In 2008, many conservatives opposed the bank bailout. Why send $700 billion of hardworking Americans' taxpayer dollars to banks that had failed? Some of us argued it was unfair. Some of us argued it was unnecessary. But among the strongest arguments we made was the moral-hazard argument. Bailing out reckless behavior today will only encourage reckless behavior in the future.
I continue to believe we were right to worry about the bad lesson the bank bailout would teach financial institutions. But in hindsight, we should have also focused on what it would teach others. All across the United States, in high school study halls and college dorm rooms, more than a few young Americans were watching Congress, the President, and Wall Street.
Any parent with children knows that when they are watching what you do, they are learning from what you do. If you swear, they will learn to swear. If you cut corners, they will learn to cut corners. The young learn the habits of the old – for better or worse. more >>
There's an old saying that all politics is local. If that is the case, it should follow that local politicians should be among the best informed, armed with iron-clad facts as they weigh in on issues that affect not only their areas, but the nation as a whole. The U.S. Conference of Mayors, however, has generated some confusion recently by throwing their support behind the embattled Export-Import Bank of the United States – apparently on the strength of some questionable data.
The group has supported the bank in the past and passed a resolution in favor of renewing Ex-Im's charter last June as the debate over the it's reauthorization raged in Congress. At that point, politicians from both parties along with a number of groups and individuals outside government were questioning the necessity of this eighty-year-old institution to the American people.
The bank is supposed to provide funding to facilitate deals between U.S. and foreign companies so that American products can be exported overseas. In practice, this has often translated into a government institution picking winners and losers. Ten large corporations, for instance, end up receiving more than half of Ex-Im's total funding. One of these, Boeing, received more than $8 billion by itself. more >>
A temporary timeout was called this week in the on-going Greek debt tragedy. Euro-zone officials and Greek politicians agreed on Friday to a four month extension of the default deadline to give themselves more time to find a solution to the intractable problem that the Greek government owes more debt than it can pay back. This exercise in can-kicking spurred me to read the 1977 book, Democracy in Deficit, by Nobel Laureate James M. Buchanan and Richard E. Wagner. I'm interested in their insights into how western democracies have gotten themselves into so much debt, and if they see a possible path out of the woods. I'm only five chapters into the book, with seven to go. But already, the authors have revealed the complete change in the mindset of western society wrought by the economic ideas of Lord Keynes.
Buchanan and Wagner describe the mindset of the public, including government officials, prior to the ascendancy of Keynesian economics. They call it the Old-Time Fiscal Religion, an appropriate description for the commonly held and faithfully adhered to principles of public finance, prior to the Keynesian revolution. As they briefly describe the old "fiscal constitution", it had three main principles.
First, frugality in public finance was considered a virtue, and profligacy was not. Calvin Coolidge was our last truly frugal President, although President Eisenhower might qualify as frugal (there were three years of budget surplus in his eight years in office) when compared to the record of Presidents since he left office. more >>
Recently released statistics say that the percentage of adults younger than 30 who own a private business is the lowest in a generation. Today only 3.6% own a stake in a private company, compared to 6.1% in 2010. Even more troubling, this number was 10.6% in 1989.
This trend of a lost generation of entrepreneurs has profound implications for the growth of our economy. John Davis, chair of the Families in Business Program at Harvard Business School, worries that this trend will cause the U.S. economy to be less vibrant. He calls the plunge in business ownership a "worrisome finding."
We have a generation averse to risk and hard work. More of them want a government job or a disability check. Forty years ago we rode dirt bikes and bumper cars, our popular rides of choice, at the county fair. Today, the most popular rides are those motorized carts at Wal-Mart. more >>
The Dow Jones Industrial Stock Index started the week on Monday, January 26 standing at 17,672.6, where it had closed the previous Friday after a 141.38 sell-off. Monday morning it lost another 100 points, but by the end of the day it had recovered and was up 6.1 points. On Tuesday, the Dow Jones Index lost 291.49 points. On Wednesday the index lost another 195.84 points. Thursday seemed brighter, with the index moving up 225.48. Alas, the Dow Jones Industrials fell 251.9 points on Friday, to end the week at 17,164.95, a loss of 513.75 for the week, and a loss of over 650 points if you add in the previous Friday.
To put these numbers into perspective, the Dow would have to rise an average of 27 points per week to gain an 8% return for the whole year, close to its historical average return. The last six trading days wiped out nearly a half-year of average gains.
There are many explanations. Oil prices, Fed statements, European currency moves, elections in Greece, violence in the Ukraine, etc, etc. But these are not satisfying to the average Sally and Joe. They just want to get off the roller coaster, and find a safe place for their retirement savings. They would just like to earn a little more than inflation, to improve their life in retirement. more >>
The overarching theme of President Barack Obama's Tuesday State of the Union Address was that his first six years as president have been a success. Do his claims match reality?
The White House intentionally asked that the address take place on January 20 so it would mark the six-year anniversary of his first State of the Union. Obama then began the speech with a remark that recalled that address. more >>