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Wednesday, July 29. 2009
How many people really imagine that Presidents and Washington have power over the economy?
Governments, of course, only really have power to damage economies. Economies have lives of their own, following their own natural laws like weather. Even the Almighty Fed is very limited in what it can do.
Still, people seem to think that Presidents are somehow responsible, and I suppose that is because politicians seek any advantage, no matter how insincere.
Neither Bush nor Obama are responsible for the recession. It's called a "business cycle." People are blaming Obama now, and the O is trying to blame Bush. It's all stupid boob bait.
Besides cycles, what has the power to damage economies is government intervention like taxation, deficits, subsidizing of failing businesses, and regulation. Those things hobble economies, holding them back from what they naturally want to do (which is to produce things, including labor, and to price them), and I have no doubt that businesses have been worrying about what the Dems might do to hobble them.
Lefties always seem to love wealth and money, but to have contempt for those who create those things. Most of the very wealthy people I know are Dems or "Independents."
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Isn't there a good case to be made that the problems can be traced to the 2006 takeover of Congress by the Democrats?
As far as I can tell, the goal of the Democrats once they had control was to shut down the Bush Administration and make it as ineffective as they could. Thus, they bombarded the Administration with subpoenas and hearings, and tried to keep officials tied up in responding to Congressional inquiries and investigations.
To this outside observer, it seemed like a lot of the Bush administration people got disgusted and walked out in the last two years of the Adminstration, and basically by the last year there was nobody running the country any longer.
But the policies that encouraged the formation of the housing bubble started long before 2006. The fed has been playing games with interest rates since the 90's, the government (both sides) put in place mechanisms that encouraged risky lending over a two decade period, and the banks went along with it all because they were happy to play high risk games with other people's money. Certainly Bush and Obama have exacerbated the problem. I believe it IS fair to blame Bush for the TARP bailout, the AIG bailout, and the Merrill Lynch fiasco. While he may not have started this recession, his actions have served to deepen and lengthen it.
Sorry, don't entirely agree. The Fed does impact the economy by making money more or less expensive and tacking on huge interest/transation charges. And Congress definitely manipulates it by spending and taxing, thereby removing dollars available for individuals to grow by opening or expanding new business.
Sorry, don't agree. The Fed does impact the economy by making money more or less expensive and tacking on huge interest/transation charges. And Congress definitely manipulates it by spending and taxing, thereby removing dollars available for individuals to grow by opening or expanding new business.
Wait one...didnt Team 44 specifically Rahm just say last week that their actions had "saved the economy"?
The best any government can do to "save the economy" is to stop holding its metaphorical head underwater. Or let go of its throat. Or stop handing it anchors as it tries to swim to shore. Anyone else want to add a few metaphors?
One old liberal client of mine, a savvy old attorney, loved to get under my skin with this Truman-Era, Democrat campaign slogan: "If you want to live like a Republican, vote Democrat". Think about it, it sums it all up very nicely.
Clinton sure takes credit for the surplus during his administration. I'd give it to Bill Gates and Steve Jobs. While presidents and Washington may not directly affect the economy, they are happy to take responsibility when our amazing innovators actually do influence the economy. As well, our government can be responsible for sending many of our finest entrepreneurs abroad because of ridiculous tax structures. I don't see that as a 'business cycle'. It's an obamanation what a president/Congress can do to an economy - even if it's nothing more than to depress an individual's desire to create. There is more to the cause and effect of 'what an economy wants to do'. An economy just sits there. It takes people to make it 'want to do' its thing.
With all due respect Meta, I have to take exception to your characterization of an economy. An economy is what develops when people engage in production and trade of goods and services. It isn't something that just sits there waiting to be used. Politicians tend to adopt this view and believe they can find ways to push the buttons and flip the levers of some amorphous "economy object" and produce results. Or, even worse, they think they can conjure up a whole new object and present it to the masses for consumption. This view allows them to attribute business growth to their machinations of the economy object instead of its true role as the primary driver of the system. Government doesn't do anything to an economy, it restricts people to engage freely in trade which in turn weakens an economic system.
"It isn't something that just sits there waiting to be used."
This gets to the wellspring, doesn't it. And perhaps you take Meta too literally.
Economy has been around since someone first discovered that they could trade an obsidian chipping tool for a burning ember. Now, was that economy just sitting there before that first trade? Likely. We're talking a chicken an egg process here, I think. Let's not get hung up on nuance.
Again, I have to disagree. An economic system came into being when the first person traded an obsidian chipping tool for a burning ember. Does an economy exist if I have a million obsidian chips and you have a million burning embers but we never meet and trade? I believe the nuance is important here (as important as the idea of whether wealth is created or discovered). It sets up an expectation about whether or not an economy is something that can be pushed and prodded directly in order to produce jobs, business growth, and general happiness.
And, yes, I have an affinity for large white whales.
"Does an economy exist if I have a million obsidian chips and you have a million burning embers but we never meet and trade?"
