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September - October 2008

Re Con 1 - Class

Re Con 2 - Palin KOs BO

Re Con 3 - McMaybe

Financial Market Turmoil


Wednesday, September 3, 2008

   Re Con 1 - Class - What a difference a week makes!  While the Dems talked the talk all of last week, after the "first" night of the GOP convention, all I can say is they certainly walked the walk.  Technically, it started with the all-but-canceled first night (Monday) - due to the Gustav goose egg - when Laura Bush and Cindy McCain exhorted convention-goers and television viewers to contribute to various hurricane relief funds.  But, Tuesday night's show was an exercise in class, from the video tribute to Navy Seal Mike Mansoor to the keynote comments of Joe Lieberman ("I'm here to support John McCain because country matters more than party."), I thought that the tone was just right.

     President Bush gave an effective speech, but it wasn't especially rousing.  Fred Thompson, on the other hand (pictured to the right) was in top form, detailing John McCain's wartime experiences and telling the audience that McCain has "character you can believe in."  I thought it was quite powerful, as I did not know much of the details of McCain's imprisonment in the Hanoi Hilton (except that he was and it was for many years).  Unlike his performance at the Defending the American Dream Summit last fall, Thompson was lively and engaged.

     While Obama was not often identified by name, I thought that the subtle dismantling of the aura that surrounds him was masterful.  When Laura Bush talked about Cindy McCain's trips to various world hot spots, all over just the last eight months, Obama came off looking even more superficial.  And, the unrelenting criticism by Lieberman, the Dems Veep candidate of just eight years ago, were stinging.  Well, my view is that Obama entered into the race thinking he would lose to Clinton, but that he'd have created a national following that would propel him into the White House in 4, or 8 years.  In an odd sort of way, it is unlucky of him to have beat Hillary!

Thursday, September 4, 2008

   Re Con 2 - Palin KOs BO Day two of the Republican convention took off right where the first day ended.  [Technically, this was day 3, but since day 1 was shortened to about a half hour, due to hurricane Gustav, it hardly counts.]  I caught most of Michael Steele's speech - I still think he would have made a good veep choice.  He extended the whole "country first" theme to its logical, and untenable, conclusion - country, community and family before self.  Yeech.  This flies in the face of "individualism" and I can't imagine that many true conservatives would really embrace this altruistic notion.  Indeed, there is an inherent paradox here - why do we extol the sacrifices made by others in the name of country, community and family?  Usually, it is so that others can pursue their own self interest.  Hmm . . .  The ultimate goal of any sacrifice must be that the individual is important.  That doesn't mean we can't honor sacrifice, nor that we can't actually sacrifice ourselves.  But, let's not lose sight of the true purpose.

     Mitt Romney was OK, but not his usual self.  The quip about keeping Al Gore's private jet on the ground was a good one, but we've heard this before.  Mike Huckabee was personable and his defense of the notion that not all conservatives are rich was well done.  His best line was about how Sarah Palin got more votes for mayor of little Wasilla, AK than Joe Biden got running for President.

     Laura Lingle, governor of Hawaii, was fine, but not an especially rousing speaker.  Rudy Giuliani was looking quite comfortable at the podium and relaxed as he goaded the crowd with his commentary against Obama.  Finally, we have heard from someone that has taken Obama to task for promising to use public financing for his campaign and then changing his mind on that - for obvious reasons.  Rudy's litany of how Obama had broken many promises ended with this snortler: "If I were Joe Biden, I'd want to get the VP thing in writing."

     The highlight, of course, was VP nominee Sarah Palin.  Her speech was nothing less than a knockout, especially considering that reports out today say that her teleprompter was malfunctioning midway through her presentation.  She came across as just a regular person, but one that can see through all the smoke and mirrors of the campaign.  From her blasting of the media to the shallowness of Obama, she was on target and has really made a great first impression.  Her digs at the Obama campaign's denigrating her tenure as mayor of a small city was being played over and over again on TV ("I guess it's kind of like being a community organizer, except with actual responsibilities.").  She did a good job of telling the audience about herself, and a good job of talking about McCain.  If one were to look at the speech not knowing anything about the current political landscape, you'd bet a great deal that she had been a well-regarded national politician for some time.  Not yet, but it seems she will be.  In fact, my wife opines that she can easily see Palin as President down the road.  We'll see.

Tuesday, September 16, 2008

   Re Con 3 - McMaybe - Although almost two weeks have passed, and numerous events have unfolded (Ike, lipstick on a pig, non-debate on service, 9-11, et. al), it seems like just yesterday the Republican convention was wrapping up.  So, past time to comment . . .

   Speeches by Lindsey Graham and Tom Ridge were, well, not especially riveting.  I found that my attention was easily diverted and missed a lot of the specifics of what they were saying.  But, they weren't the main course anyway.

     The video on Cindy McCain was well-done.  She has an interesting background, and her experiences around the world are quite inspiring.  Likewise, the video on John McCain was powerful and had its moment of humor - "John McCain is" . . . (somber music) . . . "a mama's boy" (cut to his mother).  I don't recall the same kind of easy-going humor at the Dems convention.  Did I miss it?

