Tag: bailouts

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free trade & free markets ideological culture national politics & policies too much government

Déjà vu Economics

Last week I noted the revival of interest in F.A. Hayek’s classic political tract, The Road to Serfdom. This week? The ongoing revival of interest in Hayek’s theory of boom and bust.

According to economist Gerald P. O’Driscoll, Jr., today’s debate about stimulus spending mirrors the debate in the Great Depression between John Maynard Keynes and Hayek. Republished letters from October, 1932, Times of London, are eerily up-to-date.

The letter from Keynes and his allies, arguing that spending — any spending whatsoever — would spring the economy out of depression strikes me as a tad bizarre. All spending is equal? Make that several tads bizarre.

Can you say déjà vu?

The Hayekian response seems at once more sophisticated as well as commonsensical. For instance, Hayek recommended an immediate repeal of the infamous Smoot-Hawley Tariff. He recognized a major factor for the Depression’s low expectations and business doldrums: The trade-killing legislation that hit the New York Times’s front page the day before Black Tuesday, 1929.

O’Driscoll and other economists have been making much of the enduring significance of the Hayek-Keynes debate. But there are differences between the Depression and now, aren’t there?

Back then, the loss part of the profit-and-loss system hadn’t been so completely undermined by recovery policy. Today we have bailouts, and these only increase risk-taking, likely to make the next bust even bigger — and today’s Keynesianism perhaps worse than the disease itself.

This is Common Sense. I’m Paul Jacob.

Categories
folly national politics & policies

Save the Unions’ Ponzi Schemes?

Senator Bob Casey from Pennsylvania is legislating something big, the “Create Jobs and Save Benefits Act.”

Innocuous? Everyone wants more jobs. Government may have a lousy track record creating jobs that actually produce things demanded by people, but still — the bill is hardly unexpected in times like these.

It’s the second half of the title that indicates the powder keg within. The bill would bail out horrendously mismanaged union pension plans.

Unions, in the current legal context, are legal creatures of the state, with special privileges. And, surprise surprise, their own pensions — the ones that they manage — appear to be in as bad shape as the public-employee pensions I’ve talked about before, the ones that are building into a tsunami of insolvency.

A public bailout would transfer money from people without any special pension plan to people with pensions that are going bust. This is horribly unjust. That’s why Americans for Limited Government — a past sponsor of this program — is calling out Republican politicians who’ve signed onto Casey’s audacious scheme.

“At issue are multi-employer pension plans, in which companies across an industry pay into a single pension pool,” explains the Wall Street Journal. “[E]ven before 2006 only about 6% of multi-employer plans were fully funded, compared to about 31% of single-employer plans. The real problem is that multi-employer plans have become a sort of pension Ponzi scheme.”

Hmmm. Where have we heard that before?

This is Common Sense. I’m Paul Jacob.

Categories
Accountability national politics & policies too much government

Fearing Free Fall

The European Union is bailing out Greece. Fearing financial contagion, EU’s policy wizards decided to throw 100 billion euros at Greece, in tandem with demands for austerity.

New spending restrictions are tough enough to elicit the verdict of “savage” from Greece’s public employee unions. But are they “savage” enough?

The euros-to-the-rescue scheme occurred only after collapses of Portuguese and Spanish bonds. As mentioned last Friday, things aren’t good on Europe’s other southern peninsulas, either.

The “Domino Theory” remains a dominant metaphor. Once, we feared countries would fall like dominos to communism. Now, it’s like dominos into insolvency.

But propping up a tipped domino isn’t easy.

Drastic solutions, like expelling the duplicitous Greek nation-state from the EU? Not on the table. The apparent aim of the bailouts? Keep as many of the major players responsible for the fiasco in as good a shape as possible.

If, on the other hand, every politician were fired and every contract with unsustainable giveaways to public employee unions were dissolved as part of bankruptcy, might future policy makers be a little more cautious?

Meanwhile, the dominos keep falling. The day after announcing the bailout, the euro plummeted.

My question: What happens when “too big to fail” is applied not to a tiny country like Greece, but to the good ol’ US of A?

What if we’re too big to bail out?

This is Common Sense. I’m Paul Jacob.