Of course it doesn't. And that was my point. Chicken or egg. The 'idea' of an economy, was it there, or was it spontaneous once the proper conditions were met. Did Joe have in his mind that he just needed to meet the right Jill to make his trade of tool's for fire. Or was it a spontaneous event that sprang from the mind of both, when they finally did meet? In other words the 'idea'... was it already configured... or did they structure memory on the spot.
I did not personify economy. The author of the post did. And I believe an economy just sits there. What if all the people on the planet died of the plague? There would be no economy. Economy does not 'exist' without people. As for wealth created or discovered - both. I'm afraid I don't think much about the 'expectation' nuance. Humans witness. They learn and go into action. Any 'expectation' we might have is so much a part of the human condition now that we don't think of it abstractly as it is a way of life. Some might say it is life.
It started with Bush (in reality, Paulson and Bernanke), but Obama and Congress really fanned the fire post-election. In fact, since September when the election was practically over, business has been scared to death. The people I deal with have been on the sidelines because no one knows what the ground rules are. Who will be saved? Who will be allowed to continue? Who will be allowed to fail? Who will be forced to fail? Who will be allowed to stay in business only to face the wrath of Congress for the sin of survival or success? Good luck trying to do something productive in this environment. Since you can't, many don't bother trying. There have been some windows of opportunity, but mostly people are waiting it out.
Yes, dbbb. That's it, my thoughts, too. Other than home values we're no worse off than we were two years ago, if we have a job. It's the fear of the future under the Dem's and Obama that is stifling a comeback.
Let's put this in historical context.
FDR was the first American President who believed in the power of government to "fix" economic problems and who passed large scale programs. Many of those programs made people dependent on government, and, in doing so, transferred more power to government.
This did not go unnoticed by politicians, who are always looking to entrench themselves in power. (Politicians can take many forms from kings and queens to dictators to Presidents and Congressional representatives and so on.)
This began a fundamental philospohical change in the role of government in the US. (I can't remember the name of the Socialist who ran for President many times and lost each time. He said something to the effect that his losses did not matter because the Democratic Party had essentially adopted the socialist view of government.)
Keynes came along and helped give government the jsutification to pull the economic levers. It's no coincidence that most politicians are Keynesians.
Then you had Johnson and the Great Society. New social programs and the expansion of old social programs were the order of the day. The theme of benevolent government. More than $12 trillion has been spent on social programs with arguable social benefit given the cost. However, more of the population has become dependent on government. The "don't worry, the government is here to take care of you" crowd continued to grow.
Carter, perhaps the worst President of the last 100 years, was a disaster in many ways. He expanded the concept of government subsidies to finance with the Community Reinvestment Act that was later greatly expanded under Clinton. Everyone should have a home regardless of whether they can pay for it or not. We all know where that ultimately took us (along with help from the Fed, the banks, hedge funds and so on). We have economic disaster of Fannie and Freddie (and no one even talsk about it any more). The seeds of much of this disaster is directly tied to Democratic policy.
Now we have more pernicious economic policy under Obama that is invading everything (banks, GM, Chrysler, cap and trade, health care, etc.).
Eisenhower, Reagan and Bush provided somewhat of a respite. They looked to individual initiative and believed primarily in markets. However, all allowed more spending on all kind of things that should not involve government. As the Democrats have moved to the left so have the Republicans under the weight of compromise and an inability to articulate why conservative economic principles make the most sense to pursue. Bush II liked markets, but he abdicated all discipline when it came to spending.
To make matters worse, much of the current spending by government (federal and state) is consumption spending. It merely transfers wealth in an inefficient (i.e. expensive) manner as the bureacracy siphons off its cut. We are borrowing to consume. There is little investment spending that could actually create a return. California anyone?
It is easy to blame Bush II because he was unpopular with both liberals and conservatives for different reasons.
However, the state of our current economy reflects decades of bad economic and social policy primarily at the hands of Democrats with an assist from Republicans.
As long as we pursue economic policies that promote dependency on government, borrow to fund current consumption and punish economic success, the economy will at best muddle through.
It could get much worse. Strangely, the worse it gets, the more people will look to government and trade freedom for bread - which is what is happening now. The history of the treatment of civilians under regimes where people are not free is not encouraging.
In "Wealth, War and Wisdom," Barton Biggs, a 30 year Morgan Stanley veteran, warns investors must "assume the possibility of a breakdown of the civilized infrastructure."
Such a "breakdown" would be the result of an economic collapse.
It doesn't have to be this way, but we need to make a dramatic change in course if we want to avoid lurching from crisis to crisis.
The current crisis (which it really isn't) can be traced back directly to the policies of Jimmy Carter and later Bill Clinton who put in place and strengthened the CRA which forced banks to hand out large mortgages at low rates to people with poor credit ratings to be spent on property that wasn't likely to be worth the amount handed out on defaulting.
Those policies were the direct responsibility and choice of those presidents and the functionaries appointed by them.
Tax cuts can promote investment and spending by putting more money into the hands of businesses and consumers. Those can be implemented by presidents (as Bush did).
So yes, presidents can influence the economy.
Obama of course with his wild claims and massively destructive policies is a prime example of how a president on his own can cause major damage.