1929 – The Great Wall Street Crash & Depression: Part 1 of 6

1929 – The Great Wall Street Crash & Depression: Part 2 of 6

1929 – The Great Wall Street Crash & Depression: Part 3 of 6

1929 – The Great Wall Street Crash & Depression: Part 4 of 6

1929 – The Great Wall Street Crash & Depression: Part 5 of 6

1929 – The Great Wall Street Crash & Depression: Part 6 of 6

Background Articles and Videos

Wall Street Crash of 1929

“…The crash followed a speculative boom that had taken hold in the late 1920s, which had led hundreds of thousands of Americans to invest heavily in the stock market, a significant number even borrowing money to buy more stocks. By August 1929, brokers were routinely lending small investors more than ⅔ of the face value of the stocks they were buying. Over $8.5 billion was out on loan,^[20] more than the entire amount of currency circulating in the U.S. at the time.^[21]The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises and created an economic bubble. The average P/E (price to earnings) ratio of S&P Composite stocks was 32.6 in September 1929,^[22] clearly above historical norms. Most economists view this event as the most dramatic in modern economic history.

On October 24, 1929 (with the Dow just past its September 3 peak of 381.17), the market finally turned down, and panic selling started. In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The U.S. Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.

After the experience of the 1929 crash, stock markets around the world instituted measures to temporarily suspend trading in the event of rapid declines, claiming that they would prevent such panic sales. The one-day crash of Black Monday, October 19, 1987, however, was even more severe than the crash of 1929, when the Dow Jones Industrial Average fell a full 22.6%.^[13] (The markets quickly recovered, posting the largest one-day increase since 1933 only two days later.) …”

http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

Related Posts On Pronk Palisades

The Battle For The World Economy–Videos

Frederic Bastiat–The Law–Videos

Yaron Brook–Videos

Friedrich Hayek–Videos

The Great Depression and the Current Recession–Robert Higgs–Videos

Milton Friedman–Videos

Milton Friedman on Education–Videos

Ludwig von Mises–Videos

The Fountainhead, Atlas Shrugged and The Ideas of Ayn Rand

Murray Rothbard–Videos

Rothbard On Keynes–Videos

Peter Schiff–Videos

Schiff, Forbers and Bloomberg Nail The Financial Crisis and Recession–Mistakes Were Made–Greed, Arrogance, Stupidity–Three Chinese Curses!

L. William Seidman on The Economic Crisis: Causes and Cures–Videos

Amity Shlaes–Videos

Julian Simon–Videos

Thomas Sowell and Conflict of Visions–Videos

Thomas E. Woods, Jr.–Videos

Banking Cartel’s Public Relations Campaign Continues:Federal Reserve Chairman Ben Bernanke On The Record

In a Cato podcast, I explain why government-run healthcare system will be vastly more expensive than we are being told. This covers some of the same material that is in my recent video, but there’s no need to see my face (and if you don’t like my voice or want to see my face, you can read a two-page report on the topic from Cato).

Gone to foreclosure……gone to food stamps….gone to unemployment…..every one…..and the sad part of the saga is that it will most likely never return…..nothing being offered up by the government will protect or strengthen the middle class…it is a dying breed….it is dying slowly and most painfully…

I have heard economists and economic journalists say that part of the problem is the rise of China….this I agree with…..then they say that jobs are sent overseas because labor is cheaper and more profit can be made…..I also agree with this….but then they lose me….they say that the answer to our diminishing middle class is education….and education is the only way to save our faultering economy and middle class….sorry, no matter how I say it…….I can only hear the word BULLSH*T!

Still if they all believe that education is the answer……try to find an explanation for me…..how would a more educated people be a way to save jobs from going overseas?  Would that not make more jobs flee?  I mean with the cost of education and the cost of living in the US so high….jobs would still be sent overseas….a more educated middle class would not bring jobs back and would not make for a stronger economy….what business needs is less educated workers….why?….they will work cheap….that would help bring jobs home….

The Middle class is disappearing thanks to the politics of the country….why?……Massive national and personal debt. The US national debt has risen more in the last five years than in the entire history of the country. Even worse than the debt are the unfunded obligations of the US government in future years. Trump and Kiyosaki say that the unfunded obligations for Social Security are roughly $10 trillion, and those of Medicare are roughly $60 trillion. They compare these to the estimated value of the entire New York Stock Exchange at $35 trillion. These massive obligations are the result of unfunded promises to the large generation of baby boomers who are approaching retirement age. There is simply no way out of this morass that is without significant pain. Second, personal debt is also at an all-time high. One of the reasons for so many home mortgage foreclosures was homeowners using their home equity as a “piggy bank” to fund cars, vacations, luxury items, home improvements, etc. When the housing bubble burst, many of them could not keep up with their mortgage and credit card debt.

All the above causes are directly the fault of the politicians and their attitudes toward the people….absolutely NO ONE in Washington is working to sure up the middle class….banks got it….auto makers got it…..workers got diddly.  The Middle Class will be a course taught in grad school for economics……

The Wall Street Journal has a column identifying fiscal deficits as the greatest threat to European economic performance. As this passage indicates, many European nations have enormous deficits and debt, much larger than the United States:

Excessive euro-zone deficits now present one of the biggest risks to the global recovery. Several European countries – Greece, Italy and Belgium – already have debts of more than 100% of gross domestic product. Others will join them in 2010. Across the euro zone, the deficit in 2010 is likely to be more than 7% of GDP. …The snag is that no one knows how far or how fast countries must cut their deficits to retain the support of markets. Government bonds are being artificially supported by central-bank policies. …Greece and Ireland’s bonds already yield close to 5%, around 1.7 percentage points more than Germany’s. …If yields rise too high, deficits will become unsustainable. Medium-term, most countries need strong growth to reduce debt before they are hit by the huge demands on social spending as the baby-boomer generation retires. In theory, rising yields should impose market discipline on wayward governments. But without the traditional safety valve of devaluation, the sacrifices needed to restore competitiveness via wage deflation and falling living standards may be too much to expect from elected politicians. …The market assumes that if one member state faced a buyers’ strike, the others would ride to the rescue, despite the euro zone’s no-bailout policy.

