Paul Harvey, RIP

http://www.abcrn.com/harvey/index.html
I can remember, as a young man, being of two minds wrt his voice. When my oldest son was three, he used to refer to the noon broadcast as "Paw Harvey".

Harvey was a welcome contrast to the lockstep of the MSM. Goodspeed, Mr. Harvey.

Genesis of a Crisis

Courtesy of the the always interesting Foundation for Teaching Economics (FTE) comes an overview of the economic crisis and the causes written by Prof. Dale DeBoer, Chairman, Department of Economics, University of Colorado, Colorado Springs:

It would be nice if the cause of the credit crisis could easily be pinned on poor government regulation, greedy lenders, or careless borrowers. Unfortunately, no one actor is to blame and the causes of the crisis extend back in time. This makes developing an understanding of the crisis a bit of a history lesson.

In 1973 (unfortunately, the story goes back at least that far), the Bretton Woods Monetary System came to an end. The Bretton Woods System was a global mechanism for maintaining fixed exchange rates and encouraging international economic interconnections. At the heart of the system was the U.S. dollar. Under this system, the U.S. government maintained (at least initially) a promise of backing every $35 issued with 1 ounce of gold. This promise constrained U.S. ability to expand the money supply and provide liquidity to markets. Unfortunately, this promise proved unsustainable due to global and domestic need for more liquidity than was possible under the gold constraint. This led the Nixon Administration to move the dollar to an international “float” by 1973. By moving the dollar to a float, any inherent limit on the number of dollars in circulation was removed. Rather, the volume of money in the economy became constrained only by the good faith of the monetary authority – the Fed. Fortunately, the Fed maintained this faith well for 25 years. Unfortunately, it is clear that this restraint waned in recent years.

Adding to the complexity of events, by the 1980s the Japanese economy had attained economic maturity. With this economic maturity came high levels of savings. During the 1980s, a significant portion of these savings found outlet in the global economy. Given the dominant position of the U.S. economy, a large share flowed into the U.S. economy. This flow into the U.S. was greeted with some domestic alarm (a very visible instance centered on the Japanese purchase of Rockefeller Center in 1989), yet the inward flows continued.

The savings flow from Japan did slow somewhat with the downturn of the Japanese economy during the early 1990s. However, waiting to take up the slack were the South Korean and Chinese economies. The significant trade surpluses these countries ran with the U.S. kept a large flow of foreign savings coming into the U.S. These foreign financial inflows kept the cost of borrowing low in the U.S. and helped fund the strong economic performance of the U.S. economy during the 1990s.

Unfortunately, much of the world did not mirror the strong growth of the U.S. economy. Growth in the European economies was slowed by the costs of adopting the euro. Worse, the East Asian economies fell into a serious economic contraction in 1997 and the Russian economy was hit by a separate crisis in 1998. With the U.S. the dominant global economic actor, the world looked to us to provide stability. Further, these crises had direct ramifications for the U.S. economy. The Dow Industrial Average saw a 10 percent fall in 1997, and an additional fall of 17 percent in 1998 (though there was a recovery in value between the two downturns). Beyond declines in the broader market, U.S. officials saw evidence of risk of a serious financial collapse with the failure of Long- Term Capital Management hedge fund. Fortunately (or unfortunately, as it may turn out), the Fed responded to these risks by utilizing the increased discretionary ability it gained following the collapse of the Bretton Woods agreement. It increased the money supply to stabilize the economy (this is seen by the ¾ point lowering of the Federal Funds Rate in 1998-99). It is noteworthy that the Fed acted to stimulate the economy through an expansion of the money supply in the midst of the longest peacetime expansion in the history of the United States. For our story, the import lies with the Fed reinforcing the expansion in liquidity already underway due to the inflows of foreign savings.

Beginning in late 1999, the Fed did try to rein in liquidity by raising interest rates (to a high of 6.5 percent). Unfortunately, the economic downturn of 2001-02 forced the Fed to reverse this tightening, and by 2004 the Federal Funds Rate had fallen to 1 percent. The Fed was more aggressively pushing liquidity into the economy than at any time in history. And the policy was successful – the recession of 2001-02 was very shallow and short lived. But all that money needed an outlet; one turned out to be the market for housing.

