The problem with the government getting into the market place

The strongest tie that binds me to conservatism is my belief that the principle that “that government is best which governs least” applies most strongly in the area of economics.  I believe that government should make a few big rules — don’t discriminate, don’t cheat, don’t commit fraud, etc. — and then it should stand out of the way and let the marketplace take over.  (As an aside, I don’t think McCain will be great in this area, but he’ll still be so much better than Obama and Hillary that it goes without saying that people like Rush and Ann and Michelle should should sheath their nails and vote for him.)

The moment government starts micromanaging the market, bad things happen.  Earl has just tipped me off to the fact that the recent mortgage collapse, which was the first pebble in the avalanche that is now a nascent recession, started with government insistent on manipulating the mortgage market to advance social policy:

PERHAPS the greatest scandal of the mort gage crisis is that it is a direct result of an intentional loosening of underwriting standards – done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults.

At the crisis’ core are loans that were made with virtually nonexistent underwriting standards – no verification of income or assets; little consideration of the applicant’s ability to make payments; no down payment.

Most people instinctively understand that such loans are likely to be unsound. But how did the heavily-regulated banking industry end up able to engage in such foolishness?

From the current hand-wringing, you’d think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards – at the behest of community groups and “progressive” political forces.

In the 1980s, groups such as the activists at ACORN began pushing charges of “redlining” – claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation.

In fact, minority mortgage applications were rejected more frequently than other applications – but the overwhelming reason wasn’t racial discrimination, but simply that minorities tend to have weaker finances.

Yet a “landmark” 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic.

That study was tremendously flawed – a colleague and I later showed that the data it had used contained thousands of egregious typos, such as loans with negative interest rates. Our study found no evidence of discrimination.

Yet the political agenda triumphed – with the president of the Boston Fed saying no new studies were needed, and the US comptroller of the currency seconding the motion.

No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: “discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants.”

Some of these “outdated” criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant’s ability to manage debt.

Sound crazy? You bet. Those “outdated” standards existed to limit defaults. But bank regulators required the loosened underwriting standards, with approval by politicians and the chattering class. A 1995 strengthening of the Community Reinvestment Act required banks to find ways to provide mortgages to their poorer communities. It also let community activists intervene at yearly bank reviews, shaking the banks down for large pots of money.

Read the rest here.

What is being described above is precisely the same type of racism my daughter is having foisted on her by her classmates, little kids who are channeling the ideology of their liberal parents:  to make up for past bad racism, we’re going to engage in present “good” racism.  None of these highly educated people seem to have figured out that what we need to do is eliminate racism entirely.

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Why isn’t he the right man?

Question for you: With economic fears on the rise, wouldn’t it make sense for Romney to play up his money abilities? He turned the Olympics around, and he seems to have a knack for seeing economic systems and turning them to gold. People claim that his economic savvy was what won in Michigan, and I don’t see why it won’t win elsewhere, with everyone worrying about money.

UPDATETime Magazine has also figured out that the economy might be Romney’s ace in the hole.

It’s the economy, Stupid!

The title of my post should ring a few bells in the minds of those old enough to vote in 1992. It was, after all, Bill Clinton’s official campaign theme (with “I feel your pain” being the unofficial theme). Perhaps the economy will be the undoing of Hillary’s campaign — although it should, by the same measure, be the undoing of the Obama campaign, or any Democratic campaign. Here’s the Captain:

Which spectre haunts financial advisers the most? Terrorism? Global unrest? Not even close. According to a survey of over 200 financial advisers taken in December, their biggest worry is that Hillary Clinton will win the presidential election in November:

Nothing worries financial advisers more than the prospect of a Democrat’s being elected president in November, according to a quarterly poll by Brinker Capital Inc.The fourth-quarter edition of the Brinker Barometer, which polled 236 advisers in December, found that 22% indicated that a “Democrat in the White House” worried them more than all other economic or geopolitical concerns.

Rounding out the list of concerns was “global unrest” (15%), “U.S. economic growth” (15%), “a terrorist attack” (13%) and “a recession” (13%).

They’re less concerned about recession than dealing with the economic policies of a new Clinton administration. They fear that a big increase in taxes will erode equity investments, especially given the proclivity of Democrats to target equity funds for new taxes to pay for their increased spending. Eighty-one percent feel that Democrats will raise capital gains taxes, income taxes, and dividends.

Interestingly, Rudy Giuliani gets the biggest endorsement in the survey. One might have expected Mitt Romney, with his extensive experience in investments, would have generated the most enthusiasm.

The ultimate bureaucracy

I’ve disliked the EU ever since, in a moment of absolute insanity, I took a class on EU law when I was in law school. It was a Kafka-esque nightmare — and that was just studying about it, not experiencing it.

If you want some small insight into experiencing it, read this Spiegel article that describes what happens when you have unfettered bureaucratism — all in the name of the public good, of course. People who fear the European economic juggernaut (my mother says there’s now talk of going off the dollar standard and onto the Euro standard) might want to contemplate EU regulations before they panic.

The minute detail of these regulations presages two things for the European economy: stagnation, as people struggle to deal with bureaucratic meddling that stifles innovation and marketplace movement; and crime — not violent crime, but the exponential growth of a black market where people violate the bureaucracy left and right. Neither trajectory bodes well for economic growth or stability.

Why have the tax cuts been so bad?

Each of the front-running Democratic candidates has promised to raise taxes, to remedy the “disastrous” tax cuts that President Bush put into place.  What I’ve somehow missed from them, though, is any explanation about why the tax cuts are so disastrous.  I’m not saying the Dems don’t have an explanation.  I’m just saying I haven’t heard it.