The column identifies some key concerns, but are budget deficits really the problem? Would these European nations be better off, for instance, if they imposed massive tax increases? Setting aside Laffer Curve concerns, big tax hikes could close the fiscal gap. Is it reasonable, then, to think that Europe’s economies would respond with more growth? That is highly unlikely. Replacing debt-financed spending with tax-financed spending merely changes the mechanism for diverting resources from the productive sector of the economy to the government. Yes, deficits and debt undermine economic performance by draining resources from private credit markets. But higher tax rates also stifle growth by decreasing incentives to work, save, and invest.

The real problem is that government is far too big in Europe. This is the crisis, and it is a problem that America is now facing as a result of the profligate Bush-Obama policies.

The Great Depression and the Current Recession (Part 1 of 9)

The Great Depression and the Current Recession (Part 2 of 9)

The Great Depression and the Current Recession (Part 3 of 9)

The Great Depression and the Current Recession (Part 4 of 9)

The Great Depression and the Current Recession (Part 5 of 9)

The Great Depression and the Current Recession (Part 6 of 9)

The Great Depression and the Current Recession (Part 7 of 9)

The Great Depression and the Current Recession (Part 8 of 9)

The Great Depression and the Current Recession (Part 9 of 9)

Background Articles and Videos

Robert Higgs
Senior Fellow in Political Economy

“…Robert Higgs is Senior Fellow in Political Economy for The Independent Institute and Editor of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. 

He is the recipient of numerous awards, including the Gary Schlarbaum Award for Lifetime Defense of Liberty, Thomas Szasz Award for Outstanding Contributions to the Cause of Civil Liberties, Lysander Spooner Award for Advancing the Literature of Liberty, Friedrich von Wieser Memorial Prize for Excellence in Economic Education, and Templeton Honor Rolls Award on Education in a Free Society. 

Dr. Higgs is the editor of The Independent Institute books Opposing the Crusader State, The Challenge of Liberty, Re-Thinking Green, Hazardous to Our Health? and Arms, Politics, and the Economy, plus the volume Emergence of the Modern Political Economy. 

Bob is also the author of Depression, War, and Cold War, available in April 2009 in a new paperback edition, and Neither Liberty Nor Safety, Politická ekonomie strachu (The Political Economy of Fear, in Czech), Resurgence of the Warfare State, Against Leviathan, The Transformation of the American Economy 1865-1914, Competition and Coercion, and Crisis and Leviathan. A contributor to numerous scholarly volumes, he is the author of more than 100 articles and reviews in academic journals.  …”

http://www.independent.org/aboutus/person_detail.asp?id=489

Robert Higgs

“…Robert Higgs (born 1 February 1944) is an American economist of the Austrian School and a libertarian anarchist. His writings in economics and economic history have most often focused on the causes, means, and effects of government growth.

He is a Senior Fellow in Political Economy at the Independent Institute (since September 1994), and is editor of Independent Review (since 1995).^[1] He is an adjunct faculty member of the Ludwig von Mises Institute^[2] and is an adjunct scholar at the Cato Institute.^[3] Higgs is also a contributor to LewRockwell.com.^[4]

Higgs has held teaching positions at University of Washington, Lafayette College, and Seattle University. He has also been a visiting scholar at Oxford University and Stanford University. Higgs held a visiting professorship at the University of Economics, Prague in 2006,^[1] and has supervised dissertations in the Ph.D. program at Universidad Francisco Marroquín.^{[5] …”}

http://en.wikipedia.org/wiki/Robert_Higgs

Robert Higgs on Federal Reserve Transparency

Related Posts On Pronk Palisades

The Battle For The World Economy–Videos

Frederic Bastiat–The Law–Videos

Yaron Brook–Videos

Friedrich Hayek–Videos

Milton Friedman–Videos

Milton Friedman on Education–Videos

Ludwig von Mises–Videos

The Fountainhead, Atlas Shrugged and The Ideas of Ayn Rand

Murray Rothbard–Videos

Rothbard On Keynes–Videos

Peter Schiff–Videos

Schiff, Forbers and Bloomberg Nail The Financial Crisis and Recession–Mistakes Were Made–Greed, Arrogance, Stupidity–Three Chinese Curses!

L. William Seidman on The Economic Crisis: Causes and Cures–Videos

Amity Shlaes–Videos

Julian Simon–Videos

Thomas Sowell and Conflict of Visions–Videos

Thomas E. Woods, Jr.–Videos

Banking Cartel’s Public Relations Campaign Continues:Federal Reserve Chairman Ben Bernanke On The Record

The Obama Administration said that the so-called stimulus was necessary so that the unemployment rate would not rise above 8 percent. Indeed, the White House warned that the joblessness rate would climb to 9 percent if lawmakers did not approve the $787 billion package. Critics responded by explaining that making government bigger would divert resources from the productive sector of the economy and hurt growth. These skeptics also noted that nations using “Keynesian” policy, such as the United States in the 1930s and Japan in the 1990s, did not generate good results. And since the unemployment rate is now above 10 percent, it certainly seems like opponents were correct.

