House leaders are now working to direct $1 billion of the state’s stimulus share toward an 8-percent state income-tax cut for the next two years.Of course, state Democrats aren't keen on the idea—because they believe they can spend stimulus money better than the public. It's just typical lefty arrogance.
[..] The new plan would reduce the state income tax rate from 6 percent to 5.5 percent for two years, said House Budget Chairman Allen Icet, a St. Louis County Republican. The cut would apply to earnings from 2009 and 2010.
“At the end of the day, the Missouri taxpayer will be able to put more money in their pockets and decide how it should be spent to stimulate the economy,” Icet said.
40 minutes ago
"It's just typical lefty arrogance." -- that's a pretty dismissive tone to take.
ReplyDeleteactually, as i understand it, the reason why "lefties" favor direct spending as a stimulus measure is because most economists consider direct spending to have a much greater stimulative effect than tax cuts. take a look at this article on The Next Right, which breaks down the relative stimulative effect of tax cuts vs. direct spending measures: http://www.thenextright.com/mead50/spending-vs-tax-cuts-bang-for-the-buck
i would caution you against dismissing alternative points of view just because a particular action might fit into your preconceived confirmation bias of "arrogant lefties" believing they can "spend stimulus money better than the public".
these "arrogant lefties" (and economists, politicians, etc.) might, in the final analysis that it written decades from now, might be wrong. but their policy arguments deserve more constructive analysis than "It's just typical lefty arrogance."
It's typical because the arrogance in question is not multipliers, but who decides what the money gets spent on. Even taking those stimulative effect multiplier numbers as gospel, which I don't, it says right there:
ReplyDeletepayroll tax holiday 1.28
general aid to state governments 1.38
I don't know what the margins of error are here, but that's not a big difference. While it's possible you'd need to spend 7% more to get the same stimulative effect from payroll cuts, stimulus is a short-term consideration and we could afford to run 7% higher stimulus deficits if it would mean the money is better spent in the medium- and long-run.
To my knowledge, what's going to matter in the medium- and long- run is the utility efficiency of what that money was spent on. And for that, I trust individuals more than gov't officials. I don't say this out of bias; economic history seems to bear me out.
The day someone shows me how in general an additional dollar taxed and spent by a gov't the size of ours would make the country more prosperous than in general leaving that dollar in the hands of taxpayers is the day I'll be persuaded otherwise. Until then, I'll stay on the warpath against increased gov't spending and special interests
all i'm saying is that the opposite view deserves a more critical and open-minded analysis than a curt "It's just typical lefty arrogance." seeing things in black and white is what got us into this mess; i.e., taxes = bad, tax cuts = good, government = bad, taxpayer knows best = good, government spending = bad. i have come to know you as a generally rational individual over the short time i've known you around the blogs. only in matters economic have i seen you sometimes rely on familiar old tropes like the one you refer to above.
ReplyDeletebelieve me, brother, i understand where you're coming from. if you read my post on how i lost faith in the gop, you'll understand my current lack of faith in the small-government, less-tax philosophy that carried me through most of my thinking life. i'm not saying that i BELIEVE in a different viewpoint right now -- what i am saying is that much of the edifice that i've built my belief system on over the last 15+ years has largely proved to be an unquestionable failure.
by the way, even uber-rationalist/conservative/polymath/whatever Chicago School Judge Richard Freaking Posner has had an enormous crisis of faith, as evidenced by this excerpt from his latest book:
"Some conservatives believe that the depression is the result of unwise government policies. I believe it is a market failure. The government's myopia, passivity, and blunders played a critical role in allowing the recession to balloon into a depression, and so have several fortuitous factors. But without any government regulation of the financial industry, the economy would still, in all likelihood, be in a depression; what we have learned from the depression has shown that we need a more active and intelligent government to keep our model of a capitalist economy from running off the rails. The movement to deregulate the financial industry went too far by exaggerating the resilience—the self-healing powers—of laissez-faire capitalism."
It's from his new book: A Failure of Capitalism http://www.amazon.com/Failure-Capitalism-Crisis-Descent-Depression/dp/0674035143 . I don't know about you, but I am planning on picking up a copy.
> without any government regulation of the financial industry, the economy would still, in all likelihood, be in a depression
ReplyDeleteI don't know the likelihood and I don't think Posner does either. It's certainly possible.