Categories
national politics & policies too much government

Quick! Stop the Rescue!

If there’s anything worse than running a state into the ground, it’s turning that state around.

Such seems to be the attitude behind yet another “bailout” program being mulled over by our congressional overlords in Washington, DC.

Over at National Review Online, Daniel Foster calls the Democrats’ proposed $23 billion fund for preventing teacher layoffs a “putting off hard decisions” fund. Pitched in the direction of Foster’s own state, New Jersey, the giveaways would sabotage efforts by the new governor, Chris Christie, to close a looming budget deficit for fiscal year 2011 of more than $10 billion.

The Garden State’s budget for fiscal year 2010 was about $30 billion. Christie is trying to cut funding to school districts. He has pledged to restore the funds in districts where teachers agree to a one-year pay freeze and to contribute a small bit of their salary (1.5 percent) to help pay for their own health insurance. Currently, most pay nothing.

But if the federal government flings borrowed largesse that makes the state’s budget cuts irrelevant, teachers will have much less incentive to cooperate with even marginally more responsible policies.

Perhaps that’s the goal for Washington’s big spenders. After all, if folks could get their fiscal houses in order without handouts from the spendaholics in DC, there’d be no need for such handouts.

And then just how “important” would those politicians be?

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets national politics & policies too much government

Gross Jobs

The president says he’s creating jobs. I’m skeptical. I guess there are some things government can do to ensure that jobs get created, out there in the bill-paying, profit-making world. But these do not include spending trillions of borrowed money.

And neither do they include simply giving more money to state and local governments.

The truth about Obama’s much-ballyhooed job creation is that more than half of his alleged new jobs turn out to be government jobs.

Government jobs don’t count, Mr. President.

Remember, many things governments do actually drain us. Jobs in the marketplace, on the other hand, serve real consumer demand, make us all better off. They also help pay the taxes for those government jobs. Employing more people in government means needing more real jobs to pay for the government ones.

And how much work do politicians cause us to engage in just to unbury ourselves from their silly, wealth-extracting regulations? I know, I know: Every time they add on some new complication to the tax code, jobs emerge in the accounting and tax-consulting industry. But this doesn’t exactly make us better off, does it? Not on net.

This lesson applies generally. Here’s the bottom line. Government can borrow and tax to spend to create “gross jobs.” Sure. But on net, after balancing the collective books, we’re not better off.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets

Small, Dull, Solvent

You didn’t have to be a small community bank to steer clear of the helter-skelter investments favored by the likes of Bank of America and AIG. But apparently it helped.

New York Times reporter David Segal writes that spending time with solvent bankers in places like Indiana was like stepping into an “alternate universe,” a place “where everything sounds a little strange because it makes perfect sense.”

Weird that it’s strange, eh? Sensible should be normal.

Turns out, the secret is to be boring. Clay Ewing, a banker in Jasper, says, “If banking gets exciting, there is something wrong with it.” So, no maniacal juggling of hyper-complicated subprime debt instruments just for the thrill of it.

Boring bankers also tell Segal: “If you don’t understand the risk you’re taking, don’t take it.” Also: “We want to be around for decades, so we’re not focused on the next quarter.”

Today, banks that abided by such common sense are solvent. And declining government bailout money.

Profligate bankers propelled by visions of infinite if inexplicable returns were not the only culprits in the housing bust. The Federal Reserve stoked the buildup of demented debt. As did many politicians.

But bankers who made bad decisions also deserve blame for surging blindly ahead. They could have done otherwise. They could have been, well, boring.

This is Common Sense. I’m Paul Jacob.

Categories
general freedom

Panic in the Streets

A few people get sick, and schools shut down.

We have been having and enduring flu epidemics for some time. And people have died even in minor outbreaks. The difference now is that the patterns of epidemiology have become nightly news.

Why the talk about shutting down everything — schools, businesses, government offices? To prevent a major pandemic, like the 1918 Influenza outbreak, which killed millions.

The president went out of his way to tell us to avoid panic. The vice president, on the other hand, went on one of his jags and helped foment more panic.

The media, of course, abundantly repeated the message of panic.

