The Left is Collapsing

Evidence is growing that The Left is collapsing (or at least freaking
out) over their inability to gain any traction in public opinion, and
the impending repudiation at the polls this fall of their programs and
their messiah. They are incapable of arguing the success of their
efforts to date, or the merits of their positions, and therefore rely
on Saul Alinsky-style personal attacks and name calling (the weakest
form of argumentation and rhetoric). Examples include Paul Krugman's
NYTimes column rant against Paul Ryan's thoughtful proposals; Robert
Gibbs recent feud with The Left; the labeling of all supporters of
Prop 8, AZ's immigration law, and opponents of the mosque location
near Ground Zero as bigots; personal attacks on Rand Paul, Linda
McMahon, and CO gubernatorial candidate Dan Maes; and a new "F*ck Tea"
movement. It is important that we not stoop to this level - we need
to argue our positions on their merits, and criticize our opponents'
positions using history, economics, facts and logic.

Excellent op-ed by William Kristol and article by Fred Barnes on this
topic from 8/23/10 The Weekly Standard at links below:

http://www.weeklystandard.com/node/490754

http://www.weeklystandard.com/articles/desperate-democrats

Fannie and Freddie Amnesia

The Illinois Policy Institute (IPI) today has a great piece on an unbelievable new video on the White House website:

http://illinoispolicy.org/blog/blog.asp?ArticleSource=3028&utm_source=Illinois+Policy+Institute&utm_campaign=a23f547c39-April+29%2C+2010+E-letter&utm_medium=email

(If you have trouble launching the video from their site, as I did, here is a direct link: http://www.whitehouse.gov/blog/2010/07/21/video-what-wall-street-reform-means-you)

The video blames the entire financial crisis on “casino banking” and promises that the new financial reform legislation will protect us all from a repeat. It also promises “No More Bailouts” and has the audacity to blame the “unintelligible mortgage paperwork” you have to sign when you buy a home on the bankers !! (Do you think maybe the government has a few forms in that stack?) The video promises that new legislation will reduce mortgage paperwork (I’ll take that bet, and I’m not even a casino banker).

The IPI piece points out that there is no mention in the video of personal responsibility, nor, of course, of the role that Fannie & Freddie, their implicit (now actual) government guarantees, loose credit from the Fed, and Justice Department pressure to lend to people who couldn’t pay back their mortgages played in the crisis. The lack of any Fannie/Freddie reform in the financial reform bill makes it laughable. The Wall Street Journal has had many editorials and opinion pieces laying out the role they played (and correctly predicted their demise), including a recent one on 8/3/10 (“Rewriting Fannie Mae History”), and one on 7/26/10 (“Fan and Fred and the Problem of Narrative”), where Brain Carney (editorial page editor of WSJ Europe) has a great quote:

“Fannie and Freddie…took advantage of implicit government guarantees to operate at leverage ratios that would have made Lehman Brothers executives blush”.

(Other good WSJ OpEds on this were on 4/20/10 (“Fannie and Freddie Amnesia”), 9/23/08 and 7/21/08. Another good piece is from the 2/6/2009 American Spectator:

http://spectator.org/archives/2009/02/06/the-true-origins-of-this-finan)

In the last week, Fannie and Freddie announced quarterly losses of nearly $6B, and asked for $3.3B more in bailout funds, bringing the total to date to almost $150B. The CBO estimates that the eventual cost will be $381B, and Treasury has removed a $400B cap on bailout funds for them.

The left likes to say that markets “failed” in 2008-9, but we have not tried a “free market” very much. The problem is that the Feds frequently regulate demand and not supply, or vice versa. In this case, they “under-regulated” Fannie/Freddie (treated them with easier rules than wholly private institutions) and created a couple of aggressive, risk-taking institutions. That, combined with the easy-money policies of the Fed (another government entity) created a huge supply of cheap credit that incented private institutions (and individuals) to take undue risks. If you are going to create that kind of supply of credit, and not regulate demand, you will have problems. But the right answer was not to have government intervention on both sides – the answer was to not have government create the excessive supply of credit in the first case !!

There is plenty of blame to go around for the financial crisis, including with individuals and financial firms, but I am still waiting for a single progressive congressman or pundit to admit that government policies had anything to do with it. A great example is the famous exchange that Joel Pollak had with Barney Frank at Harvard Law School last year (see YouTube), where Frank absolutely refused to answer the question “What, if any, responsibility do you take for the financial crisis?”.