But to call it a market failure and leave it at
that is a wrong view. Things are supposed to fail in markets, that's how we see what's gone wrong and develop better things. After failures come recovery, and the failure and recovery taken together are what we call a market correction.
Lets not lose sight of how misguided government policies contributed to the crisis. Why do entities like Fannie and Freddie even exist? They've been part of a broader government effort to increase home ownership rates by variously forcing and enticing lenders to give loans more freely than they otherwise would.
This is far from the only cause of the crisis--there were other things that went wrong, such as the hot potato nature of repackaged securities.
> much of the edifice that i've built my belief system on over the last 15+ years has largely proved to be an unquestionable failure.
I don't know what you mean by this.
i'm going to be working for much of today but wanted to chime in with this: i think that you will find very VERY few people who agree with the notion that the current recession was not substantially caused by a huge market failure. the greatest cause of current recession/depression is lax government oversight, which permitted (via the repeal of glass-steagal) huge financial megafirms (with insurance, investment banking, commercial banking, etc.) to form, which were too big to fail, and a culture of hyperoverleveraging to accompany it. meaningful government regulation could have ameliorated some of this and prevented some of the worst implosions.
ReplyDelete> much of the edifice that i've built my belief system on over the last 15+ years has largely proved to be an unquestionable failure.sorry to point elsewhere, but i talk about a lot of this in my "why i lost faith in the gop" post.
back to work...
by "substantially" i meant "primarily"
ReplyDeleteRepealing Glass-Steagall was a bipartisan undertaking with very few naysayers: 90 to 8 in the Senate and 362 to 57 in the House.
ReplyDeleteMore: Glass-Steagall would not have stopped the current crisis. For starters, many institutions that have had trouble were not commercial banks. Lehman Brothers, Bear Stearns and Merrill Lynch were investment banks; the American International Group is an insurance company…Any institution that is too big to fail, even if it is not in the utility end of banking, requires some sort of regulation.
Now, of course, lots of commercial banks have also gotten into trouble…So it is appealing to think that they would have been safe if only they had not mingled the casino with the utility.
This again oversimplifies the issue. True, these “universal” banks lost money in the casino. But they also lost lots of cash through bad lending…What the current crisis has shown is that the management of risk has been woeful across the board.
So the solution is not to pick on one particular banking activity — like proprietary trading — label it as risky and quarantine it in some half-regulated purgatory.
One explanation of that bad lending:
1. The Fed created the credit cycle. Easy money flooded the system. This starts the boom part of the boom-bust cycle.
2. Easy money set the stage for the financial community to do what they always do best: make money.
3. Their investment focus during this cycle settled on mortgage debt, and specifically, subprime debt.
4. They focused on subprime debt because that’s where the fees were. Investment bankers, commercial bankers, mortgage lenders and brokers made fortunes originating and selling this stuff.
5. They did so because they could. Now, why would anyone lend to someone who couldn’t afford to buy or finance the purchase of a house? No one in their right mind. Unless . . .
6. Enter Fannie Mae and Freddie Mac: they subsidized the risk of those loans by guaranteeing them.
7. Why would Fannie and Freddie guarantee bad loans? Political pressure. Starting in 1992 the Clinton Administration, using their powers over banks and housing through the Community Reinvestment Act (Carter,1977), instructed lenders, and Fannie and Freddie to make more loans to those who couldn’t afford them. They loosened lending standards to allow it. Then Wall Street figured away to bring tons of money into that system: mortgage-backed subprime securities. These were sold throughout the world as safe financial instruments. After all, Freddie and Fannie would guarantee these loans.
9. So, banks and mortgage lenders geared up to feed the frenzy. They generated billions of dollars of subprime loans, most guaranteed by Fannie and Freddie, and underwritten according to Fannie-Freddie requirements, and sold them to investors. They got their fees and everyone got fat.
10. It worked until the merry-go-round stopped and homes stopped appreciating. Then the cleverly named “subprime” mortgages became the “junk” mortgages that they always were, and their bonds, junk bonds.
And some transcripts from financial and banking committees:Rep. Barney Frank (D., Mass.): I worry, frankly, that there’s a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. .
. .
House Financial Services Committee hearing, Sept. 25, 2003:
Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .
* * *
Rep. Frank: Let me ask [George] Gould [President of Freddie] and [Franklin] Raines [President of Fannie]: on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?
Mr. Raines?
Mr. Raines: No, sir.