     McCain's speech was strong and I give him lots of points for style.  He shrugged off the protesters well enough ("Ignore the ground noise and static."), who did a good job of making fools of themselves and their worthless cause.  His rhetorical flourishes - "Change is coming" and "We believe ...," and "Stand up; Stand up" - were comparable to the skills exhibited by Barack Obama, which I didn't think would be possible.

     As to the substance of McCain's remarks, I give him a resounding "McMaybe."  He was clearly appealing to the middle ground, which he must do in order to win the election.  Post-convention data show that he actually had a bigger audience than Obama, which is a shocker.  The nuts and bolts of his speech included the following:

"We have the strength, experience and backbone to keep our word." - Yes, an excellent point.  Nobody seems to make much of the fact that Obama is not going to get his way with Congress and is likely to change his mind on a number of issues (either further to the left or further to the middle).  I'm not sure that is a bad thing, but McCain is spot on with this remark.

"The first big pork barrel bill that comes across my desk will get vetoed."  - Good, but it does beg the question of what "big" means.  Still, I think he is honest in steering a much different course than G. W. Bush, but, then, he is likely to have to deal with a Democrat-controlled Congress, so he can afford to be more confrontational.

"We need to help workers whose job won't come back find a new one that will stay." - Yikes!!  This is the Republican convention, isn't it????  And, by the way, no job will "stay" over time.  It isn't the nature of our economy.  Don't workers have an incentive to acquire skills that will be demanded over time?  I really don't know where he's going with this one.

"Education is the civil rights issue of this century." - Well, it all depends on what he means.  If he wants to dump the Dept. of Education, then "Yes."  If he want to end the socialization of education, then, "Yes."  If he wants to increase government spending here, then "No."  He talked about competition and choice, but I have this sinking feeling that this isn't really where this issue is headed.

He promotes an energy plan that will "create jobs." - Impossible.  Any government program in this regard will only rearrange the economic landscape.  It can't add to growth, and, more likely, it will take away from growth since resources are redirected in ways inconsistent with market outcomes.

"Nothing brings greater happiness than to serve a cause greater than one's self." - Well, maybe.  If he feels this way, then fine.  But, it can't be the touchstone of our society.  Down that road leads totalitarianism.  We have a country that is premised on the "pursuit of life, liberty and happiness," not one devoted to service to the state.  His remarks at the forum on 9/11 were unambiguous - service is a voluntary matter, not a mandated one.  That make's me feel a bit better.  Still, his campaign theme - "Country First" - does not resonate with me.  We don't fight for a place; we fight for the ideals of a place.  The terrorists of 9/11 weren't attacking just some place when they ran those planes into the World Trade Center; they were attacking American ideals - liberty, freedom, markets.  As I listen to John McCain, I'm not always sure that's what he means.

Tuesday, October 7, 2008

   Financial Market Turmoil - With the recent turmoil in financial markets, and given my relative advantage in this area (I have been teaching a course in "Money & Banking" the last four years), I asked the editor (Randy Wilson) of the Daily Sun if he would be interested in an editorial on the topic under their "Coconino Voices" banner, which is an irregular platform for locals with expertise to spout off about things they know something about.  He was enthusiastic about this, and even though I finished it off on Friday (10/3), he got it on the main editorial page for Sunday.  While it has been a couple of days since then, surprisingly there are no web comments on my opinion piece.  That seems odd, although Randy told someone else that he did expect to see some letters come in on my editorial.  We'll see.  Still, my colleague Doug Brown, who is quite the polar opposite of me insofar as politics and economics goes, told me that he was asking his students to comment on my piece as part of a homework assignment.  So, that's good news and I'll be interested in hearing how they react to it.

Controlling financial markets a fatal conceit

'For the sins of the father you, though guiltless, must suffer," wrote the Roman poet Horace.  Today's financial turmoil has its roots in the Great Depression of the 1930s.  We have been suffering, and continue to suffer, the sins of our fathers. And the suffering isn't over yet.

The real sin of the Great Depression era was the notion that political control of the marketplace would curb "capitalism's excesses" and distribute long-lasting wealth more evenly.  This experiment was a colossal failure -- our economy went through the 1930s with an average unemployment rate of some 15 percent.  And, the sins of this grand experiment continue to be visited upon us.  That's why there was a savings and loan debacle in the 1980s.  That's why there are huge investment banks that can't diversify their activities, putting them at greater risk of collapse.  Although much reform has taken place recently, we have seen continued efforts to regulate financial markets, from requiring firms to make risky loans (because it's nondiscriminatory) to using oddball accounting rules for valuing highly illiquid assets (mortgages), wrecking balance sheets and casting a pall of uncertainty over credit markets.

Why do we care about credit markets?  Well, our economy runs more smoothly, and our standards of living rise more quickly the more robust is the credit market.  The business world constantly faces cash flow problems -- the outflow of expenses is hardly ever matched, on a timely basis, with the inflow of income.  Farmers, for example, earn all their income at harvest time, yet need to incur huge expenses months in advance if they are to have a crop.  Retailers do a huge volume of business during the Christmas season, yet they have expenses to pay on a regular basis throughout the year.  A freeze on credit will disrupt production, boost unemployment and can send us into a recession.  That is why there is so much concern about financial markets today.  We don't yet have a recession, but that will not last if this problem is not remedied.

