Would you trust someone who presented you with an offer that sounded too good to be true, who showed you a contract several thousand pages long, and who said that you do not need to read it because he will explain it to you? Would you trust him with your life, and your way of life? The contract involves surrendering to him your responsibility for making many of the important decisions regarding your healthcare, your use of energy, and your choice of financial products, including checking and savings accounts, loan programs, and how you choose to pay for things. And, by the way, you need to make your decision right away, because, well because he says so, the sooner the better.
Sounds like a flim-flam artist to me. That is not the way that an upstanding businessman, genuinely confident in his product, would likely do business. Makes you wonder about the promises. Will they stand up to close inspection?
That is the deal that the Obama Administration, however, is offering to the nation, proposals that reach from decisions affecting health and life itself, to the details of how we live that life (anything that uses energy), and how we use and manage our own financial resources to pay for things of daily life and prepare of the future. Unfortunately, you do not get to decide whether you take that deal. Your congressman and senators will decide for you.
Here is a thought. Since they represent us, why not insist that the congressmen and senators read the proposals before they vote on them? I worked on Capitol Hill for twenty years, and I can tell you that few congressmen and senators read most of the laws they voted on, and some laws were never read by any of them. For months, now, the Republicans have challenged anyone in the House of Representatives or the Senate to admit to having read the $700+ billion stimulus law passed earlier this year, passed in a hurry because the President and congressional leadership said that it had to be passed in a hurry. No one has come forward.
It does not require a lot of words to make theft illegal. But it takes a lot of words for the government to decide when you get an operation and under what terms, to come up with a fee that someone (you) will have to pay for any appliance that uses energy, or for the government to design your checking account and instruct bankers what they must and must not tell you about the government-designed accounts.
Most people are convinced today that our tax laws have become too complicated. The tax laws got that way when taxes were passed not just to pay for the government but rather were used by smart people in Washington to guide the behavior of people throughout the country, to affect how we invest, what we buy, and to shift wealth from one group of people to another group.
So, how about before our congressmen and senators surrender our control over our lives and health, control over how we use and pay for energy, control over the features of our bank accounts, we insist that they personally read the proposals? I know what the response will be from legislators and their staff. Remember, I used to work there. They will say that most of that language is technical stuff, details, fine print. They are mostly right, and I think that this may be the point. If the laws have become so complicated, requiring hundreds of pages of fine print and details, maybe something is wrong. Maybe the government is trying to do too much.
Sunday, July 26, 2009
Sunday, July 12, 2009
Of Freedom and the Bad Deal
Too many people in this country and elsewhere are making a Bad Deal with their government. Perhaps Americans have been slower to make the Bad Deal, because our nation was founded, and refounded with each new wave of immigrants, by people who were fleeing the Bad Deal in their own countries. The Bad Deal is, we surrender part of our freedom to our government in exchange for a promise that the government will remove from us some of the risks of our bad decisions.
Businessmen make good and bad decisions. With the good decisions, they provide a very popular good or service in exchange for which they make a lot of money. With the bad decisions, people either do not want the good or service or they can find it somewhere else cheaper. The businessman makes less money or may even go broke and lose his investment.
In most countries, that is considered too chaotic and disorganized. That is particularly so when it comes to big businesses. Even where such countries will let small businesses fail, they keep the big businesses propped up.
With the loss of the risk of failure, the benefits of successful risk taking grow anemic. The folks in the government providing the protection from failure demand a piece of the action. In the more clumsily corrupt countries, government officials take bribes or are directly invested in the protected business. In the more sophisticated countries, the process of “sharing” in the prosperity of the protected business is more camouflaged. There are special taxes and fees paid to the government, or the business is guided by the government into activities that benefit the current government leadership and its friends.
The housing loan giants, Fannie Mae and Freddie Mac, are examples of that in our country. They were created by Congress and given special privileges that stifled competition and lowered their costs, allowing their businesses to expand until they became two of the largest companies in the United States. Investors lent them an unending supply of money at very low interest rates on the assumption that the government would never let the companies fail. In exchange, Fannie and Freddie had very elaborate programs for making Congressmen and Senators look good in their districts, with fancy press conferences where Fannie or Freddie officials bragged about all the mortgages supported in the district and how important the Congressman or Senator had been to Fannie’s or Freddie’s success.
Fannie Mae and Freddie Mac gave up significant freedom of decision in their business plans in order to get the government protection. Their experience, though, demonstrates a central problem of the Bad Deal: while the government promises to protect us from consequences of our bad decisions, it does not protect us from bad decisions by government. At last the Fannie Mae and Freddie Mac house of cards tumbled down. It happened when the bad decisions urged on them by their government “friends” left the firms powerless to withstand the swirling winds from the air escaping out of the housing balloon. Fannie and Freddie helped puff up the balloon under government guidance together with other failed government programs. The firms failed, and the government had to take the companies over entirely.
Now the Obama Administration is offering to take over the consumer’s job of making his own financial decisions. They propose a new consumer regulator to stand in the consumer’s place, with the assignment to design all of the financial products that banks and other firms must offer to their customers. Normally customers and financial companies have figured this out among themselves in the market place. The Administration calls these new products (to be designed by a five-man board in Washington) “plain vanilla” products. The Obama Administration believes that simple is better. If you do not want plain vanilla, if you need a loan or a checking account or a savings account or a credit card with some extra features, good luck, because the new agency will be poised to pounce on any financial firm that dares offer it to you. It reminds me of the old Model T Ford. You could get it in any color you wanted, as long as the color was black. Thank goodness Chevrolet came along and offered blue, or we would never have had Mustangs.
Which again is the point: when government makes the decisions, there is little incentive for things to get better. In promising to eliminate your risk, the government does not want to risk some innovation going wrong.
