Why Isn't the Economy Worse?

"Indeed government was mistaken when they overturn the Glass-Stegal Act that more tightly regulated who could gamble with the backing of the taxpayers money."

Actually, no. Whether there was a Glass-Steagall act or not, government created the conditions in which it allowed banks to lend more and more money to high risk individuals. On top of that, Fannie Mae and Freddie Mac would not have been covered by Glass-Steagall.

"We should go back to the that act and more. We should seperate our economies into two groups. One that acts on complete free market principles with no rules or backing of the US government and one that has well regulated rules and is allowed to borrow from and be backed by the government."

See above. Your lack of understanding of these issues is what is revealed to be foolish.

Chris of AZ @ Jul 22, 2008 19:02:48 PM

"Of course, in your analysis, you seem to forget to mention that government is probably the biggest concern that has created this mess."

Indeed government was mistaken when they overturn the Glass-Stegal Act that more tightly regulated who could gamble with the backing of the taxpayers money.

We should go back to the that act and more. We should seperate our economies into two groups. One that acts on complete free market principles with no rules or backing of the US government and one that has well regulated rules and is allowed to borrow from and be backed by the government.

I'll put my money in the latter every time. The free market fools have shown themselves to be scoundrels and oppertunist everytime. While good regulation and oversight leads to steady growth and shared prosperity.

muirgeo of CA @ Jul 22, 2008 18:21:32 PM

"Government intervention to "socialize the losses" distorts the markets the banks made for themselves anyway. Yes, government may have had a hand in the mess by maintaining artificially low interest rates but the banks chased them it the bottom. Can't blame government for that. Look at the rates now, they're low, but you and I can't get a rate as like that. That's the market working."

Yes, you absolutely can blame the government for this moral hazard. They created with artificially low rates and low reserve requirements. In the absence of these two things (among many others), banks would've behaved more rationally. If the market were functioning the way it should, people who didn't have the means to pay wouldn't be given loans. But that was also railed against as not being "compassionate" for minorities and low-income borrowers.

Chris of AZ @ Jul 22, 2008 12:50:03 PM

private profits, private losses

"Pray tell, sir, how socialism will address this alleged malady?"

I believe his point is the government should have kept out of the crisis and let those banks fail. Banks argued for deregulation, they got it, and they hung themselves with it. Long live the rope.

Government intervention to "socialize the losses" distorts the markets the banks made for themselves anyway. Yes, government may have had a hand in the mess by maintaining artificially low interest rates but the banks chased them it the bottom. Can't blame government for that. Look at the rates now, they're low, but you and I can't get a rate as like that. That's the market working.

jason of MA @ Jul 22, 2008 12:21:04 PM

Action, my friends, not just words

As those dumb McCain ads say, "Don't just HOPE for better" (economic policy), "VOTE for it". Vote for Obama and a Capitol building full of Democrats. They, in mass, are what you've been missing since Art Laffer started drawing graph pictures on napkins to impress the followers of Ronald Reagan.

The absence of a full slate of Dems is the single reason you now find yourself watching Bernanke printing electronic money (and diluting your real money) faster than Danica Patrick goes around a racetrack.

Yes, we can. Obama 08.

Daniel David of NM @ Jul 22, 2008 11:59:24 AM

Perspective

If you make more than $26,000 or your household takes in more than $50,000 ... you don't know how the other half lives (e.g. whether they feel wealthy enough to go to Starbucks). If your household is in the $100,000 bracket that starts worrying about the AMT, you might not realize how the other 80% of the country is doing.

I don't know about muirgeo, but I think we are seeing right now how "socialism" (the US version) would deal with this situation. Name calling will not change the fact that the main argument is the balance between how much Government gives to corporations or individuals (either in cash bailouts or tax policies), and whether to borrow the money from our kids or pay for it now. After all, its not like McCain will undo the Bush increase in Medicare, nor will Obama end support for the banking system.

Similarly, that graph muirgeo pointed to would be much more interesting if it highlighted when the 1991 Bush tax increase took effect and when the (even bigger) tax cut was implemented. I have long argued that Clinton and Gingrich benefited from the price paid by GHWB and the 1992 Congress, but still deserve credit for not repealing it.

Jim of FL @ Jul 22, 2008 11:59:10 AM

"Quite simply the system privatizes profits and socializes the losses. Any supporter of this system claiming to be for democracy and competitive markets is an uneducated bogus self-deceiving ideologue."

Pray tell, sir, how socialism will address this alleged malady?

Of course, in your analysis, you seem to forget to mention that government is probably the biggest concern that has created this mess. Yet, you probably won't mention government because that is your answer to the problem. However, the very people you state are the problem anticipate your answer all the time because they seek to have legislation passed that either tries to bring equity to the market (by decreasing the competitive advantage of competitors) or by erecting barriers that prevent entry into the market in the first place. If you need any proof just ask the 19 companies that are approved speculation in the ridiculously named "Stop Excessive Energy Speculation Act" and those that aren't.

Chris of AZ @ Jul 22, 2008 10:53:18 AM

Another Theory

I think Jame's take that standards of living have improved are spot on. You not only have to include the change in wages in the analysis, but also the pricing of consumer goods. One great way to measure this is to look at the purchasing distribution of luxury goods. It hasn't just been millionaires buying Starbucks coffee (and at $4 - $6 dollars a cup it is definitely a luxury item) for the past 10 years.

As to why the downturn has not affected the "main street" economy I have a slightly different take. Most of the run up in stock values (the primary driver of wealth creation in the past 25 years) was due to the creation of new financing and investment vehicles. I think that these vehicles were poorly understood by those buying and selling (look at MBSs). This created a bubble in the valuation of these vehicles, and since these were all paper transactions, the subsequent devaluation has resulted primarily in the financial sector feeling the crunch. It hasn't imacted the broader economy because these vehicles have little impact on the operational efficiency of creating, distributing, and selling widgits or services, which is what the real economy is about anyways.

Stuart of AR @ Jul 22, 2008 09:37:55 AM