3/31/2008

Separated At Birth?



"There’s no denying that a collapse in stock prices today would pose serious macroeconomic challenges for the United States. Consumer spending would slow, and the U.S. economy would become less of a magnet for foreign investors. Economic growth, which in any case has recently been at unsustainable levels, would decline somewhat. History proves, however, that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse."

Ben Bernanke



"...the concentration of capital and the growth of their turnover is radically challenging the significance of the banks. Scattered capitalists are transformed into a single collective capitalist. When carrying the current accounts of a few capitalists, the banks, as it were, transact a purely technical and exclusively auxiliary operation. When, however, these operations grow to enormous dimensions we find that a handful of monopolists control all the operations, both commercial and industrial, of capitalist society. They can, by means of their banking connections"

Vladimir Ilyich Lenin

7 comments:

Anonymous said...

Sunny,

What history proves is that Marxism-Leninism is in its ash-heap.

As to your take on Bernacke’s exuberance…

Let the inflated housing prices fall to where they belong. Too many people have agreed to pay far too much for too little; they have only themselves to blame.

Let the foreclosure rates rise; poor decisions on the part of some with respect to taking out foolish ARM loans should not burden the general public. Let the lenders of these shaky mortgages foreclose and then have to lose money on an overvalued property. That is, let those lenders lose money. The market will quickly self-correct; those lenders will go out of business and such shaky loans will not be made in the future. The worst possible action is for the Government to bail out either lender or lendee, which will only encourage conditions for such crises in the future.

Let American oil companies exploit the huge reserves of oil in the United States, which will increase supply, better meet demand and thereby decrease prices. Yes, that means drilling on 1% of ANWAR, with little to no environmental damage, but such is the price of lower oil prices and reduced demand for foreign oil. A small price, really.

And buy American. If you do, who cares if the dollar is weak? As a fringe benefit, our exports will be all the more attractive, increase world demand for our products and services, and will improve our balance of trade.

Finally, get more informed regarding what if anything ails the American economy. With inflation and interest rates low, unemployment below 5%, and other leading economic indicators mixed at best, it brings to mind a famous saying by economist Paul Samulson "Economists have correctly predicted nine of the last five recessions.

Sunny Badger said...

No one doubts that Marxism-Leninism has fallen by the wayside. I live in the US and we live under the welfare capitalism brand of economy.

One figure on home mortgage loans in potential of default is around 6 percent. It's very Hooverish of you to suggest that you let the market chips fall where they may. There's no ARM in my portfolio and never has been. We seem to have "progressed" to a society that doesn't want anyone to actually get spanked for their actions.

I don't really give a rip if they drill for oil in ANWAR. However, there seems to be a great deal of debate over what that would do for our oil supply. Another strategy is to leave that oil in the ground for future desparation. You failed to mention pursuing options that involved renewable energy resources.

"Buy American" doesn't sound very "free market" to me. Smells like government regulation to me. However, from a national defense strategy and self-preservation perspective, that might not be a bad idea.

We all need to get more informed on economics. It's been said that if you line up all the economists end to end they will point in every direction.

I put the Barnanke/Lenin pictures together because they looked similar. There was no conspiracy to connect the two or to promote any specific brand of politics and economics.

FDR fan said...

"The market will quickly self-correct;"

Anon.
You're quite the comedian, or you've never heard of market phenomena fondly referred to as Panics, and Depressions. Do yourself a favor and go get a history book on the cause of the Great Depression (perhaps they'll purchase one to go into the new "Socialist Library"). Carefully study how the market quickly "corrected".
Most of the banking regulations currently in place was the result of lesson learned from the last depression and free marketeers like yourself have been steadily unraveling them since the Reagan years. WAKE UP and smell the Consumer Debt!!!!!

Anonymous said...

FDR Fan,

Hey, thanks for the feedback. Unfortunately you, like so many liberals and so-called progressives, view the world though the jaundiced historical prism of the 1930’s (just look at this blog’s fat-cat and rich-Jew cartoons), failing to grasp what really went wrong during the Hoover and Roosevelt presidencies and why the depression came upon us.

As that old Time magazine cover on the sidebar of this blog points out, FDR’s legacy is disputed; not due to his wartime leadership, but rather due to his economic failures. More recently, Amity Shlaes’ new history of the Great Depression “The Forgotten Man” sets forth in great detail how feckless government action not only failed to pull the US out of depression, but in fact deepened and prolonged the depression.