But now the supposedly non-partisan Congressional Budget Office has jumped to the defense of the White House, estimating that the spending bill actually generated beween 600,000 and 1.6 million jobs. How can that be, you may ask, when the number of jobs has fallen by more than 3 million? The CBO neatly sidesteps that real-world concern by moving the goalposts, using a slightly more sophisticated version of Obama’s “jobs created or saved” alchemy. Their jobs-created estimate is compared to a make-believe baseline of how many jobs there would be “without the law.”

CBO estimates that in the third quarter of calendar year 2009, an additional 600,000 to 1.6 million people were employed in the United States, and real (inflation-adjusted) gross domestic product (GDP) was 1.2 percent to 3.2 percent higher, than would have been the case in the absence of ARRA. …CBO’s current estimates differ only slightly from those CBO prepared in March 2009. At that time, CBO projected that in the third quarter of 2009, U.S. employment would be higher by 600,000 to 1.5 million people with ARRA than it would be without the law, and real GDP would be 1.1 percent to 3.0 percent higher. CBO’s new estimates reflect small revisions to earlier projections of the timing and magnitude of changes to spending and revenues under ARRA. …Economic output and employment in the spring and summer of 2009 were lower than CBO had projected at the beginning of the year. But in CBO’s judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects of ARRA.

Needless to say, this means there is no objective benchmark. The unemployment rate could jump to 15 percent and total job losses could reach 10 million, but CBO would continue to say, for all intents and purposes, that the results from their Keynesian model are more important than any real-world numbers. This is the fiscal-policy version of the Wizard of Oz, and we’re supposed to ignore reality just as Dorothy and friends were supposed to ignore the man behind the curtain.

To be fair, there is nothing inherently wrong with CBO’s methodology. Economic analysis frequently requires people to make assumptions about how the world would behave with or without a certain policy. So the real question is whether Keynesian economics makes sense from a theoretical perspective, whether there is any suppporting evidence, and whether there are more compelling alternatives. Click the links and decide for yourself.

This paper by Sargent is probably one of the best introductions to macroeconomic public policy written for adults (sidenote: what are we to make of the fact that most textbooks infantilize their–pressumably in college–readers?)

A Primer on Monetary and Fiscal Policy, Thomas J. Sargent

Monetary policy can be constrained by fiscal policy if fiscal deficits grow large enough to require monetization of government debt. That fact implies that the administrative independence of central banks does not by itself imply that monetary policy is independent of the fiscal decisions of governments. This essay describes limitations, possibilities, and suitable goals for monetary policy within the existing pattern of institutional responsibilities. The economic limitations of what can be achieved by monetary policy are summarized in six propositions developed in the paper.

While this is good as background and to study at the undergraduate level, graduates will most likely want to pick up Sargent and Wallace’s arithmetic paper and the literature it started.

For someone who recently has begun making sport out of saying no to a possible presidential bid, Mitch Daniels sure is making a heck of alot of sense whenever he does speak (though some may argue that commonsense’s natural momentum is away from those seeking higher office). From the Washington Times (h/t Brothers Judd), Daniels of fiscal conservatism as a moral issue:

“The essence of our nation is the protection of individual liberties,” he says in an interview with The Washington Times. “That means, for example, never take a dollar from a free citizen through the coercion of taxation without a very legitimate purpose.

“And then we have a solemn duty to spend that dollar as carefully as possible, because when we took it we diminished that person’s freedom. Otherwise, that citizen could spend that dollar on something he or she chose. This is an obligation of everybody who serves in government.”

On the issues any 2012 contender will need to address:

For one thing, “a colossally unsustainable [national] debt load — an unfair, even immoral burden we’ve deposited on our young people,” he says.

“The threat of Islamic fundamentalism coupled with its ability to take advantage of modern technology,” for another.

And then there’s “our reliance on energy purchased from people who use the money in ways contrary to American interests.”

And perhaps most refreshing–modesty and austerity (a topic he gave an entire commencement address on this past spring):

A Princeton graduate from a modest family background, he conveys in conversation the image of the quiet-spoken libertarian-populist for whom braggadocio is simply unthinkable. Getting him to talk about his accomplishments isn’t easy. “I want to look to the future,” he says.

….

Ask him to crow about his gubernatorial accomplishments, and he flatly refuses. Press him by asking if there’s anything he’s proud of having done in office, and you learn he is “pleased” he took a state that was in bankruptcy when he came into office “and put it in the best fiscal position ever,” though he acknowledges that holding on to that status is tough in this economy.

The article goes on to cite some of his accomplishments as Governor. He has been able to govern the way Bob McDonnell promises to–conservative principles guiding real results. Through initatives such as privatizing the state’s toll roads and keeping an eye on state payroll (actually managing to REDUCE it, of all things), Daniels has been able to cut property taxes by a third statewide and affect the largest tax cut in state history.

Perhaps his biggest watchword? Accountability. The state’s DMV went from being a joke to winning an award for the best in the nation. The average time spent in an office is SEVEN MINUTES. How was this accomplished? By rewarding good employees and punishing or removing bad ones. Sorta sounds like a business, no? Yet Mitch Daniels seems to be the only one with the courage to do it.

I encourage any conscientious conservative serious about cutting government size and scope to look into this man.  I will admit he has one mark against him–in his first year in office he proposed a 1% income tax hike. But when the state legislature balked, he simply took out his scissors and not only made state government work with less but work better. His humility may prevent him from talking about higher office, but one things for sure: I’d rather spend the next two years convincing him to run only to see him decline than to jump on the Cheney 2012 bandwagon.

