Laffer: The end of prosperity
Monday October 27, 2008
Categories: Economics
Arthur Laffer, the eminent supply-side economist, lays out a grim verdict on the government's reaction to the economic crisis, in today's Wall Street Journal. Excerpt: These issues aren't Republican or Democrat, left or right, liberal or conservative. They are simply...
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About Crunchy Con
Rod Dreher is an editorial columnist for the Dallas Morning News, and author of "Crunchy Cons" (Crown Forum), a nonfiction book about conservatives, most of them religious, whose faith and political convictions sometimes put them at odds with mainstream conservatives. The views expressed in this blog are his own.
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I'm going back to bed.
Apparently Senator Obama has his own plan to take America's prosperity to a place it has never gone before. In 2001 he said:
article.nationalreview.com/?q=YmFhYzIzMGQ1Y2FlMTA4N2M1N2VmZWUzM2Y4ZmNmYmI=
So, this is the kind of "Constitutional Law" that Senator Obama has been teaching, eh? It sounds like something the Founding Fathers rightly feared.
I guess he'll eliminate poverty by leveling the paying (sic) field.
No wonder Biden snipped at that reporter who asked him if Obama's plans were "Marxist." The truth hurts.
I hope that those who vote for Obama will be happy with the above if he wins.
What's fascinating about the above link/story is, as the story says (see the section entitled THE SECOND CIRCLE OF SHAME), it was uncovered by a single interested citizen, not the press with its hordes of fact-finders and scandal-searchers.
I wonder why Hillary & Co. didn't pursue Obama's Marxism during the primaries? Would it have won her the nomination? Or would she have been attacked as being "racist"?
Go look up Marxism. By your definition, then Eisenhower and Nixon were Marxists. Taxes always redistribute money, often to the benefit of the wealthy. Part of politics is deciding the distribution. Frankly, this stuff is so bizarre. Just a backhanded way fo accusing someone of being a communist. If you want to make those kinds of accusations, at least do some basic reading.
Steve
Okay, steve, then I'll call it Obamism. But his view of the federal government and the role the court should have played in dictating and controlling via the federal government the lives of Americans is to me the bizarre thing, not charges that he's Marxist. Anyway, per Wikipedia:
While there are many theoretical and practical differences among the various forms of Marxism, most forms of Marxism share these principles:
1. a belief that capitalism is based on the exploitation[3] of workers by the owners of the means of production
2. a belief that people's consciousness of the conditions of their lives reflects the dominant ideology which is in turn shaped by material conditions and relations of production
3. an understanding of class in terms of differing relations of production, and as a particular position within such relations
4. an understanding of material conditions and social relations as historically malleable
5. a view of history according to which class struggle, the evolving conflict between classes with opposing interests, structures each historical period and drives historical change
6. a belief that this dialectical historical process will ultimately result in a replacement of the current class structure of society with a system that manages society for the good of all, resulting in the dissolution of the class structure and its support (more often than not including the nation state)
The only place Obama seems to differ from the above "Marxism" is that he isn't willing to let the dialectical historical process run its course and bring these things to pass. He wants to instigate and initiate them. He not only wants to get the ball rolling, he wants to keep pushing/rolling the ball, with him riding on it.
As they say, "All animals are equal, but some animals are more equal than others."
Hail Groucho Marx! Hail John Lennon!
Lord, have mercy.
Yes, Ericw (like wbush) is either one of this countries many hundered billionares (doubtfull if he has time to post such comments) or he wishes to continue the giving all the breaks and second chances to the wealthiest of americans while the poorest have to both work until they die in debt while paying for the whims and mistakes of the rich.
Blah Blah Blah ericw. You can't get rid of all the poor by sending them to war.
"Frankly, this stuff is so bizarre. Just a backhanded way fo accusing someone of being a communist. If you want to make those kinds of accusations, at least do some basic reading."
Not really--enacting "positive economic rights" within our Constitutional structure is what is bizarre. This would be completely unprecedented in our history. Our constitutional system enshrines negative rights, meaning things the government cannot do to you. The legislature traditionally has made policy decisions regarding what the government will do "for" its citizens.
Getting back to the original topic of this post - does it not matter how you define 'prosperity'?
If you need a 5,000 square foot home to feel prosperous, then this economy might mean a (temporary) end to affordable prosperity. If you, like myself, are happy in a 1,000 square foot home then your sense of prosperity will not be diminished.
Seems to me a better title to this piece would be "The end of unaffordable luxuries purchased on borrowed money"
Why don't we stay on point, Dan, and discuss ideas instead of acting like a bunch of little catty junior high girls?
Although Laffer has that dramatic closing line, I don't see him marshalling much supporting evidence for it.
His criticisms of the Bernanke et al's efforts would be more convincing had he demonstrated that we'd be truly better off without them.