There is no disputing that the bursting of the stock market bubble in 1929 (a.k.a. the market crash) initiated the depression. But many government policies intended to help pull us out actually hurt the prospects for recovery. As Shlaes points out, deflation – not inflation – was a huge problem, yet both Hoover and Roosevelt failed to recognize it. (Note: many western communities were minting their own money in order to chase goods and compensate for the lack of US currency). The Smoot-Hawley tariff enacted at the behest of both a lame-duck Hoover and a President-elect Roosevelt did huge damage to US international trade, further crippling the economy. Sure, freakish weather played a part (the 1930’s were hotter than the 1990’s and 2000’s), and the US was in transition from and Agricultural economy to industrialization, but business was continually hamstrung (or just plain scared off) by the bullying tactics of the NRA, WPA, and RA, as well as blizzard of new laws and regulations emanating from Washington (Note: between mid-1933 and mid-1934, 10,000 pages of new law had been created by the Roosevelt administration, compared with under 3000 pages that pre-dated the administration going back to the founding in 1789). Of course, the Government’s efforts to get into the utilities business drove many companies such as Commonwealth and Southern Electric out of business, and opened the door for government-monopoly utilities such as the TVA, which, while expanding coverage, did little or nothing to reduce prices .

At every turn in the 1930’s, the Roosevelt administration, much influenced by collectivist thought and staffed by true-believing fellow travelers, used government power to block and stymie the only group capable to pulling the US out of economic Depression: the Business Sector. The Supreme Court smack-down of the NRA (and other FDR programs) notwithstanding, it finally took a world war and the demands of a wartime economy to get Roosevelt to wake up from his collectivist la-la-dreamland and let American business both supply his successful war effort and pull his lanquishing economy out of depression.

As I’ve said before, here in 2008, we need to let the market work while keeping the government out of the current economic mess. Anything the Government does, from bailing out shaky lenders to protecting foolish borrowers, is only going to set the stage for this to happen again. People who overextended and/or didn’t plan for ARM rate changes deserve to lose their homes; nobody forced them to buy that house or sign on to that deal. Banks and Lending intuitions that lent money to shaky clients who lacked traditional indicators of good risk (like savings, income, and solid credit ratings) should pay the price of making bad loans. Let those big lenders fail and go out of business; the survivors will not be making such foolish loans in the future. But I assure you, if you help out these bad credit risks or bad lenders, and you will just get more of them in the future.

So the trick for politicians, if they really want to help in this crisis, is to do nothing.
Because to do much of anything, as history shows, will only make the problem worse.

The fact is, if politicians want to severely deepen and prolong our current economic difficulties, they should start cutting off free trade (a la NAFTA and Columbia) start nationalizing large parts of the economy (a la national health care), and finish up by re-regulating the rest of the business community (a la bank re-regulation). Hey, that’s what FDR did, and we were out of that depression in a mere 8 years!

Go liberals! And go progressives! And here’s to a vibrant economy by 2016, preferably without a world war.

Sunny Badger said...

Anon:

It's so easy to re-engineer history. If FDR were here today,I'm sure he would tell us what worked and what didn't work. FDR was key in implementing a number of successful programs that are with us today: unemployment insurance, social security, rural electricity, flood control, TVA, etc. That he launched programs that ultimately sunk would be something I'm sure that he would attest to.

People were starving to death in the 1930s. These were hardworking families that fell victum to forces beyond their control. Society was shifting away from the farm life where people could actually live off the land to an urban life where that wasn't possible. Machines were shrinking the need for able hands on the farms and machines consolidated the little farms into bigger and bigger farms.

What kind of politicians would just let nature take her economic course -- then and now? The situation today might be different then in 1930, but the ability to determine the future is pretty much the same.

We have progressed or evolved into a nation that has been classified as "welfare capitalism" by some. That definetion makes sense to me.

You advocate the do nothing approach. That might work and it might not. What qualifies you to predicted the future? Are you advocating the Reagan approach of people picking themselves up by their own bootstraps? If so, what is a "bootstrap?" Most people don't know.

Maybe this economic situation would be in a much worse shape had the bootstrappers had total control. If fact, it is quiet clear from my daily newspaper read that more regulation is steam rolling around the bend. There is much noise for it in the airline industry. Evidently the "free market" approach to airplane maintenance has allow for corner cutting and is bringing the safety of our airlines into question. Then there's the banking and credit industry. Of course, a free market racketeer would save "See the system works. It corrects itself. They built a bigger and biiger and higher and wider house of cards and it came crashing down. We've learned not to make it so big now."

Is the US a community of 300+ million people living to gather or 300+ totally independent individuals?

Anonymous said...

