-
Are Americans Still Spending Too Much?
Tweet Share on Facebook June 17, 2009 Comment (1)This is totally anecdotal (and absolutely not enough to support an affirmative answer to that headline) but something really caught my eye in this AP story about how consumers are scaling back insurance as a response to the recession.
W.W. Johnson is between jobs, and currently on an unpaid internship for health administration. His wife's job in communications is dicey. So, he called his insurance broker and slashed the coverage for his Kennedale, Texas, home and five cars.
If you only are working an unpaid internship, and your only other source of income is your wife's "dicey" job, why would you maintain ownership of five cars? Kennedale is a suburb of Fort Worth, so it's not like this is a rural or agricultural community where people might need more vehicles than the norm.
Spending beyond one's means is partially what got us into this recession. We will need consumers to spend to get us out of it, for sure, but we also need smart consumer decisions.
-
Cashing In On Climate Change
Tweet Share on Facebook June 16, 2009 Comment (2)Bloomberg's Eric Pooley has one of the oddest arguments I've read in favor of a cap on carbon emissions:
You can cast your lot with the deny-and-delay crowd or join the coal, oil and electric-power executives who are making a place for themselves in the new world. “We want carbon legislation,” a coal executive named Fred Palmer said last month, though he opposes the bill now before Congress.
...Peabody Energy has read the signs and made an intelligent business decision. Now it’s your turn.
It's probably true that supporting a cap on emissions is an "intelligent business decision" for Peabody. But being good for energy executives has nothing to do with being good for the country.
Pooley is implying that business support for climate change legislation shows that these policies would be good for economic growth, and so holding them back would be counterproductive to moving past the recession. "So what's it going to be? The past or the future?", he says. But there are two far more likely reasons a company like Peabody would support these policies, reasons that have nothing to do with what's good for the country or world.
-
As Mortgage Rates Spike, How Do We Prevent Future Housing Disasters?
Tweet Share on Facebook June 15, 2009 Comment (2)Anna J Schwart's article on the origins of the financial crisis also has a brief section on the role of Fannie Mae and Freddie Mac in the market for mortgage-backed securities. Most commentators seem to have downplayed Fannie and Freddie's influence on the housing bubble, but not Schwartz.
Starting under the Clinton administration and continuing through Bush's term, the HUD kept boosting the minimum amount of mortgages purchased by Fannie and Freddie that were for low-income borrowers. Schwartz continues:
Between 2000 and 2005 Fannie Mae and Freddie Mac met those goals every year, and funded hundreds of billions of dollars’ worth of loans, many of them sub-prime and adjustable-rate loans made to borrowers who bought houses with less than 10 per cent deposits. Fannie Mae and Freddie Mac also purchased hundreds of billions of sub-prime securities for their own portfolios to make money and help satisfy HUD affordable-housing goals.
-
The Origins Of The Financial Crisis, According To Anna J. Schwartz
Tweet Share on Facebook June 15, 2009 Comment (1)Economist Anna J Schwartz co-wrote what's often regarded as the definitive account of the causes of the Great Depression, with Nobel Laureate Milton Friedman, no less. So when an article by Schwartz on the "origins of the financial market crisis of 2008" appears in a new book (available for free online) from the Institute of Economic Affairs, it's probably a good idea to pay attention.
Here's what Schwartz pinpoints as the three most significant lessons to avoid financial crises like the one in 2008:
-don't lower interest rates to a level that makes borrowing appear riskless
--be wary of untested financial innovations like mortgage-backed securities
--avoid fundamentally flawed instruments like the pre-credit crisis market for auction-rate securities, which appeared long-term to the borrower but short-term to the lender -
Stiglitz: Will Capitalism Survive The Wall Street Apocalypse?
Tweet Share on Facebook June 12, 2009 Comment (3)A few days after writing about how we're not heading towards socialism in the US, Joseph Stiglitz is in Vanity Fair saying that might not be true about the rest of the world. He argues that the lesson many countries in the Third World might take from the financial crisis is that capitalism is fundamentally flawed. Following that realization could be a shift back to socialism--maybe not back to old Soviet-style politics once embraced by much of the Third World, but to "a variety of forms of excessive market intervention," Stiglitz says.