As for "Financial panics, if left alone, rarely cause much damage to the real economy", ISTR the Asian Contagion of a decade ago causing considerable (short-term) damage to the economies in question.
Okay, on topic:
Laffer's grim scenario seems plausible, and his reasoning reasonable. Which is why any efforts by President Obama to increase taxes and redistribute wealth will only do more damage, IMO.
Chrysler sent email pink slips to its work force. 25% of its workers - 5,000 jobs - will be gone after December 31, 2008.
I don't think ANYONE knows what government intervention will do, or what kind of government intervention is best, but I suspect what Congress does - whether in its own infinite wisdom or in order to put out fires in constituents' yards and keep the angry mobs at bay - will in the long run cause more long-term damage, even if it helps a few people in the short term.
I think I'm relatively safe - i.e., able to maintain food, shelter and clothing and some pleasures. Not sure. I don't think my kids are going to do well job-wise and finance-wise over the next 10 years, though. Which means it will hit our pocketbooks, too.
Oh, and Laffer was so right the last time, ha ha. Isn't he the one with the curves?
In this comment, Laffer seems clearly wrong:
"Giving more money to people when they fail and taking more money away from people when they work doesn't increase work. And the stock market knows it.
The stock market is forward looking, reflecting the current value of future expected after-tax profits."
The decision of the government not to intervene with Lehman, not to intervene, is what set the markets reeling. By his reasoning, the reverse should have occurred. Contrary to what he says, the markets were counting on a government bailout if things went sour.
The topic of government intervention is extremely complicated, so, although I tend to agree with his general position of small government, the current crisis is simply too complicated for nostrums.
There is much to be examined from EricW's invoking of Marxist ideals. Eric, I do wish you'd acknowledge that the core observations of Marx are accurate. Capitalism does result in the accumulation of wealth amongst the few at the expense of the many. What is wrong about Marxism is the conclusions it draws that are then used to devise and implement "solutions". I'm with you on that part.
What is prosperity, and who gets to define it? That, for me, is the primary question.
The capitalist ideal of prosperity is infinite increases in profits. Bad times are defined as the inability to maintain that curve. We are buried in hyperbole (the panic Laffer wants us to be afraid of) that forces us to see profits (a good thing) in a bad light simply because they are (by some often arbitrary measurement) less than last year or less than expected.
The harsh reality is that capitalism is a zero-sum game. Our current ills are a direct result of attempts to deny that reality by creating fake wealth. When everyone is convinced that personal wealth is the only criterion of success, then having enough and being comfortable becomes failure, and having to cut back on anything, let alone luxuries, is seen as evil.
I will likely never come to much agreement with conservative philosophy in the general sense. However, I find Crunchy Con to be the sanest and most accurate take on the psychology of prosperity currently existing, and I do not hesitate in affiliating myself with it. It stands squarely in the muck between the ideals of Marxism and capitalism. It deals with reality. The rest, while fun to debate, is secondary.
I think people are panicking over nothing about this upcoming recession. It is mainly being caused by lack of imaginary money that was used for a bunch of stuff, and that disappeared because banks are both easily-panicked and morons.
As soon as some responsible banks step up, the recession should be reduced greatly. Yes, a lot of people lost their savings that they stupidly invested in their house, and a lot of people lost their house which they stupidly overbought as an investment, cleverly combining two financial disasters in one.
But those are personal disasters. As long as it doesn't all happen at once, and as soon as banks stop not loaning money, those houses will end up back on the market at greatly reduced prices, where other people who have lost their homes can buy them, or at least rent them.
I'm not really seeing what's going on right now in the financial world as leading to a nation-wide recession. The recession we're having started before all that, in fact the collapse was triggered by the fact that housing prices stop climbing, which they did because of the recession in the first place. The financial collapse will make it harder to get out of, but it is not the end of civilization, it is the 70s.
And, incidentally, that Obama quote doesn't say what EricW is trying to make it say. Obama said the court wasn't as radical as people think...and that's it. He didn't say he wanted it that radical, in fact, he immediately said that the civil rights movement was focused a bit too much on the court, which resulted, in the end, in black people having all the rights of other Americans...but the right to eat a lunch counter doesn't grant the ability to pay.
People can certainly point to it as an indication of his 'redistribute the wealth' tendencies, which is obvious as he uses exactly that word, but he says nothing in there about what he would do with the Supreme Court or what he wished it would do during the civil right's movement. In fact, he says what it didn't do, and, because it didn't, he thinks people would have been better off operating in places besides the court, which rather indicates he had no problem with the court's behavior at all.
The harsh reality is that capitalism is a zero-sum game.
Sorry, I have to strongly disagree with this, and I speak as an Obama supporter. Capitalism is not zero sum. This view assumes there's one pie that has to be split up, when in reality capitalism allows you to bake another pie.