It would be easy to make too much – or too little – of this part of the story. The high levels of liquidity generated by inflows of foreign savings and loose domestic monetary policy were not the cause of the current credit crisis. However, without this liquidity the run up in the housing market would have been unlikely to occur. As such, high levels of liquidity provided one important contributor to the ongoing credit crisis. The change in financial oversight provides another.

Read the rest here.

Tea party this Friday in DC

Feb. 27 (Friday)
Washington DC Tea Party -
12:00pm - 2:00 pm- Washington Monument

Sponsors:
* Americans for Prosperity
* Americans for Tax Reform
* Young Conservatives Coalition
* The Heartland Institute

Over $400,000 per family

Steny HOYER?

h/t NRO Corner

Steny Hoyer, a few minutes ago on the House floor:

I would hope that every member on this floor, of whatever party, of whatever ideological persuasion, would pray that this bill works. Not for political purposes, because if this bill works we will create those three and a half million jobs. Am I absolutely sure that it will? I am not. I regret that I am not.

Deficits/Surplus as a share of GDP

Greg Mankiw of Harvard. Please note that the chart borrowed form the WSJ does NOT include the structural deficit from -- ready? -- intergenerational transfers, which add between 50 and 80 Trillion bucks and creates a chart that make sensible people want to gargle with Cognac.

I supppose I should say something about Dr Mankiw's failure to publicly jump ugly with the 43rd president on the subject of spending -- GWB was supposed to be a cheapskate republican, after all -- but I won't.
http://gregmankiw.blogspot.com/2009/02/budget-balance.html

The one, The only Virginia Postrel

You can't make life safe for people who live, on the great coordinate plane of life, too close to the point where the learning curve crosses the mortality rate. [I should, I guess, point out that I'm paraphrasing from Reason Magazine back in the 80s.]

"They Don't Suck Their Socks"

A priceless Headmistress post on the CPSIA's insanity:

One concern is that the age limits themselves are unreasonable. It is ridiculous and completely unreasonable to treat bikes ridden by 8-12 year olds as though they pose the same risks as teething rings owned by 1 year olds. The CPSC cannot change that, as it would require commonsense changes at the foundational level of the law.

As we see more and more products pushed out of the market by the CPSIA, products which have never caused lead poisoning, it becomes clear that the law itself, which requires that all components of all products intended for the use of children 12 and under have the same lead limits, is unreasonable. 10 year olds do not chew their bike tires, lick their brakes, or suck on their tire valves.

They don't suck their socks.

They do not eat their books, not even books published before 1989. No book has ever been associated with elevated lead levels in the blood, yet as this law is written, those who do not wish to see books banned must first prove a negative- something that can only be fixed by the law.

Banning zippers and snaps is unreasonable, there is no evidence a child has ever been harmed by sucking his zipper pulls and snaps (no evidence that this is even something tiny babies are interested in doing, either), yet, the zipper company must first prove a negative, and this can only be fixed within the law itself, not by the Commission.

Read the whole thing.

If they're really concerned about zipper-licking 10-year-olds, they might consider all those kids (like me) who wore adult sizes when they were 10. Why stop with products "primarily" for kids? Why not test everything a kid might encounter, from sofa cushions to bathroom mirrors?

But maybe I shouldn't say that. Public Citizen might get ideas.

Too little too late

If history is a guide -- and it mayn't be -- the approaching 'stimulus' will be passed just as the economy emerges from recession by itself.

Here's a link from the NYT

I couldn't have made this up if I'd tried!

POTUS Pile-on

My bruddah-in-law points out that POTUS44 has been aboard for three weeks. It is, therefore, not fair to start on the clearly-he's-not-ready-for-the-deep-end-of-the-pool comments yet. EXCEPT... some of his advisers (specifically the advisers which had me thinking [relatively] good thoughts about a lawyer from the Chicago Machine) are going miles out of their way to hide behind "the President believes..." instead of answering the question: "Is this a good idea".

This -- "the President believes" -- is the kind of statement that's as good a way of stirring up policy geeks as any I can think of, bar waving a red flag (*joke).

And one of the first to be stirred up is the ever-readable Dr David Henderson of, inter alia(har!), the Naval Postgraduate School:

Have you noticed that we haven't heard any strong endorsement of the bill by Summers? The standard way a political appointee deals with the situation when he/she doesn't like what his/her boss is doing is to be quiet or, if asked his/her opinion, to say, "the President believes."