The always informative Reason magazine has this great video up about how the free market may hold our best hope for real healthcare reform. Inspiration comes from two unlikely but logical places: Best Buy and a Lasik provider’s office.

H/T Below the Beltway

The Adam Smith Institute in London has released my paper entitled “The Economics of Tax Competition.” If you want to understand why it is very important to prevent international bureaucracies from crippling national tax sovereignty in order to create an “OPEC for politicians,” you should spend 20 minutes reading this report. If you went to a government school and don’t like reading, this three-part video series covers the same material. Here’s an excerpt from the introductory section:

Tax competition exists when people can reduce tax burdens by shifting capital and/or labour from high-tax jurisdictions to low-tax jurisdictions. This migration disciplines profligate governments and rewards nations that lower tax rates and engage in pro-growth tax reform. …from an economic perspective, economic performance is enhanced because of lower tax rates on work, saving, and investment. …The thought of losing sources of tax revenue worries government officials from high tax nations, who vociferously condemn tax competition (particularly the role of so-called tax havens) and would like to see it reduced or eliminated. Working through international bureaucracies like the European Commission (EC), the United Nations (UN), and the Organisation for Economic Co-operation and Development (OECD), high-tax governments are promoting various tax harmonization schemes to inhibit the flow of jobs and capital from high-tax jurisdictions to low-tax jurisdictions. These proposals are fundamentally inconsistent with good tax policy. Tax harmonization means higher tax rates, but it also means discriminatory and destructive double taxation of income that is saved and invested. …Tax competition should be celebrated, not persecuted. It is a powerful force for economic liberalization that has helped promote good tax policy in countries around the world.

I noticed this “web memo” on the Heritage Foundation web site. Basically, they just list the twelve policies and then write a couple of short paragraphs on how each policy negatively impacts civil society. This is a good introduction to Christians who want to think through whether some government policies that sound good really do good by reducing the amount of destructive and costly behavior, and promoting the public good.

The twelve policies are described in detail in the full post. (PDF)

1. Massive Expansion of the Welfare State
2. A Big Step toward National Same-Sex Marriage
3. Abstinence-Based Education at Risk
4. Expanding the Federal Government’s Role in Education
5. Hate Crimes Expansion
6. Legalization of Marijuana for Medical Purposes
7. Taxpayer-Funded Abortion
8. Needle Exchange for Drug Addicts
9. Ending Parental School Choice for Low-Income Children
10. Federal Funding for Abortions in the Health Care Overhaul
11. Limiting Parental Rights and Expanding Family Planning
12. New Government Parenting Program

Here are the details for #2.

The House of Representatives is on a trajectory to pass the Employment Non-Discrimination Act of 2009 (ENDA), just as it did in 2007. This legislation would disallow discrimination in hiring decisions based on “actual or perceived sexual orientation or gender identity.” ENDA would give special protected class status to sexual orientation and gender identity–just as is given to race, color, sex and religion.

Legislation like ENDA is a major precursor to legalizing same-sex marriage, as the history of the issue in several states shows. According to a recent Heritage Foundation paper, no state that has approved same-sex marriage has done so without first adopting ENDA-like legislation. In Vermont, Massachusetts, and five other states, courts have used the non-discrimination law as part of their reasoning to strike down traditional marriage.

Here, you can read more about the Employment Non-Discrimination Act and how it paves the way for same-sex marriage. I wrote a post about why people oppose same-sex marriage a while back.

by Mario Rizzo  

Greg Mankiw juxtaposes opinion pieces by Paul Krugman and Gary Becker on dealing with the cyclical unemployment problem (aka “how to create jobs”). Becker’s blog post is especially worth reading.  

Whatever the political benefits of appearing to stimulate the employment of labor, the economic problem really shouldn’t be stated that way. We do not want to bias the system toward utilization of labor instead of other factors of production. I don’t think the distortions created by cheap credit should be remedied by trying to create further distortions. Most of Krugman’s suggestions are along these distortionary lines.  

…the federal government could provide jobs by … providing jobs. It’s time for at least a small-scale version of the New Deal’s Works Progress Administration, one that would offer relatively low-paying (but much better than nothing) public-service employment.  

…we can offer businesses direct incentives for employment. It’s probably too late for a job-conserving program, like the highly successful subsidy Germany offered to employers who maintained their work forces. But employers could be encouraged to add workers as the economy expands. The Economic Policy Institute proposes a tax credit for employers who increase their payrolls, which is certainly worth trying.  

Tax credits, especially, create all sorts of perverse incentives, as Becker explains. But, if successful, they impart a bias toward labor inputs.  

None of these suggestions exhibits the slightest understanding that labor markets need time to readjust. It is as if, for Krugman, some nasty irrational force has it in for labor employment (the “lagging indicator”). Yet entrepreneurs must figure out what the sustainable lines of production will be after a bubble period. All of this is presumably viewed as a minor issue because the major problem is consumers are too afraid to spend (on what?). Anything will do in Krugman’s world.  

On the other hand, Becker’s suggestions are more even-handed. 

I fully endorse Posner’s suggestions to cut the minimum wage, but I do not see that happening with the present Congress. My favorite approach it to try to stimulate the economy by cutting income taxes, especially corporate income taxes and other taxes on capital, both physical and human capital. Such tax cuts will stimulate investments in the economy, and in this way increase the demand for workers.  

They seek to lessen the tax burdens on labor and capital as well as the burden of the minimum wage. In principle, there is little to object to here.