There are a couple of things that I am aware of, though, and they seem to indicate that, in terms of both your and my economics and the government’s economics, the tax cuts have been a good thing:

First, the economy continues to do well, despite wars and oil prices.  This is probably because people have more money to work with, to invest with, to buy with, and to feel secure about.  Second, almost certainly because people are allowed to hold onto their money to make money, there’s more tax money available for the government.  The unsurprising byproduct is that tax revenues have been increasing.  (Although the NY Times, which resolutely refuses to believe that people, not government, make money, keeps expressing surprise that lower taxes actually result in higher government revenues, as you’ll see here and here in its annual articles about the revenue increases.)  And third, with increased revenues you get regular news reports that the budget deficit is shrinking, with 2007 marking the third year in a row that it’s done so (a benefit unfortunately offset by a spendthrift Congress and White House, both of which are working hard to increase the national debt).

So, to me, it looks as if the tax cut resulted in more, not less, money for the government.  And if that’s true, the Democratic promise to increase taxes the moment they get into office should inevitably decrease the money supply.  While it’s true that, in the short term, only you and I will have less money and the government will have more (that is, it will now have more of my money), as time goes by, and people whose money is being hijacked by the government stop being productive, the government will end up having less money too.  That sounds like a bad deal all around.

If I’m wrong, please explain this to me.  Absent a convincing coherent explanation, I’ve got to believe a pattern showing that lower taxes result in higher government funding, while higher taxes, within a year or two, result in lower government funding.

Oil is not really at record high prices

Once again, there’s a news story saying that crude oil prices are at record highs (emphasis mine):

Oil prices rose above $93 a barrel to a new trading high in Asia Monday on growing political tensions in the Middle East, a weak dollar and worries about the supply outlook ahead of the winter.

“The strong price is due to supply concerns in general, on top of which we have the geopolitical news,” said Victor Shum, a Singapore-based energy analyst with Purvin & Gertz.

Light, sweet crude for December delivery rose as much as $1.34 to $93.20 a barrel, a new intraday record, in early afternoon Asian electronic trading on the New York Mercantile Exchange, before slipping back to $93.05.

That was still up $1.19 from Friday’s record close of $91.86 a barrel. The previous trading high was $92.22 a barrel, set Friday.

Already last week, I began wondering about these stories, but I focused in my post on prices at the gas pump.  With a little help from my readers, I learned that, in terms of inflation adjusted relative dollar values, gas prices are definitely high, but they are not at record highs.  Indeed, I’m willing to bet that, to the extent that more than 50% of every dollar I spend on gas goes to various state and federal taxes, what I’m actually paying for gas is substantially lower than comparable prices in previous decades.

Because of that tax factor (and I live in one of the highest gasoline tax states), it occurred to me that it would be more useful to analyze crude oil prices, because they’re fixed by the market, not by the government.  And what I discovered is that, once again, the dollars are not really record highs.  In a simplistic way, of course, they are record highs, because gas has never before had the number 93 affixed to each barrel.  But, as I mentioned, that is simplistic, and represents the financial understanding of a grade schooler.  As with gasoline, in real dollars, adjusted for inflation, we are not setting any records.  To the contrary — we’re quite far away from the golden years of crude oil highs in the mid-1970s, and that despite a a war in the world’s oil producing region.

So, next time you’re at the gas station and feeling the pain at the pump, don’t think like a simple minded AP writer who is stuck on the dollar amount.  Instead, congratulate yourself that you’re paying less for gas than we have at times past, and think about petitioning your government to lower those damn gas taxes.

The economic nature of Islamic conquest

I just had to share with you Mark Steyn’s brilliant insight into the economic nature of Islamic conquest:

The jizya is the poll tax paid by non-Muslims to their Muslim betters. One cause of the lack of economic innovation in the Islamic world is that they’ve always placed the main funding burden of society on infidels. This goes back to Mohammed’s day. If you take a bunch of warring Arab tribes and unite them as one umma under Allah, one drawback is that you close off a prime source of revenue — fighting each other and then stealing each other’s stuff. That’s why the Prophet, while hardly in a position to deny Islam to those who wished to sign up, was relatively relaxed about the presence of non-Muslim peoples within Muslim lands: they were a revenue stream. If one looks at the comparative dissemination patterns, Christianity spread by acquiring believers and then land; Islam spread by acquiring land and then believers. When Islam conquered infidel territory, it set in motion a massive transfer of wealth, enacting punitive taxation to transfer money from non-believers to Muslims — or from the productive part of the economy to the non-productive. It was, in its way, a prototype welfare society. When admirers talk up Islam and the great innovations and rich culture of its heyday, they forget that even at its height Muslims were never more than a minority of the Muslim world, and they were in large part living off the energy of others. That’s still a useful rule of thumb: if you take the least worst Muslim societies, the reason for the dynamism often lies with whichever group they share the turf with — the Chinese in Malaysia, for example.

Mark Steyn, America Alone: The End of the World as We Know It, p. 164.

Of course, Steyn doesn’t end with that factual observation.  There are a few things that flow from it:  first, the minions paing jizya wise up and either leave Arab countries or themselves convert to Islam, leaving the economy utterly lifeless.  Second, it creates in Islam an endless craving for conquest, because that’s the only way to revitalize a moribund economy.  And, third, Steyn also points out that the endless subsidies flowing into Muslim countries from the West (whether Western, including Israeli, payments to the Palestinians; or weapons subsidies to Saudis and Egyptians) are all seen as the Muslims’ due and, in their collective minds, are converted into appropriate payments of subservient religions to the master race.