Mr. Frank: Mr. Gould?
Mr. Gould: No, sir. . . .
Mr. Frank: OK. Then I am not entirely sure why we are here. . . . I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.
Senate Banking Committee, Oct. 16, 2003:
Sen. Charles Schumer (D., N.Y.): And my worry is that we’re using the recent safety and soundness concerns, particularly with Freddie, and with a poor regulator, as a straw man to curtail Fannie and Freddie’s mission. And I don’t think there is any doubt that there are some in the administration who don’t believe in Fannie and Freddie altogether, say let the private sector do it. That would be sort of an ideological position.
Mr. Raines [President of Fannie]: But more importantly, banks are in a far more risky business than we are.
Senate Banking Committee, Feb. 24-25, 2004:
After Fed Chairman Alan Greenspan informed the Committee of the oncoming train wreck:
Sen. Christopher Dodd (D., Conn.): I, just briefly will say, Mr. Chairman, obviously, like most of us here, this [Fannie and Freddie] is one of the great success stories of all time. And we don’t want to lose sight of that and [what] has been pointed out by all of our witnesses here, obviously, the 70% of Americans who own their own homes today, in no small measure, due because of the work that’s been done here. And that shouldn’t be lost in this debate and discussion. . . .
Senate Banking Committee, April 6, 2005:
Sen. Schumer: I’ll lay my marker down right now, Mr. Chairman. I think Fannie and Freddie need some changes, but I don’t think they need dramatic restructuring in terms of their mission, in terms of their role in the secondary mortgage market, et cetera. Change some of the accounting and regulatory issues, yes, but don’t undo Fannie and Freddie.
Senate Banking Committee, June 15, 2006:
Sen. Chuck Hagel (R., Neb.): Mr. Chairman, what we’re dealing with is an astounding failure of management and [the Fannie] board [of directors] responsibility, driven clearly by self interest and greed. And when we reference this issue in the context of — the best we can say is, “It’s no Enron.” Now, that’s a hell of a high standard.
I don't take any of this as gospel, and am not even sure it's half the story. But from what I've read Glass-Steagell is much less significant than the subprime abominations due to Fannie & Freddie. Many institutions that have had trouble were not commercial banks that would have been covered by Glass-Steagell. Lehman Brothers, Bear Stearns and Merrill Lynch were investment banks; AIG is an insurance company.
On the left, everyone blames the "greedy management" of Fannie & Freddie, not acknowledging that they were progressive creations, semi-privatized by LBJ to get their debt obligations off the government's budget, and backing risky loans exactly as congressional Democrats and Bush's "ownership society" were ordering them to do. So I don't see anything laissez-faire about their failure, but rather a definitive case of harmful government intervention in the market.
Lefties won't admit how badly their creation screwed things up. Mr. Frank is one of the most intelligent people in government, but he's also precisely what I call an "arrogant lefty": someone who thinks he can manipulate and outsmart free markets. Him and his cohorts have caused more harm than any "failure of capitalism" I'm aware of.
i'm back for a few minutes. one quick note about the "fannie and freddie caused all this canard":
ReplyDeleteBetween 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.
Yes, it began with Fannie and Freddie, and then it spread out as private investment banks copied what they were doing. The original government guarantees are what encouraged private lenders to compete on the same subprime terms.
ReplyDeleteRead the LA Times in 1999. Lefties were crowing about policies designed to increase lending to subprime minority groups.
Read the NYT in 1999: "In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders."
That's how it all began...
Here's another article about hearings covering the crisis. It concludes with a Republican quote:
“No one is blaming low-income families for this crisis. The bureaucrats and politicians who imposed the mandate for subprime lending and those who bowed to that pressure are at fault here,” said Brock McCleary. “It is tragically ironic that the actions of liberal politicians and CEOs like Franklin Raines, self-professed champions of low-income Americans, are responsible for driving millions of working families into bankruptcy. Their intentions may have been good but the results are undeniable.”
Basically, in the name of reducing inequality our government encouraged mortgage lending to low-income groups who should have kept renting. Government propagated the meme that everyone should be able to buy a home, and through regulation and pressure incited lending to low-income groups, first by the GSEs and then by everyone else like investment banks. So everyone went wild inflating the government-created homeownership bubble profited from doing exactly what they were being herded and encouraged into doing. That's not a failure of laissez-faire capitalism, but the opposite.
ReplyDelete