Our most immediate problem is the sea of poorly priced home mortgage debt.  This also has roots to Great Depression-era policy, when Fannie Mae was created, as a government agency, to redirect capital to home building.  Years later, Fannie was demoted to the status of "government sponsored enterprise," which combines the worst of the political and economic world -- it is a private firm, with private owners, but its debt is guaranteed by the government, so it can ignore the normal constraints of market discipline.  Later, Fannie got a brother, Freddie Mac, and together they own nearly half of the mortgage debt in the U.S.  They sold bonds to raise money to buy mortgages, which they could pool together in order to sell more bonds.  It's actually a creative and innovate way to promote liquidity in an otherwise illiquid market.  But, with no market discipline, and a keen desire to satisfy political demands, these institutions have propelled us into this current crisis.  As Ron Paul wryly observed recently, if Fannie and Freddie are the culprits in this mess, wasn't it foolish of Congress to charter them in the first place?  Of course it was, but mostly you hear opinion makers chattering about Wall Street greed, which is not the root problem.

What of the future?  Once the dust settles from this current massive government effort to establish liquidity and stability to financial markets, the task of restructuring the market landscape will begin.  And, that's when we will see whether we have learned anything from history.  The worst thing that can happen, and as of right now, the most likely thing to happen, is that there will be a new wave of regulation, oversight and control.  If we ratchet up the regulatory state, we will guarantee yet another day of reckoning as our children bear the sins of their fathers.

If you think this financial turmoil is the end of the story, think again.  We have yet to deal with the collapse of Social Security, yet another grand experiment of the Great Depression.  That will be a calamity.  And, then there is the Medicare time bomb.  When it goes off, I shudder to think of the consequences.  If change is coming, it better come quickly and it better be the right change.  Let's keep our fingers crossed and hope that Hegel was wrong when he opined that the only thing we learn from history is that we don't learn from history.

Dennis Foster has a Ph.D. in economics, has taught money and banking classes at the university level since the 1980s. He encourages readers interested in the Great Depression to read Amity Shlaes new book, "The Forgotten Man."

     As you can note, the theme here is that there has been too much regulation in this industry and that our current (and future!) problems stem from these regulations, not from "greed" nor from "poor oversight," hence the nod to Hayek with the "fatal conceit" reference in the title.

Friday, October 31, 2008

   Obama-magic - With the election just a few scant days away, the consensus view seems to be that Obama will sweep into the White House.  To some degree, he has history on his side - whenever the economy is doing poorly, the incumbent party is going to get hammered.  And, there is the "Obama-magic" at work here - his sterling articulation and rhetorical flourishes have marked him as a singular politician.  He has leveraged these, admittedly superficial, traits into boatloads of money and was able to convince Dems during the primary season that they could, in good faith, vote for someone from the fringe of their party.  So it goes with liberals - they hardly ever say what they mean, and tailor their message to fit their crowd.

     It seemed quite clear to me that Obama represented a "Socialism Lite" platform.  I listened to his speech after the Iowa caucus, and was bowled over by the array of empty promises - more money for X, Y and Z.  It was as if one could just wave a magic wand and make everything good and whole.  Well, I was convinced of one thing - Obama could never win the presidential election.  He was just too far left-of-center-left.  And, I thought his thin record would work against him.  Instead, just the opposite has been true.  The fact that he doesn't really have a record means that he can pitch his rhetorical skills at the political center without fear of contradiction.  This, coupled with a media that has largely lost its way insofar as political reporting goes, may well win the day next Tuesday.  It's not a done deal, but it seems close to being one.

     If Obama wins, I wonder who will emerge on the other side of the inauguration?  Will it be an Obama that really does want to be adored by the masses?  He does seem to have a narcissistic side to him.  He may well spend the next four years playing the center and pushing only a mild liberal agenda.  Although, with Congress firmly in the hands of the Dems, he may find that he has to check their drive to increase control, add to the regulatory state and push taxes into the stratosphere.  This Obama will emerge only if his self-absorption for favorable ratings and a desire for a "place in history" overwhelm his leftist leanings.

     The other Obama is the ACORN trainer, the "spread the wealth" socialist, the political change agent.  This Obama is likely to want to embark on a "Newer Deal" course that will create economic havoc and wreck the political left in the years to come.  Although, he will have his hands full with the coming recession, and I am sure that he will get his "honeymoon" free ride for the first few months, we may see the glow fade rapidly from this kind of an Obama presidency.  If he champions a return to Glass-Steagall, a return to more protectionist trade policies, the enactment of social welfare programs that will exhibit huge amounts of fraud and waste, a return to the oxymoronic "fairness doctrine," and the promotion of government work over private work, we will likely see huge conservative gains in the Congress in two years, and a one-term Carter-esque collapse of his administration.  Anybody ready for a Sarah Palin - Ron Paul ticket in 2012?

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