I sat down this morning for a chat with Mitt Romney here in Washington. (He's in town to give a speech today at the Conservative Political Action Conference.) I am going to post the interview later, but one thing struck me right away. He really understands the dynamics of our current economic problems. Here is one snippet:
This is a downward spiral where you have two elements encouraging the other down a steep slope. On one side you have the collapse of the stock market and housing market which means Americans have less net worth and feel poorer and as a result they buy fewer things and as they buy fewer things, business see greater losses and that depresses the stock market even further and this a self-actuating downard spiral.
Me: Yes. Analysts keep forgetting how the halving of the stock market has crushed people's net worth and is contributing to a reverse wealth effect. And what if people fall permanently out of love with the idea of building wealth by building assets through stocks? It will be a huge drag on the economy moving forward since people will be saving too much in low-yielding assets and not taking full advantage of global economic growth when it returns. This is a point economic consultant David Smick makes in his great book, The World is Curved. (A book, by the way, Romney just finished reading.) Restoring confidence to investors is crucial for a sustained economic recovery. Yet we are going to raise capital gains taxes and re-engineer the economy with massive de facto carbon taxes? Those don't strike me as huge confidence builders ...
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Dennis M Reed of CA 6:37PM April 23, 2009
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