And because Dr Summers is both entertaining and worth reading, the link is here

If this is piling on, Fiat Voluntuas Dei!

"We are ruled by people who have achieved the remarkable distinction of being both dull and frivolous."

As Samizdata notes, the question is: should be ruled at all?

Deidre McClosky

I cannot say this better, take it away, Dr McClosky:

...when your intellectual range is from M-N you think you are being open minded when you look at M and you look at N, but you certainly don't see A or Z.

Saturday Night Live Lampoons Reid Pelosi On Stimulus Plan

Saturday Night Live Lampoons Reid Pelosi On Stimulus Plan

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Stimulus, because all economies have performance issues

http://www.youtube.com/watch?v=dEDIyztZGBA&eurl=http://pajamasmedia.com/instapundit/&feature=player_embedded

Amazon's Customer service number

I didn't know there was one, but it's
1-800-201-7575

Go dogs go!

Conservative Democrats in the House are pushing back against their leaders’ economic stimulus plan even as President Obama steps up his push for the spending package.

To paraphrase my BIL -- who won't like this post -- "Do it like a Blue Dog!"

How Amazon.com is thriving in a horrendous retail climate.

If you and your housemates buy more than two items a month from Amazon, you should consider subscribing. Be warned, though, that Prime membership will alter how you think about shopping. These days, whenever I become cognizant of some need that would ordinarily require an unplanned trip to the store—when I want a bathroom hook, a shelving system for my closet, a new wireless router, or a discount pack of kitchen sponges—I check Amazon first. It's usually faster to order the item there and get it shipped for free than to add the thing to my shopping list. With Prime, you don't really need a shopping list.

Prime membership sure will. One click and your book/item shows up two days later. How to develop bad habits.

Instapundit: stimulus bill harmful over long term

the Congressional Budget Office says the stimulus bill will be harmful over the long term: “President Obama’s economic recovery package will actually hurt the economy more in the long run than if he were to do nothing, the nonpartisan Congressional Budget Office said Wednesday. CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.” I don’t think there’s much long-term thinking going on in Congress or the White House, though . . .

Here's the CBO report itself:
http://cbo.gov/ftpdocs/96xx/doc9619/Gregg.pdf

Less Keynes, More Hayek

Something everyone from Scott Allen to Sarah Palin can agree with!

Nobel economist Friedrich Hayek gets more ink in the Wall Street Journal today than he has in a long time in an op-ed on the “stimulus” bill being debated in Congress. And rightfully so, considering his arch rival John Maynard Keynes is getting more air time than he has since the last time politicians sought cover for a massive power and wealth grab.

Hayek and Keynes had a famous (well, famous for economists) debate over Keynes’ theories. FreedomWorks chairman Dick Armey returns to his previous career as an economics professor and provides a lesson everyone on Capitol Hill should read.

Armey notes:

Keynes’s thinking was a decisive departure from classical economics, because arbitrary “macro” constructs like aggregate demand had no basis in the microeconomic science of human action. As Hayek observed, “some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.”

Professor Armey also reminds us of one of the central insights from the Public Choice school or economics:

A father of public choice economics, Nobel laureate James Buchanan, argues that the great flaw in Keynesianism is that it ignores the obvious, self-interested incentives of government actors implementing fiscal policy and creates intellectual cover for what would otherwise be viewed as self-serving and irresponsible behavior by politicians.

Armey continues:

It’s clear why Keynes’s popularity endures in Congress. Intellectual cover for a spending spree will always be appreciated there. But it’s harder to see any justification for the perverse form of fiscal child abuse that heaps massive debts on future generations.

Which leads to the conclusion:

The charade of the current stimulus package, chockablock with earmarks to favored pet constituencies and virtually devoid of national policy considerations, is the logical consequence of Keynesianism in action. It is about politics and power, not sound economics, and I believe that the American people will reject it.

The Washington Post toda reports “Senate Lacks Votes to Pass Stimulus.”

The 1,000-plus FreedomWorks activists who called Sen. Minority Leader Mitch McConnell on 1-866-928-0525 asking him to oppose the stimulus had something to do with that.

Were you one of them?

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Daschle

"Make no mistake, tax cheaters cheat us all, and the IRS should enforce our laws to the letter." --then-Sen. Tom Daschle on 7 May 1998

I got nuthin. Absoflippinlutely nothing.