It's a trend worth thinking about, but I think Stiglitz takes it a bit too far: He wants to portray the economic history of the Third World as a pendulum swing from extreme socialism to extreme capitalism, with the pendulum now ready to swing back the other way.
The former Communist countries generally turned, after the dismal failure of their postwar system, to market capitalism, replacing Karl Marx with Milton Friedman as their god. The new religion has not served them well.
-
GOP: No More Bailouts
Tweet Share on Facebook June 11, 2009 Comment (4)Today GOP House members on the Financial Services Committee unveiled a financial regulatory reform package to challenge Obama's still-coming-together plan.
Here's what it intends to do, according to the office of John Boehner:
(1) the government stops rewarding failure and picking winners and losers; (2) taxpayers are never again asked to pick up the tab for bad bets on Wall Street while some creditors and counterparties of failed firms are made whole; and (3) market discipline is restored so that financial firms will no longer expect the government to rescue them from the consequences of imprudent business decisions.
-
Does M. Night Shyamalan Read Jimmy P's Blog?
Tweet Share on Facebook June 11, 2009 Comment (14)Jimmy P commenter hopes that plants and animals will fight back against the humans who are destroying the planet. A more recent example of anti-humanism in fiction than Space: 1999 would be this widely-panned movie.
-
Visualizing The National Debts Around The World
Tweet Share on Facebook June 11, 2009 Comment (2)In what way do the governments of Russia, Angola, and Libya make the US look like a bunch of chumps? Check it out here.
-
Value-Added Tax Makes A Comeback
Tweet Share on Facebook June 11, 2009 Comment (5)The debate over whether the US should follow Europe's lead and adopt a value-added tax has always simmered beneath the surface, but things seem different this time. For one, we have Bruce Bartlett in Forbes saying the "day may finally be here" when the left and right learn to put aside their differences, stop worrying, and just love the VAT.
The right can learn to love it because it's a simple consumption tax that lacks most of the loopholes, exemptions and other Rube Goldberg-esque nonsense that pollute our current tax code, right? Well, this letter to the editor in yesterday's Wall Street Journal strikes back at the idea that the VAT would be so simple:
What the VAT accomplishes, in addition to sucking more money out of the pockets of the "little people," is to inject a legal right for the state to examine, audit, criminalize and punish every transaction that occurs on U.S. soil. The kid who shovels your snow or mows your lawn can be regarded as a tax criminal for not properly accounting for and paying his VAT. Will we see Girl Scout cookie sellers and the local craft person audited and charged financial penalties?
I'm certainly sympathetic to criticisms of the VAT, but I'm not sure if this is the way to go about it. First, every day there are thousands of kids across this country mowing people's lawns, shoveling driveways, etc who never report it as taxable income. I don't see how the IRS is more likely to go after these "tax criminals" under a VAT system than they do currently under our income tax system.
-
Obama's 'Corporate Welfarism'
Tweet Share on Facebook June 10, 2009 Comment (4)Yesterday Joseph Stiglitz provided another stance on the "is this socialism" debate about Obama's policies toward GM and banks:
America has expanded its corporate safety net in unprecedented ways, from commercial banks to investment banks, then to insurance, and now to automobiles, with no end in sight. In truth, this is not socialism, but an extension of long standing corporate welfarism. The rich and powerful turn to the government to help them whenever they can, while needy individuals get little social protection.
That account is certainly at odds with Ezra Klein's characterization of Obama's policies as "socialism-to-save-capitalism." But I'm not sure that "corporate welfarism" is really as at odds with socialism as Stiglitz would have it. Sure, socialists have always defined their policies as egalitarian. But what is for the working class in intent is much different in practice. I would argue that most socialist policies end up favoring established interests instead of the little guy. See the theory of the bootleggers and the Baptists for more. Clarification: here I am not talking about socialist policies as they are commonly defined in today's discourse to mean "redistribution" or "the welfare state" (which are perfectly compatible with capitalism), but rather the original definition, "government control of the means of production."