On a related note, the contrast in the two sets of suggestions illustrates the difference between an economist who thinks that the current recession entails an indefinite suspension of the principles of microeconomics (Krugman) and one who is still concerned about incentives at the margin (Becker). 

Nevertheless, both economists are, I think, too much in the spell of the Principle of Aggregate Demand.  Aggregate demand theories abstract from concern about the need for readjustments in lines of production after credit-induced unsustainable sectoral expansions.

“Société Générale has advised clients to be ready for a possible ‘global economic collapse’ over the next two years,” reported the UK Telegraph in a recent story.

Headquartered in France, Société Générale (SG) is one of Europe’s largest financial services companies. One of the oldest banks in France, it is also a quintessentially mainstream institution whose leadership is largely blind to the shortcomings of the world’s current monetary regime. As so many other mainstream outfits, SG failed to see the coming of the current crisis and had to be rescued to the tune of billions of dollars. Much of it, paradoxically, came from the American taxpayer via the AIG bail out.

One can get a good sense of how bad things must be if an institution like this is preparing its clients for the possibility of a “global economic collapse.” Given the present state of affairs, the bleak outlook is more than justified.

To begin with, many governments currently find themselves on the verge of bankruptcy. Having tried to spur economic growth through vast injections of new money, they have contracted immense public debts. “High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt,” concludes Société Générale in its report.

Leading the way is the United States which posted a deficit of nearly 10 percent GDP during the last fiscal year. The Obama administration projects that America’s national debt will exceed its annual economic output in the 2011 fiscal cycle. It will then continue expanding as far as the eye can see, reaching 107 percent of GDP in 2019. It should be remembered that these are the administration’s own figures, which almost always tend to be too optimistic. The reality is likely to be worse.

The deep indebtedness of western governments raises serious questions about their financial viability. Ambrose Evans-Pritchard, the Telegraph’s International Business Editor, puts it bluntly: “Almost all western governments are insolvent… we are bust.” Evans-Pritchard is correct. The level of indebtedness is unsustainable. Unable to squeeze much more from taxes, sooner or later western governments will have to start defaulting. The default will very likely take the form of high inflation as governments will try to print away their immense debt burden. This will, of course, have dire economic repercussions.

Dire as Société Générale’s report is, it still does not do full justice to the dept of our predicament. When discussing America’s fiscal plight, for example, it fails to take into consideration the biggest drag of all – entitlements. Estimated at more than $100 trillion, this astronomical figure represents the largest financial obligation in the history of the world. More than one and a half of the world’s current economic output, entitlements are a millstone that will pull America down into financial ruin. Needless to say, the rest of the world will also be caught in the vortex. With Social Security going into the red perhaps as early as this fiscal year, the “global economic” collapse may occur sooner than later. Western government officials, however, appear unconcerned about the black clouds on the horizon. Rather than trying to rein in spending, they blithely pile on even more debt. Oblivious to the impending financial crack up, they instead worry about thenon-existent anthropogenic global warming.

Continue reading at Frontpage

Richard Reeves is not someone I would agree with a great deal, but I’m afraid he was spot on in his column last week where he lamented the downward spiral of his home state:

You may have noticed that the governor and legislators of the Golden State finally produced a “balanced” budget with a deficit in double-digit billions. But, hey, who’s counting?

He lays blame at the feet of California’s often insane patchwork of direct democracy. Both conservatives and liberals have abused this system to the point where voters will simulatenously support huge new spending iniatives and giant tax cuts:

Sure, the state’s chief justice, Ronald George, traveled to Cambridge, Mass., to tell the American Academy of Arts and Sciences that the state is “dysfunctional.” His reasoning:

“California’s lawmakers, and the state itself, have been placed in a fiscal straitjacket by a steep two-thirds-vote requirement — imposed at the ballot box — for raising taxes. … Much of this constitutional and statutory structure has been brought about not by legislative fact-finding and deliberation, but rather by the approval of voter initiative measures, often funded by special interests.”

Arnold Schwarzenegger’s victory in the 2003 recall election was hailed by conservatives. Hey, he’s pro-choice and anti-gun and married to a Kennedy, but who cares when you have a celebrity who can call the opponent’s economic girlie men? And indeed, Ahrnold seemed to be a genuine fiscal conservative. This is until his own ballot initiatives designed to cut down on corruption and fix the state budget all failed in the special election he called in 2005. He shifted left on fiscal issues during his 2006 re-election bid and has continued this track with the legislature, hashing out tax hikes across the board and pushing for a ballot initiative for even more that ultimately failed in May.

What to expect from someone who can barely handle their own finances. From the Los Angles Times: (H/T Instapundit):

A federal tax lien for nearly $80,000 filed against Gov. Arnold Schwarzenegger is related to “a minor paperwork tracking discrepancy,” and is expected to be cleared up quickly with no penalty assessed on the governor, spokesman Aaron McLear said this afternoon.

Public records show the lien was filed May 11 at the Los Angeles County recorder’s office for $79,064, according to a record in an electronic database that includes lien filings. The record lists the debtor as Arnold Schwarzenegger and the address as the governor’s home address in Brentwood.

Now voters are ambling down a dangerous path towards the 2010 election. Their choices right now seem to be from three major contenders. On the left, there’s Jerry Brown, former Governor and current Attorney General. He picked up the handy nickname Governor Moonbeam in the 1980s for his far left agenda. As even the reliably Reeves points out, Brown was in charge when much of this mess got started. On the right, there’s current Insurance Commissioner Steve Poizner, the only other elected statewide Republican, and Meg Whitman, former eBay CEO and Mitt Romney finance chair/McCain-Palin co-chair.

