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Posts Tagged ‘Stimulus’

I wrote this in March and it’s more true than ever:

Bailouts are bad for many reasons. But the two worst are that they cost a ton of money, and, second, they get government in bed with business. As a result, we’re becoming increasingly numb as a people to the idea that a $1T here and a $1T there is no big deal, just as we’re getting used to the idea of the government has any business directing how private companies should spend their money. The bailout is an anti-capitalist virus that attacks our public finances and our commitment to corporate independence. We must let these companies fail or we’ll destroy free market capitalism. That is the real systemic risk.

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Banking by corporations and limited liability companies is not essential to free markets. Like bankruptcy, all of these arrangements involve shifting some of the harm caused by risk-takers onto those who did not take the risks. There may be good reasons to socialize (i.e,. disperse) risk. People may be improvident or need some paternalistic guidance. A certain amount of risk-taking perhaps should be subsidized, i.e., venture capital, homesteading. But there are other means to amass capital and spread risk–not least debt obligations and insurance respectively–without shielding decisionmakers from personal liability to creditors and others in the case of civil offenses and breached contracts. The possible value of tying corporate decisionmakers and stockholders to the downside of corporate risk-taking should be obvious, considering the heads-I-win-tales-you-lose mess we’ve gotten into under the influences of many factors that have spread risk: limited liability, financial engineering, leverage, and the ethos that on the downside these firms (and investors in the same) are simply too big to fail. I wrote something about this many years ago along these lines here and Hillaire Belloc, to his credit, long ago distinguished between the character of real property and the “paper wealth” with which it shares so little in common as far as social benefits goes. Conservatives who are found of free markets should be rethinking their attitudes towards banking, corporations, and the combination of loose money and weak regulation we’ve recently experienced.

An interesting symposium at the liberal-leaning American Prospect discussed the problems of risk, particularly risk with public consequences. It offered an interesting defense of the welfare state along the same lines as the bailouts; namely, that it frees people up to take certain risks. Of course, like FDIC insurance, bailouts, and bankruptcy, that’s part of the problem when it becomes too generous.

The polymath Richard Posner weighs in, concluding that sensible bank regulation failed, and combined with easy money this brought about the recent crisis:

Finally, let’s place the blame where it belongs. Not on the bankers, who are not responsible for assuring economic stability, but on the government officials who had that responsibility and failed to discharge it. They failed even to develop contingency plans to deal with what everyone knew could happen in a context of escalating housing prices (it had happened in Japan in the late 1980s and the 1990s). Lacking such plans, the government responded to the crisis with spasmodic improvisations, amplifying uncertainty and mistrust and thus retarding recovery.

And let’s not forget to apportion some of the blame to the influential economists who assured us that there could never be another depression. They argued that in the face of a recession the Federal Reserve had only to reduce interest rates and flood the banks with money and all would be well. If only.

Finally, in a tour de force, Allan Meltzer eviscerates the continuing inflationary practices of the unholy triumverate of Obama, Geithner, and Bernanke, viz.:

IN the 1970s, with inflation rising, I often described the Federal Reserve as knowing only two speeds: too fast and too slow. At the time, the Fed’s idea was to combat recession by promoting expansion, printing money and making it easier for businesses and households to borrow — and worry only later about the inflation that resulted. That strategy produced a sorry decade of slow productivity growth, rising unemployment and, yes, rising inflation. If President Obama and the Fed continue down their current path, we could see a repeat of those dreadful inflationary years.

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I would not be so offended if Obama or any other politician said:  we’ve spent too much money on too many things for too long; we must economize, and the Defense Department too must learn to be more efficient with public funds.  But Obama, instead, has said we must spend far and wide on everything from sidewalk improvements and  “green jobs” to home mortgages and banks, because government spending is needed to lift us out of an economic crisis.  But the one area that must embrace austerity and cut its budget is the Department of Defense, which is charged with fighting two wars and keeping us safe from any emerging threats

The whole thing suggests partisan spite, a holdover from Obama’s 1980s liberalism and its contempt for Reagan’s rebuilding of the military after the painful, post-Vietnam degradation of its capabilities.  This spending has proven to be a huge bargain, leading to the end of the Soviet Union, the nearly bloodless victory in the First Gulf War, and our ability today to project unmatched conventional power in defense of our nation and its interests around the globe.  Those interceptor vests, Abrams tanks, Apache helicopters, and stealth fighters weren’t cheap, but neither should be American lives. 

It may well be debatable whether the F-22 is absolutely necessary given the state of conventional threats.  But if we’re going to be spending gazillions of dollars on everything and nothing in a Pelosi-drafted Stimulus Bill, while also surging our forces in Afghanistan, would it be too much to ask that they be given the best, most life saving weapons whether improved MRAPs, body armor, rifles, and transport helicopters like the Osprey. Is it so extravagent to update our helicopters every 40 years so that pilots don’t fly unsafe aircraft older than they are! The Pentagon must do better with the money it has and have a strategic reality check on the threats ahead.  Rumsfeld, to his credit, did away with the Crusader Artillery program and encoruaged all branches to be more expeditionary.  But to cut its budget in a time of profligacy on general principle reeks of spite and Obama’s (and his socialist father’s) college kid dreams of sticking it tot he military-industrial complex.  After all, unlike midnight basketball and housing bailouts, national defense is a constitutionally mandated federal government responsibility.

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