Last autumn, the head honchos in Washington sowed the seeds of panic by proclaiming the mortgage-based financial bubble the worst economic disaster since the Great Depression. Hardly before anyone had received a pink slip, the government was giving away billions of dollars.

And then, they switched rationales and plans. And then they gave away more. Rinse. Repeat. Only the panic remains.

Well, stock up on water and masks and food. And cash. Or gold. That’s fine. But be wary of stocking up on too much government. When we panic we are not thinking straight, that’s when we are likely to lose the most. With the government and the media leading the charge.

This is Common Sense. I’m Paul Jacob.

Categories
term limits too much government

Checking Specter

Pennsylvania Senator Arlen Specter is an important man. How do I know this?

A congressman told me.

While Specter is a Republican, his congressional booster happens to be a Democrat. Pennsylvania Congressman Robert Brady credits Specter with passage of Obama’s stimulus bill.

“[T]his bill would not have passed,” says Brady, “if not for Arlen Specter,” who was one of three Republican senators to break ranks for the presidents’ bailout extravaganza. In case you were wondering, Brady clarified his enthusiasm for the so-called “stimulus” package. “[E]very congressman is passing out checks, all over the country . . . because of a man named Arlen Specter.”

Clearly, Brady likes to pass out checks . . . as do most other congressmen.

But one former congressman doesn’t seem so fond of the program. Pat Toomey ran for Congress back in 1998 pledging to serve just three terms. He won, spent six years fighting wasteful, overbearing government, and then stepped down as promised.

Toomey, until very recently the president of the Club for Growth — a group dedicated to market growth, not growth of government — is likely to challenge Specter next year for his Senate seat.

The difference between Toomey and Specter? Toomey, being the challenger, may ask you to write a check to his campaign, while Specter, being the incumbent, will offer to give you a check . . . drawn on your account.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets

Banker of the Year

It takes guts and self-confidence to buck a trend, especially to buck a boom. So most contrarians keep a low profile.

Meet Plano, Texas, banker Andy Beal. I read about him in the pages of Forbes magazine, which profiled this master contrarian in early April.

Beal has been buying toxic assets and broken-down banks in big huge gulps. And he’s been doing it without the help of government. Forbes says that he “has purchased $800 million of loans from failed banks, probably more than anyone else.”

How? Well, back in 2004 he stopped making loans. He almost stopped banking. He cut back his hours. He had to lay off a lot of employees.

Why? He didn’t trust the market. He thought the binge of borrowing and lending utterly foolish.

Forbes relates that his behavior puzzled regulators, who were worried that he was over-capitalized! How could he resist the huge profits?

Well, Beal sure showed the regulators. And his competition. Today he’s buying assets for pennies on the dollar.

Beal believes the current crisis was caused, in huge honking part, by government. Now that government is giving failed bankers huge hunks of money, his reaction is twofold:

1. He calls all the bailouts “crazy.”

2. He is taking the opportunity to make a fortune . . . without government help.

This is Common Sense. I’m Paul Jacob.

Categories
Accountability too much government

Deep, Deep Waters

Are you surprised? I’m not surprised.

Turns out Congresswoman Maxine Waters had “family financial ties” to a bank for which she personally helped solicit bailout money. Without regard to its relative need or value to the economy.

Shocker.

Trillions in stimulus money, bailout money. And we expect politicians will allocate it according to some impersonal calculus that has nothing to do with who their chums are?

Nor can we expect the politicians and bureaucrats to sit back and let the market, or what’s left of it, function unhampered once bailout money has been forked over.

Many banks seemed to think they would simply be allowed to spend the subsidies according to their own judgment about how best to promote the health of their enterprises. But once the bailouts failed to work the instant magic they were supposed to, politicians began attaching strings. So that voters angry about the bailouts could see that there’s “accountability.”

It’s not just about trimming fat executive bonuses. The banks are also supposed to obey orders to cancel employee training, reduce dividends to shareholders, stop hiring employees from overseas, etc. This is about social engineering, not economic efficiency.

So, many banks now say they’ll give the money back. Good idea; great idea. But it would really surprise me if it found its way all the way back to taxpayers.

This is Common Sense. I’m Paul Jacob.