On paper, Whitman would seem to be the sure bet. She’s got name ID from her time on the campaign trail, and she’s business oriented. However, let us remember just how well the celebrity path worked for California Republicans last time. In addition, she seems to have a pretty poor record when it comes to even paying attention to California politics, having not even registered to vote before 2002 and skipping a number of elections since then, including the 2003 recall . Additionally, though she’ll try to make much of her time at eBay, she left in a huff at a time when many were suggesting that the company was over-extended on its acquisitions while failing to build its core brand.

Steve Poizner, meanwhile, has a strong track record of in public office. He slashed his office’s budget by 15%, cut taxes and fees, and opened up the state to competition. Additionally, Poizner has a very impressive track record of his own in the private sector. He founded SnapTrack, a company that pioneered GPS use in cell phones. He eventually sold the company to industry giant Qualcomm for a reported $1 billion. Poizner also sits well with California’s small but vocal band of social conservatives while not making it the focus of his run, a move that has doomed other California conservatives.

Right now, California’s are looking for a voice. In this troubled time when their state is falling apart and the feds are doing everything they can to stymie wealth creation, they are in an enviable position to select someone with solid fiscal credentials over one candidate who is way to the left and another who is big on glamor but short on solid ideas.

From up north, from stunning news from Nassau County, New York (better known to the TV watching populace as Long Island), one of the 10 richest in the country. From the New York Times (free subscription):

Nearly three weeks after Election Day, the recount in the race for Nassau County executive is expected to conclude on Monday. Edward P. Mangano, the Republican challenger, has a slight lead over the Democratic incumbent, Thomas R. Suozzi.

Although Mr. Suozzi held a 237-vote lead on election night, out of about 245,000 ballots cast, he has trailed Mr. Mangano since the recount began on Nov. 9. As of Wednesday, with all but a handful of the ballots counted, Mr. Suozzi trailed by 217 votes. Tallying was halted for Thanksgiving and will resume on Monday morning. But the results may not be conclusive.

Although the race certainly didn’t draw a great deal of national attention, the outcome is one to pay attention to as Republicans consider how they will win back the suburban voters they won in the 80’s and 90’s but dawdled away in the earlier part of this decade. As I mentioned earlier, Nassau is one of the ten richest counties in the country, putting it in that same lofty territory as Loudon, Prince William and Fairfax counties here in our own commonwealth. For the Virginia-centric, it is also analgous to Prince William to Fairfax. Just as with Prince William, Nassau was reliably red until the dawn of the tech age*. Nassau has seen its Republican State Senators erode, and county council control shifted to the Democrats. It went for Barrack Obama with 53%, lower than Prince William’s 57% for Obama but still a solid win.

Yet, this year, like Prince William, Nassau County has gone for a candidate (though by smaller margins) that ran on core Republican principles of cutting government waste, fixing tax problems, and generally efficient government. The same can be said for all of the aforementioned exurban counties, along with the urban county of Fairfax. If Republicans want to win in 2010 and 2012, there’s something to be said for the results in Nassau County and Virginia.

*Nassau went for Clinton in 1992 but just by a slim plurality. 1996 was the first year it went solidly for a Democrat, a trend it has continued since.

I neglected to link to this last week, but Tertium Quids praised Goochland County for putting its checkbook online. From the RTD editorial they linked to:

That represents a quantum leap in clarity over the financial reporting of some local governments, whose budget documents are sometimes long on verbiage and short on specifics. Knowing that a utility department’s personnel costs are X hundred thousand and its operating expenses are Y million doesn’t say anything about whether the money is spent wisely and well.

Nick Howard at TQ suggests the next step is the launching of a citizen’s audit committee to examine the newly open expenses. This all sparked my attention in light of this move by our own county government here in Shenandoah:

The Shenandoah County Board of Supervisors might turn to professionals to help find a new county administrator.

Current County Administrator Vince Poling announced last month that he plans to retire in 2010. On Monday, he said his target retirement date is June 30.

The supervisors have established a salary range of $85,000-$100,000 for the new administrator, said Poling, whose salary is $111,000 a year.

He said four executive search firms have been interviewed, and District 6 Supervisor Conrad Helsley, the chairman of the personnel committee, is negotiating with one of the firms.

Though Supervisor Helsley makes some intriguing points as to why a search firm may be needed, its still a question for debate, particularly when one would hope that Supervisors should know what they need in an administrator.

At any rate, this, along with nauseating budget documents whose line items offer very little insight into just how money is spent and anectodotal stories from local merchants about misguided expenses, adds further fuel to the fire for transparency here in our own backyard.

There are some on the Left that say NO to the proposed health reform bill and they do have reasons other than the trash that the Repubs try to throw at the public.

The primary problem with HR 3962 and the Senate proposals is that all of the changes they propose are made within a for-profit system. The House Bill strips the insurance companies of the right to deny coverage based on a pre-existing condition. Yet, it de-links the public option from Medicare reimbursement rates, thereby surrendering
pricing to the private sector. The Bill removes the anti-trust exemption enjoyed by private insurers. However, it simultaneously mandates that all Americans carry some form of health insurance, thereby herding millions into low-coverage high-fee private plans. Each step in a positive direction is coupled with a restructuring that will enrich private insurance companies and pharmaceutical makers.

The bills lost further reform credentials as Democrats cut last minute deals with Republicans.  Immigrants were removed from eligibility for the public option, abortions were written out of the proposal and Medicare funding was cut. The Medicare cuts are particularly cruel, since they will reduce an already compromised plan to bare bones coverage. Some of the cuts will limit private insurance profiteering, but others will slash necessary items such as exercise programs for seniors. Overall, these omissions signal that the reforms are not about providing comprehensive medical coverage, but about political expediency within the establishment political class. The next round of negotiations in the Senate is sure to produce even further regressive measures as campaign-donation driven legislators cut more deals.