Of course, there are problems endemic to capitalism. That's because it's the worst economic system going except for all the other ones. ;)
For all those who think Obama is going to destroy things, I remind you that similar things were said of Clinton in '92.
If you don't believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they'll do with Wall Street.
- Mr. Laffer
Given the performance of the people who have been running Wall Street lately, I don't honestly see how Barney Frank can do any worse.
- me
Derek, I made a sweeping generlization. Such statements are inherently flawed when one attempts to apply them to particulars. Your point is well taken, but I don't see it as disagreement so much as a particular that needs further examination.
If one views (as a logical premise, mind you) people as the core, raw material, then zero-sum is an accurate description. Seeing them as the whole of the pie is, I readily grant, a flaw, but I don't hold that view either. Capitalism and Marxism is about utilizing (and exploiting!) them. Extending your metaphor, it's not that we can (and do) bake more pies, it's that we are thinking that phantom pies can be eaten. A mud pie is still mud. I can still use it to make bricks. That it is no longer in the shape of a pie doesn't change the reality that mud has no nutritional value.
Debt is mud in my version of the metaphor. We've been thinking that not only does it have nutritional value but that it tastes good.
Old Susan, you don't seem to realize that Frank and Dodd and Schumer ARE Wall St. reps, through and through. And the lightworker himself has taken 22 million from Wall St.
Wall St. runs America, period. Our leaders on both "sides" are shills for corporations. If you follow the money there is no other conclusion to be reached.
You need to read more.
Read up on Frank and his GSE boytoy...
DavidTC:
On second reading, I think I agree with you. Obama is, at least in the excerpt I posted, stating opinions and facts, not his wish to overturn the Founding Fathers' restriction of government.
I quickly (mis)read it and possibly interpolated my assumptions such that it read or implied that Obama was saying:
I withdraw my accusations of Marxism/Socialism, or fear of an Obama Supreme Court, based on this quote/essay/article. Thanks for taking the time to point this out.
I have to agree with Franklin. I have thought for years that it was insane that the well being of a company or of a country was not just profits or even growth large enough to keep up with a growing population, but ever increasing growth. Look at how many stocks have been hammered over the years not for failing to be profitable, but for not increasing profitability by enough. It leads to bad decision making and dishonesty on the part of companies trying to stay on the right side of Wall St. Just ridiculous.
Given the performance of the people who have been running Wall Street lately, I don't honestly see how Barney Frank can do any worse.
Disagree here. Among the root causes of this financial crisis was widespread neglect of sound loan-underwriting practices. Politicized lending, wherein the 3 C's are discarded in favor of opinion polls, lobbyists become loan officers, & down-payments are replaced by campaign contributions, would institutionalize such neglect. Crony capitalism for real. The resultant economic distortions (e.g., bubbles, zombie businesses) would likely have non-trivial costs.
If publicly-funded recapitalization is necessary, I'd prefer it be done via loans (*) rather than stock. My preference remains a combination of debt-for-equity swaps & net worth certificates (**).
I'm not really seeing what's going on right now in the financial world as leading to a nation-wide recession. The recession we're having started before all that, in fact the collapse was triggered by the fact that housing prices stop climbing, which they did because of the recession in the first place.
Concur. The financial crisis contributes by lowering the risk tolerance of investors & creditors (of which the current credit crunch is merely an extreme); hence less money for financing either capital investment or consumption going forward, and a resultant drag on growth. The other big factor is that Americans can no longer afford to pile on debt (***), such that consumption spending seems doomed to fall (and remain depressed) for some time to come.
(*) clusterstock.com/2008/9/hank-paulson-and-ben-bernanke-please-read-this-now
(**) marginalrevolution.com/marginalrevolution/2008/10/net-worth-certi.html
(***) economistsview.typepad.com/economistsview/2008/09/fed-watch-regar.html
Before everyone bows down before Mr. Laffer, people should watch this youtube video of him in 2006.
http://www.youtube.com/watch?v=LfascZSTU4o
He is on CNBC with Peter Schiff who predicts the mortgage meltdown and collapse. Mr. Laffer, makes a fool of himself talking about how everything is going to be fine, and Mr. Schiff's fears are outlandish.
It is a must see.
Franklin, okay, I see where you're coming from. One thing that capitalism is pretty good at, though, is making lemonade from lemons, er, mud.
Just a few years ago the telecom industry basically melted down with the same mud -- too much debt. Investors lost hundreds of billions of dollars as a result.
The upside is that telecom overcapacity means that broadband prices are much cheaper than they otherwise would be. And because of that, YouTube is a much more viable distribution mechanism.
I dunno if there's any upside to this particular meltdown, but it wouldn't surprise me to see new financial instruments emerge that protect us from such shocks in the future. Despite all the doom & gloom, I suspect this will still pale in comparison to the panics of the 1800s and the Great Depression.