As the great Ronald Reagan once said, “Government is not a solution to our problem, government is the problem.”

Paul Detlefs

Good Riddance, Thomas Frank

In his final WSJ opinion column (“The Tilting Yard”) yesterday (how sad – moving to Harper’s), Thomas Frank rails on the fact that nothing has changed in Washington over his two years of writing the column. He is one of those progressives who believe that Barry has not done nearly enough to control and regulate business. Well, there is another thing that has not changed – his inability to understand the inevitable consequences of a large and powerful government. One of his favorite subjects is “regulatory capture”, which he references obliquely (“regulatory misbehavior”) in his final column, and had columns discussing very directly on 6/24/09 and 11/25/09. Regulatory capture was made most famous by my UofC business school professor George Stigler in a 1971 journal article. It is the process by which a small group (relative to the general population) – a “special interest” group – “captures” the regulators to get them to develop regulations or provide subsidies that will benefit the group. These groups can be business firms, labor unions, professional groups, environmental groups, minorities, and many others. They attempt to influence legislators and bureaucrats in both Republican and Democratic administrations.

Unfortunately, it is clear from his columns that Frank does not understand the concept. The fundamental principle that Frank misses is that these efforts are an inevitable part of the democratic political process and personal cost/benefit decisions. There are large benefits to the groups, while the costs are widely disbursed, so there is little incentive for opponents to spend time or resources to organize. Frank seems to believe that if we only had better politicians, bureaucrats and regulations, that all would be well. This is a pipe dream. The only way to reduce the use of the coercive power of the state to benefit the few is to have a smaller, less powerful government. That is one of the main reasons that true conservatives support smaller government and less regulation.

I suppose I may miss my blood boiling each Wednesday as I read Frank’s column, and I do welcome debate, dissent and alternative views in the WSJ OpEd pages. However, I hope the WSJ can find a replacement who has some clue about economics and incentives, unlike most of the political class.

Mar 9, 2009 - In Defense of Obamanomics (Laura Tyson)

http://online.wsj.com/article/SB123655553728965955.html#mod=todays_us_opinion

This piece by Obama (and former Clinton ) economic advisor Tyson is flawed on so many levels, I hardly know where to start, but I will try with two points.

First, this is just an amazingly shallow "puff piece" by another Obama cheerleader. She tells us over and over how lucky we are to have "the one" leading us right now. You can almost see her getting weak-kneed (Chris Matthews-like) at the thought of Obama.

Second, her main argument is that Obama's proposed tax rates are similar to those in the Reagan or early Bush years, so what's the big deal? Ignoring the accuracy of this (given bracket creep and nominal income levels), she is referring to absolute rates and completely ignores the direction of the change. Common sense tells us (and research has shown) that direction matters - an increase in the marginal rate to 36% from a lower rate will reduce incentives to work, invest and take risks, while a decrease to 36% from a higher rate will increase the incentives. As a highly educated and accomplished economist, Tyson knows this, but she instead tries to confuse us with lots of numbers that miss the point.

For some government (SBA)-sponsored research on the effects of tax rate changes on entreneurship, see http://www.smallbusinessnotes.com/aboutsb/rs252.html

WSJ Letter - March 3, 2009

Congressional outrage over the Northern Trust Open is a great example of the pernicious effects of coercive government intervention in the private sector.
Northern Trust, one of the healthiest of the major banks, did not need or request government funds, but agreed to take a relatively small sum ($1.6 billion) along with all major banks as part of Treasury's arm twisting. Its thanks for playing ball is to be lambasted by John Kerry, Barney Frank and others for continuing with multi-year contractual commitments to the event and related charities, and with longstanding client plans.

The lesson here is that government "help" always comes with strings attached. My guess is that Northern Trust regrets its decision to play ball and would love to pay the funds back right now. Unfortunately, unlike most of the home mortgages that Fannie Mae, Freddie Mac and their enablers in Congress encouraged, this loan comes with a hefty prepayment penalty, so it would be expensive to do so. No wonder a number of governors are thinking twice about accepting "help" from Washington.

Paul S. Detlefs
Glenview, Ill.

My New Blog

One of my favorite things to do is to read the OpEd pages of the Wall Street Journal. After getting a Letter to the Editor published on March 3, 2009(http://online.wsj.com/article/SB123604724174015715.html#mod=todays_us_opinion), I decided I would create this blog to comment on WSJ OpEd pieces. I hope you will read it and join the discussion.

Paul Detlefs