The Age of Prosperity is over...

Dateline: Wed 29 Oct 2008

An article by Arthur B. Laffer in the Wall Street Journal this week, sent my way by Guy, neatly summarizes the concerns many Americans have: we are seeing the end of a golden age in the U.S., economically speaking. These are hardly new or original thoughts: "The World is Flat" by Thomas Friedman a few years ago spoke of the impact of a global economy on the No. 1 nation.

Guy happens to have been an econ major and was a stockbroker once upon a time. Like many conservatives, he likes free markets, and he believes those who make money should not be penalized. Therefore, he sees no future growth in the policies of either Barack Obama (bordering on socialism, he thinks) or John McCain (as short-sighted as George Bush and many others in Congress).

Here are some excerpts from the Wall Street Journal essay, for those who like meat with their morning coffee:

"Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production. Asset values fall sharply and wipe out those who borrowed and lent too much, thereby redistributing wealth from the foolish to the prudent...

"When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should be rewarded and bad decisions should be punished. The market does just that with its profits and losses.

"No one likes to see people lose their homes when housing prices fall and they can't afford to pay their mortgages; nor does any one of us enjoy watching banks go belly-up for making subprime loans without enough equity. But the taxpayers had nothing to do with either side of the mortgage transaction. If the house's value had appreciated, believe you me the overleveraged homeowner and the overly aggressive bank would never have shared their gain with taxpayers....

"But here's the rub. Now enter the government and the prospects of a kinder and gentler economy. To alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least $130 billion in taxes, where the $30 billion extra is the cost of getting government involved."

Look what government did, he says, to Amtrak, Fannie Mae, Freddie Mac, etc. His main point is that the issue is economics, not partisan: "The stock market loved Mr. Clinton as it had loved Reagan, and for good reasons.

"The stock market is obviously no fan of second-term George W. Bush, Nancy Pelosi, Harry Reid, Ben Bernanke, Barack Obama or John McCain, and again for good reasons."

The author is a Republican who served under the Nixon administration. He is hard on administrations that panicked and raised taxes. The current administration and Congress, he prophesies, will be remembered like Herbert Hoover. One can interpret this to mean that the worst is yet to come.

Here is the link:


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