The Left of the Dem Party was instrumental in the formation of the whole health reform issue and now with a vote coming soon to a Congressman near you….they are starting to show that they do NOT support a watered down bill just to get a win in the column….they want REAL health reform and not some pale imitation of it.

But the bill will go forward and most likely before the end of the year and yes, we will have a health reform bill for the president to sign….but willit be a good bill or just a bill to say they have a win……in my opinion, it will be anything but a good bill….it will be a win and that is the only good thing that can be said about the new health reform bill….

Howard Dean is not of this world…

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"LOL, I can't believe we can still do this!"

Looks like the Congress can’t wait until the new year to begin running up massive deficits for the next calendar year. According to a new report:

Troubled by the rising jobless rate, President Barack Obama and the Democratic majority in Congress are assembling a jobs package that would devote billions of dollars to projects meant to put people back on payrolls in 2010 and keep them working.

Since even Congress realizes that the growing debt is now threatening to crush the Republic they are considering new and creative ways of paying for the next round of “stimulus” funds, including a 25 cent fee for each stock transaction. How kind of them, but don’t worry about the proposal being revenue neutral, either:

House Speaker Nancy Pelosi, D-Calif., said this week that if the public were given a choice between a job and an uptick in the deficit, the answer would be easy.

So in the interests of short term job gains that the last, much larger stimulus completely failed to provide, they are not only going to do it again, but they now simply don’t care what the long term effects are on interest rates and inflation.

If this Republic continues to spend this way eventually the consequences will catch up with us. Whether that takes the shape of a worthless dollar, massive inflation, sky-high interest rates, or some combination thereof is unclear now. What is clear is that the day is coming when we won’t be able to charge our absurd spending on credit and, when that day comes, this nation will be a very different place.

I caught a lot of flack from my Republican friends for my post blaming the FY2009 deficit on Bush instead of Obama. Well, I must be a glutton for punishment because I can’t resist jumping (albeit reluctantly) to Obama’s defense again. Foxnews.com posted a story headlined “Obama Shatters Spending Record for First-Year Presidents” and noted that:

President Obama has shattered the budget record for first-year presidents — spending nearly double what his predecessor did when he came into office and far exceeding the first-year tabs for any other U.S. president in history. In fiscal 2009 the federal government spent $3.52 trillion …That fiscal year covered the last three-and-a-half months of George W. Bush’s term and the first eight-and-a-half months of Obama’s.

This story was featured on the Drudge Report, so it has received a lot of attention. I’m a big fan of criticizing Obama’s profligacy, but I don’t think it is right to blame him for Bush’s mistakes. At the risk of repeating my earlier post, the 2009 fiscal year began on October 1, 2008, and the vast majority of the spending for that year was the result of Bush Administration policies. Yes, Obama did add to the waste with the so-called stimulus, the omnibus appropriation, the CHIP bill, and the cash-for-clunkers nonsense, but as the chart illustrates, these boondoggles only amounted to just a tiny percentage of the FY2009 total – about $140 billion out of a $3.5 trillion budget (supplemental defense spending could boost Obama’s share by another $25 billion, but Bush surely would have asked for at least that much extra spending, so individual readers can adjust the number if they wish).

In other words, Obama’s FY2009 performance is like a relief pitcher who enters a game in the fourth inning trailing 19-0 and allows another run to score. The extra run is nothing to cheer about, of course, but fans should be far more angry with the starting pitcher. That having been said, Obama since that point has been serving up meatballs to the special interests in Washington, so his earned run average may actually wind up being worse than his predecessor’s. He promised change, but it appears that Obama wants to be Bush on steroids.

While perusing the Internet, I saw an article by Iwan Morgan, who is the author of The Age of Deficits: Presidents and unbalanced Budgets from Jimmy Carter to George W. Bush. The author asserted in this article that, “The deficit explosion on his watch was a nasty surprise for Ronald Reagan not a deliberate strategy to reduce government.  In his rosy interpretation of Laffer curve theory, the personal tax cuts he promoted in 1981 would deliver higher not lower revenues through their boost to economic growth.” The first sentence is an interesting interpretation, since many leftists believe that Reagan deliberately created deficits to make it more difficult for Democrats in Congress to increase spending. I’m agnostic on that issue, but Morgan definitely errs (or is grossly incomplete) in the second sentence. The Reagan Administration did not employ dynamic scoring when predicting the revenue impact of its tax rate reductions. It is true that the White House failed to predict the drop in revenues, particularly in 1982, but that happened because of both the second stage of the 1980-82 double-dip recession and the unexpected drop in inflation (the Congressional Budget Office also failed to predict both of these events, so Reagan’s forecasters were hardly alone in their mistake). Moreover, Morgain’s dismissal of the Laffer Curve is unwarranted. While several GOP politicians exaggerated the relationship between tax rates, taxable income, and tax revenue, this does not mean it does not exist. The table below, which is based on data from the IRS’s Statistics of Income, shows what happened to tax collections from upper-income taxpayers between 1980 and 1988. Supply siders can be criticized for many things, especially their apparent disregard for the importance of limiting the size of government, but the IRS figures clearly show that lower tax rates were followed by more rich people, more taxable income, and more tax revenue. For those keeping score at home, that’s a perfect batting average for supply-side economics.

“It has taken nearly 10 months for Democrats to face reality, but it’s finally dawning on some of President Obama’s allies in Congress that his economic policies aren’t working.