Sunny,

Good discussion. We probably will not change each others minds, but I think it is useful to discuss these things in a civil and (relatively) dispassionate manner

First, let me assure you that I respect and admire FDR. He made many mistakes and filled his administration full of communist sympathizers. But he was the original compartmentalizer and triangulator, and by tempering his zeal for collectivism with realism about its economic shortcomings, was able to stave off the push toward complete socialism through the establishment of what you accurately refer to as “Welfare Capitalism.” Roosevelt’s work, as crazily leftist as is was, in fact saved us from another American Revolution – an American Communist Revolution – and thereby saved the worlds Last Best Hope for a better future. Better welfare capitalism than the ash-heap of history.

Yes, people were starving in the 1930’s. Some in the United States, more in Europe, and millions in the USSR. In fact, over 8 million Ukrainian Kulaks starved to death in the 1930’s, right in the middle of the workers paradise. Of course, much of that was a Soviet pogram designed to punish them for resisting Soviet collectivism. Because history teaches that when we are talking collectivism, individualism is a capital crime, and unarmed resistance is futile.

No, I cannot predict the future. But like many of a conservative bent, I look at historical facts and extrapolate from there. Too many “progressives” deride history and are believe they can force an unlikely, utopian future to cure the ills of mankind. That quixotic quest – exemplified by all the communal totalitarian regimes of the 20th century such as Soviets, the Nazi’s, the Maoists, and the Khmer Rouge – all resulted in extreme hardship, misery, and death for millions upon millions of their people. Why leftists – many of whom are accomplished and intelligent individuals – continue to push for collectivism in the face of its 100 year record of abject failure is a great mystery to me.

And please spare me the income disparity argument. Taxing (forcibly taking) money from society’s producers will not eliminate poverty, but it will drastically reduce production and entrepreneurship. Capitalism produces wealth where none existed before, so it is not a zero-sum game. The wealthy have not taken what is someone else’s, they have created what did not heretofore exist. To think otherwise is to buy into Marxist hogwash about the labor theory of value.

Churchill once said that “democracy was the worst form of government, except for all those other forms that have been tried from time to time…” I think that perhaps the same can be said of capitalism as an economic system.

So again, let’s let the system work. Let the reckless sub-prime lenders go out of business. Let the unwise borrowers lose their homes. Let the market self-correct to bring housing prices back in line with actual values. But let’s NOT start bailing these people out and encouraging more recklessness and fecklessness in the future.

Sunny Badger said...

Do you think anybody that has ever participated on a blog ever actually got their mind change? However, it is possible to have an intelligent discussion on a subject. Myself, I'm in supply chain management and don't claim to be an expert on politics, history, economics, etc. However, I do read up on it and love reading history and learn that the political arguments of today are pretty much that same ones that have been being bounced around for the past 200+ years of our country's existence.

For instance, I've been reading some biographies on Huey Long and was surprised to see that one of his main populist issues was the invasion of chain stores into the small towns. The chains had lower prices but didn't provide the same credit arrangements. Farmers needed the mom-n-pop credit arranges to get through the seasonal ups and downs.

Smells like today's Wal-Mart argument. Except today, we have easy credit cards and pay day loans to easy the credit -- and tougher bankruptcy laws. Long showed a scary side of democracy that must have put the fear of God into the capitalists.

Certainly, there was a large contingent of Communist sympathizers in Roosevelt's group, but that would be expected considering the times. Roosevelt was aware of this and seemed to take a balanced approach to the competing philosophies. You can look back with hindsight and see where things went. At the time, it wasn't clear how things were going to break. Populism, Communism and social Darwinism had all been part of the poltical mix for the 50 years prior to the 1930s. Democrats had a solid South conservative based and industrial North liberals bent. Republicans were split between Populists and Conservatives. It was definitely a very mixed political bag during the FDR days. Dictators took over in Europe and it could have happen in the US. Huey Long and Father Coughlin were beating the Share The Wealth band wagon.

The book you mentioned, "The Forgotten Man," looks to be interesting. I will check it out.

Concerning triangulation isn't that really what politics is all about? In today's political arena the right and left wings have tugged the center towards the extremes. Combine this with an obvious lack of leadership from any party and we get stuck in 50-50 pissing match we have today.

I think it would be interesting to have a flat tax where everybody paid the same rate...on everything. Income and dividends would be taxed the same. Inheritance would be taxes at the same rate. Maybe there would be a starting income level where the tax kicked in...However, there would be no ceiling or loopholes. Taxes are party of capitalism and a necessary part of running our society.

Concerning the housing market, do you see any areas of the banking and loan industries that could use some regulation?