Thanks, me. I sometimes feel like I'm the lone voice in the woods being drowned out by the power saws of the lumberjacks... um, or something similar. ;-)
The new, popular Great American Sport is to keep shooting the messengers until one of them delivers a message that we like, then proceeds to clean up the gore and cart off the corpses. The one flaw in the Sport is that no matter how many shots we take, we can't kill reality.
Derek Scruggs
October 27, 2008 12:54 PM
I dunno if there's any upside to this particular meltdown,
More reasonable housing prices?
Thanks, Derek. In my experience -- having had a ringside seat to some things during the 80s -- "upside" is a subjective function of 20-20 hindsight in the eye of the beholder.
The thing that my eye sees is that no "pure" -ism succeeds, and the ones that are some mix succeed better than others for no discernible pattern other than those with the reins of power sought and found the right balance for their nation-state. While the Soviets and their puppets went about proving how bad communism could be, Tito (Josip Broz) built prosperity in Yugoslavia out of a heretical (to the Soviets) hybrid of capitalism and socialism (dissenters to that view, please remember that all things are relative. Thanks...) and seemed able to keep the strong-arm tactics to a minimum. It wasn't economy that killed Yugoslavia after his death. If anything, it mitigated the grief caused by his successors.
Franklin, I agree completely. China is a current example. Yeah, it's got all kinds of problems, but $10 trillion in debt is not one of them.
What Obama was saying was that the social justice movement was wrong-headed for pursuing their agenda through the courts, because our Constitution isn't designed for that. If people want more redistributionist policies, they have to organize people and pursue those policies through legislative means. How is that Marxist?
Whoops. Sorry Eric, I see you already withdrew your comment.
"I'm not really seeing what's going on right now in the financial world as leading to a nation-wide recession. The recession we're having started before all that, in fact the collapse was triggered by the fact that housing prices stop climbing, which they did because of the recession in the first place."
Do not forget what is happening in the rest of the world. The European banks going belly up also. They have been leveraged as badly, or worse, as ours. Many Asian banks are in trouble. The one strong part of our economy had been our exports. What happens as Europe goes into recession?
There is still not agreement on the causes and cures of the Great Depression. Many think that increased spending by government, and eventually consumers, helped end it. AS MI points out, we are already in debt, so spending our way out may not be so easy this time. In this crisis we face true insolvency, not just lack of liquidity.
Steve
Rod
Do you really have to harp endlessly about the end of civilization as we know it. I'd have thought that the reality of lay offs at your job would have punctured your romantic attachment to scenarios of misery and doom. Surely seeing people you care for being damaged by the economic storm in the newspaper business would cause you to snap out of this line of posting. Your once wonderful blog has become a very toxic read.
It is NOT economics or markets period we had a MORAL MELTDOWN and all the little meetings and stealing more money and putting future generations into finanical bondage will not fix a MORAL problem . No Nation has ever disappeared because they were poor ,but none has survived affluence
Rawhider
Christian: Do you really have to harp endlessly about the end of civilization as we know it. I'd have thought that the reality of lay offs at your job would have punctured your romantic attachment to scenarios of misery and doom. Surely seeing people you care for being damaged by the economic storm in the newspaper business would cause you to snap out of this line of posting. Your once wonderful blog has become a very toxic read.
You don't see the economist who was the architect of the supply-side revolution publishing a piece in the Wall Street Journal accusing the government of botching the economic crisis a la Herbert Hoover as worthy of commentary? Er, wow.
I guess I never will fathom the mindset that sees people who say, "There's a train coming, we'd better get off the tracks" as "toxic" henny-pennies who really ought to be making people feel better about remaining on the tracks.
Obama regrets that the courts were not set up for forcing wealth redistribution.
Maybe if he talked a bit more about wealth creation rather than wealth distribution his detractors would not be so forceful.
Arthur Laffer talked a lot about wealth creation and much was created under Reagan.
If we are short of energy and need more energy, should we be concerned about redistribution of what we have or should we be working to get more energy?
Well, I say the way to solve a wealth or energy or food problem is to have more of it. But then again who am I to know? Obama, the One most are listening to advocates wealth redistribution instead of wealth creation, so I suppose that is what we are going to have; wealth redistribution but not much wealth creation.
I have to wonder about any analysis that describes a stock market low in 1982, the second year of the first Reagan admnistration, as pre-Reagan.
Laffer has been thoroughly discredited. Two years ago Laffer appeared on an episode of Kudlow and Company and ridiculed Peter Schiff for saying that our economy will collapse within two years. Watch the video for yourself:
http://www.youtube.com/watch?v=LfascZSTU4o
Why do you give credibility to an economist who failed to realize he was in the midst of the biggest financial bubble that ever existed?
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