all in this together. If their lives don’t stabilize, then our lives don’t stabilize.

A letter-writer from Iowa agrees:

Many of us have done nothing wrong. Some are still renting because we were too responsible to buy a house we could not afford while others struggle to faithfully pay for ones they could.

The foolish should not have taken on mortgages they had no realistic possibility of paying. But reality is not what should have been, nor is it what we wish for. Reality is only what currently is.

If the foolish go under in droves, the wise and responsible will quickly follow. In saving them, we also save ourselves.

True enough.  The purely libertarian/Ayn Randian solution of leaving everyone to face the consequences of their  poor choices runs into several major obstacles.  One is that, as Brooks argues, because the economy makes us all interdependent, the innocent would sink along with the guilty.  (And that’s not even to mention people — including children — who will suffer for bad or foolish choices made by a family member.)    Another is that standing by while large numbers of people “sink” for their reckless or self-indulgent decisions (again, often along with innocent family members) will either severely demoralize society or breed callousness.

There is, however, an alternative to letting the foolish and reckless go under — taking a few of the wise and responsible down with them — or forcing other, more responsible people to pay for their folly.

Provide the assistance — but in the form of loans. Let the people, companies, and states on the receiving end of taxpayer-funded rescue repay the money later, when they’re back on their feet.  At low interest.  Or even zero interest.   But there should be no such thing as a free bailout.

(Cross-posted to RealClearPolitics.com.)

6 Comments

Filed under economy, moral issues

Who owns the spirit of innovation?

I am not a doctrinaire libertarian.  Non-doctrinaire enough, for instance, to think that the funding in the Obama stimulus package for expanding broadband Internet coverage to rural areas may be a good idea.  So far, providing reasonably priced high-speed Internet to rural areas is not profitable enough to be feasible for markets, and lack of broadband Internet access is increasingly a major handicap (even in access to job opportunities, education, and consumer goods — particularly for people in isolated areas).

At the same time, this kind of statement from Barack Obama at the signing of the stimulus bill brings out the libertarian in me:

“Just as President Kennedy sparked an explosion of innovation when he set America’s sights on the Moon, I hope this investment will ignite our imagination once more, spurring new discoveries and breakthroughs in science, in medicine, in energy, to make our economy stronger and our nation more secure, and our planet safer for our children,” Mr. Obama said on Tuesday.

The space program was a great achievement (though see some libertarian critiques).  Still, the real impetus for innovation and new discoveries — in which the U.S. still leads the world — has always come from private industry.  And that’s something one hopes the leader of the Free World would understand.

3 Comments

Filed under Barack Obama, economy

Other than that, Mrs. Lincoln…

Camille Paglia’s assessment of Obama’s first weeks:

Why in the cosmos would the new administration, smoothly sailing out of Obama’s classy inauguration, repeat the embarrassing blunders of Bill Clinton’s first term? …

Surely common sense would dictate that when Congress is doling out fat dollops of taxpayers’ money, due time should be delegated for sober consideration and debate. The administration’s coercive rush toward instant action, accompanied by apocalyptic pronouncements of imminent catastrophe, has put its own credibility on the line.But aside from the stimulus muddle, Obama has been off to a good start. True, I was disappointed with the infestation of the new appointments list by Clinton retreads and slippery tax-dodgers. Nevertheless, I was very impressed by Obama’s relaxed, natural authority with military officers on Inauguration Day… I applauded the signal Obama sent to the world by starting the closure of the Guantánamo detention center.

As it happens, I too mostly like Obama’s early and, I think, balanced war-on-terror moves.   But the most important component of those moves, so far, is symbolic.  (Guantanamo has not actually been closed, and many key aspects of detainee treatment are still to be resolved.)  Note that the two things Paglia is most impressed by have to do, first and foremost, with image.

What about the substance?

Continue reading

2 Comments

Filed under Barack Obama, economy

The war in Georgia and Russian markets

Daniel Larrison takes me to task for suggesting that Russia paid a price for the Georgia war in the flight of foreign capital, which predated and exacerbated the financial crisis. Says Larrison:

Capital had been “fleeing” Russia in the form of a decline in its stock market throughout 2008, long before the war in Georgia and the full outbreak of our financial crisis in September, in a more dramatic expression of the slow downward trend that our own market was showing through the first half of the year. At the time of the war in Georgia, the Russian index had already declined roughly 20% for the year, and Russia did not suffer its worst precipitous drops in its stock market until the full brunt of the financial crisis struck New York in mid-September.

It’s quite true that the Russian stock market began to decline before the war in Georgia, thanks mostly to this man:

The first big drop market drop in Russia occurred in late July, when Prime Minister Putin launched a nasty verbal attack on the CEO of the Mechel steel company, Igor Zyuzin:

“We have a respected company, Mechel,” Putin said in introducing his subject.

“By the way, we invited the owner and director of the company, Igor Vladimirovich Zyuzin, to today’s meeting, but he suddenly got sick. Meanwhile, it is known that in the first quarter this year the company exported raw materials abroad at half the domestic, and world, price. And what about the margin tax for the government?”

He added: “Of course, sickness is sickness, but I think Igor Vladimirovich should get better as quick as possible, otherwise we’ll have to send him a doctor.”

As the International Herald Tribune report puts it:

On the heels of the imprisonment of one tycoon and some bare-knuckled corporate raids and renegotiations of large energy contracts under Putin, the market did not take this talk lightly.

Over all, the Russian stock market slid more than 5 percent Friday, on fears that Putin’s comments might presage another attack on a company similar to the destruction of the Yukos oil company in 2004.

The remarks also coincided with the departure of the American chief executive of the British energy company BP’s joint venture in Russia, which is under pressure from its Russian partners and the government, in another glum sign for investors here.

More on the BP dispute here. State thuggery is bad for business; who knew?

(Incidentally, the role of Putin’s “we’ll have to send him a doctor” quip in crashing the Russian stock market is so widely understood that, remarkably, even the pro-government Izvestia criticized it in a year-end roundup of the Putinisms of 2008. Izvestia also quotes a more complete version of the remark: “We’ll have to send him a doctor and clean up these problems.” The word Putin used, zachistit’, was most commonly used with regard to “cleanup operations” against Chechen separatist fighters.)

That said: did the war in Georgia have an effect on capital flight? Well, here’s what an August 19 report in the New York Times had to say:

More than $7 billion left Russia during Moscow’s military campaign in Georgia, a rate more than 10 times higher than earlier in the year and the product at least in part of fears that “certain political risks” are making the Russian Federation a less attractive place for investment, according to Russian Finance Minister Aleksei Kudrin.

Kudrin must be another one of those Russia-hating neocons.

This August 22 Russian-language article in Nezavisimaya Gazeta examines the various causes of capital flight and concludes:

Before the events in South Ossetia, the capitalization of the Russian stock market was close to $1.1 trillion; now, it is below $1 trillion. Even adjusting for the exchange rate fluctuations and the general downward trend, the war-related component in the stock market drop is estimated at tens of billions of dollars.

2 Comments

Filed under economy, Russia