 ”As unemployment rates continue to climb into the double digits and new reports of layoffs appear weekly across the country, Democrats are feeling the heat from angry constituents and party leaders back home and some of them have begun to complain – loudly and publicly.”

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I was part of a book forum at the Heritage Foundation, commenting on Brian Domitrovic’s new book about the history of supply-side economics. My insights (or lack thereof) begin at the 20-minute mark of this video.

. . . though that will not stop the Telegraph following it, slavishly.

I’m afraid I’ve only skimmed Policy Exchange’s latest attempt to convince us that government spending really doesn’t have any useful economic effects. The theory section on page 25-27 seems to imply that:

• insufficient demand is never a problem unless financial markets are broken
• Ricardian equivalence is a proven fact that stops public spending working, ever, in normal conditions
• very little needs to be said of the zero bound constraint on monetary policy.

Given all these, and the evident bias, it is difficult to expect much from the voluminous history-description that follows, in terms of the endless macroeconomic debate about the efficacy of fiscal stimulus.   Since they start with bad theory, there is likely to be some bad history. Moreover, the point about macroeconomic analysis, surely, is that it is fairly context-specific.  Asking what happens on average is pointless if there is a crucial difference to this situation. The rule “Don’t throw buckets of water over people’s heads” is a pretty good one, on average.  But not “if their hair is on fire”.  Ditto “cutting back on public spending boosts growth on average” and “but not if we are threatened with deflation and the banking channel is f***ed”.

So in how many of the situations they examined were the interest rates needed minus 6%? Oh, none?  Thought so.

This is really 101, and over the Atlantic, where the debate is really raging, pretty standard stuff. So I am not tempted to use a couple of hours reading it.  To snark at just one bit of the theory section:

households will understand that if the government borrows extra today, it will have to raise taxes tomorrow to pay off that borrowing. In anticipation of those extra taxes tomorrow, households will save extra today

NO. (a) Households do not anticipate like this. If so, why did they spend so much when Brown was borrowing too much earlier? They would be magic-balancing-creatures, forever calibrating their consumption for long run fiscal equilibrium (b) when the economy is far below capacity, government spending can provide INCOMES that enable people to spend and save.  As has been endlessly pointed out, since the beginning of time.  Imagine an economy where 30% are unemployed.  The government comes along and promises to do some spending – build some homes, say.  Do the people with their incomes from this get all worried and not spend it, because of the taxes that might arise in 10 years’ time? No.

And this is a terrible explanation for why Keynesians think as they do:

it is precisely the denial that Ricardian equivalence applies in such cases that motivates the belief in Keynesian stimulus can work

No.  A belief is not motivated by a denial.  Keynesian stimulus is motivated by a combination of commonsense and inspiration about how economies operate in deflationary, sub-capacity situations.  This sentence is the logical equivalent of “my belief in gravity is motivated by a denial of the existence of levitating elves”.

It is deeply tedious to keep bringing this up, so once more I refer to the far more vicious blogs of American geniuses similarly frustrated.  In his musings on an intellectual train wreck, Brad De Long writes:

There is nothing illogical or inconsistent about the economy being in a state in which aggregate planned expenditure is greater or less than income. Today’s Chicago school would know this, had it not forgotten all of monetary economics from David Hume on.

Policy Exchange seem keen to join the Chicago School. What I can’t understand is the determination to have the SAME economic policy regardless of circumstances.  Facts. Change.  In 1-2 years’ time, I too will clamour for fiscal restraint.  LIke Martin Wolf, I want a plan, but just not to have it implemented until it is safe.  Now let’s move on*.

If there is a redeeming feature to this dip into pre-Keynesianism, it is that they seem to have done some work on the political problems of spending cuts.  But in many ways, what is far more interesting than “Policy Exchange don’t like fiscal stimulus” is “Mervyn King won’t ALLOW fiscal stimulus” – which is what he effectively said yesterday.  Who is in charge of fiscal policy?  The Bank.  We need an Independence of the Government bill soon.

Other news: Vince has fleshed out the National Infrastructure Bank idea.

I thought Charles Dumas’ letter to the FT was excellent:

the idea that the UK (and presumably the US) should have run fiscal surpluses in 2004-07, “saving up for the next crisis”, neglects the fact that a balanced overall policy to promote full employment and low inflation would have then entailed lower interest rates (and probably exchange rates) than we had. An even more extravagant housing boom would have resulted, with greater upward distortions in house prices and consumer debt than the “fools’ paradise” (Dr Weale’s words) that actually occurred.

The FT has a useful breakdown and scoring of the Government’s many small financial interventions.

Finally, for light relief, Don Paskini STILL thinks that asking people questions about how to fix the financial crisis is in any way relevant. The Don still thinks that democracy fixes problems.  Quite apart from some of the ideas being really bad (CAP interest rates = Welcome Loan Sharks), and others really tired (“Educate in Financial literacy” is up there with “Spend more efficiently” and “no more wars”), and everything optimistic-statist (yes, a ‘charter for responsible lending’ should fix the mess), you have to ask: why are we asking citizens, as if this is all a political matter?  Why does putting “citizens” in front of something make it suddenly wise and efficient?

I want the centre-left to do well.  This sort of platitudinous talk-to-ourselves is going to go precisely nowhere – but make the participants feel important for a few minutes.

*(not moving on) If you want further, confusing but brilliant reasoning for how investment now can determine saving later, this blog of Andy Harless is wonderful. It proceeds with this assumption: all income is instantly saved.  You then have a decision how much to dissave – the residual is saving.  The dissaving is what gives someone else an income to save.