Sure, businesses and consumers making their own decisions make mistakes. Then they learn from their mistakes, pick themselves up, and try again and usually do better. But Fannie Mae, Freddie Mac, the recent financial panic and the coming rise in interest rates and inflation, are a few near-term reminders of how government can make mistakes, real whoppers. Long experience over the centuries has shown that mistakes by the government are the bigger risk. When we accept the Bad Deal and surrender our freedom of action to the government, who will protect us from the government’s mistakes?
Businessmen make good and bad decisions. With the good decisions, they provide a very popular good or service in exchange for which they make a lot of money. With the bad decisions, people either do not want the good or service or they can find it somewhere else cheaper. The businessman makes less money or may even go broke and lose his investment.
In most countries, that is considered too chaotic and disorganized. That is particularly so when it comes to big businesses. Even where such countries will let small businesses fail, they keep the big businesses propped up.
With the loss of the risk of failure, the benefits of successful risk taking grow anemic. The folks in the government providing the protection from failure demand a piece of the action. In the more clumsily corrupt countries, government officials take bribes or are directly invested in the protected business. In the more sophisticated countries, the process of “sharing” in the prosperity of the protected business is more camouflaged. There are special taxes and fees paid to the government, or the business is guided by the government into activities that benefit the current government leadership and its friends.
The housing loan giants, Fannie Mae and Freddie Mac, are examples of that in our country. They were created by Congress and given special privileges that stifled competition and lowered their costs, allowing their businesses to expand until they became two of the largest companies in the United States. Investors lent them an unending supply of money at very low interest rates on the assumption that the government would never let the companies fail. In exchange, Fannie and Freddie had very elaborate programs for making Congressmen and Senators look good in their districts, with fancy press conferences where Fannie or Freddie officials bragged about all the mortgages supported in the district and how important the Congressman or Senator had been to Fannie’s or Freddie’s success.
Fannie Mae and Freddie Mac gave up significant freedom of decision in their business plans in order to get the government protection. Their experience, though, demonstrates a central problem of the Bad Deal: while the government promises to protect us from consequences of our bad decisions, it does not protect us from bad decisions by government. At last the Fannie Mae and Freddie Mac house of cards tumbled down. It happened when the bad decisions urged on them by their government “friends” left the firms powerless to withstand the swirling winds from the air escaping out of the housing balloon. Fannie and Freddie helped puff up the balloon under government guidance together with other failed government programs. The firms failed, and the government had to take the companies over entirely.
Now the Obama Administration is offering to take over the consumer’s job of making his own financial decisions. They propose a new consumer regulator to stand in the consumer’s place, with the assignment to design all of the financial products that banks and other firms must offer to their customers. Normally customers and financial companies have figured this out among themselves in the market place. The Administration calls these new products (to be designed by a five-man board in Washington) “plain vanilla” products. The Obama Administration believes that simple is better. If you do not want plain vanilla, if you need a loan or a checking account or a savings account or a credit card with some extra features, good luck, because the new agency will be poised to pounce on any financial firm that dares offer it to you. It reminds me of the old Model T Ford. You could get it in any color you wanted, as long as the color was black. Thank goodness Chevrolet came along and offered blue, or we would never have had Mustangs.
Which again is the point: when government makes the decisions, there is little incentive for things to get better. In promising to eliminate your risk, the government does not want to risk some innovation going wrong.
Sure, businesses and consumers making their own decisions make mistakes. Then they learn from their mistakes, pick themselves up, and try again and usually do better. But Fannie Mae, Freddie Mac, the recent financial panic and the coming rise in interest rates and inflation, are a few near-term reminders of how government can make mistakes, real whoppers. Long experience over the centuries has shown that mistakes by the government are the bigger risk. When we accept the Bad Deal and surrender our freedom of action to the government, who will protect us from the government’s mistakes?
Tuesday, July 7, 2009
Of Washington Poverty and Market Growth
We are now well into the new year and even farther into the economic recession, and it would be hard to find people who think that things are looking better. The best you can find are those who will say that things are looking like they may soon start to look better, at least a little bit.
Unemployment continues to grow, with the best predictions calling for a turn around in 2010. The economy continues to shrink. Trade—imports and exports—is contracting. The number of bank failures has been growing in recent weeks. The stock market, after a hope-led surge in the Spring, is languishing. And the great State of California is bankrupt, literally bankrupt. It cannot even borrow money. The state government is making payments with IOUs—as long as people will accept them, and patience is running very thin.
We are now into a full year of trying to run the economy from Washington—stretching back into last year’s failed economic policies under President Bush and continuing at an accelerated pace under President Obama. Things have gotten progressively worse. Maybe it is time to admit that Washington cannot run the economy, at least not if you measure success by economic growth, business expansion, and generation of good (rather than make-work) jobs.
After one year of trying everything, if government-directed, Washington-led economic control worked, you would think that we would see strong evidence by now. The evidence is just the opposite. The job creation engines—business and investment—seem to be on strike. Or maybe they are just frozen out by government programs trying to take their place. With efforts to control all aspects of the economy, from taxes that reach to anything that uses energy, to proposals for government to “compete” with the private sector for health care (you ever try to “compete” with the umpires in baseball?), to plans to have brand new government agencies control the banking system (protecting the “consumer” by making consumers’ banking decisions for them), how can investors figure out where to place their money? How can businessmen make plans for growing their businesses?
The problem is not that the people in Washington are not smart. They are smart. They are just not smart enough. No mortal is. The economy of a great nation like the United States is far too complex for any small group of people to run it. It is impossible for them to know enough or to do enough. These smart people desperately pull on a handful of economic levers and hope to run the entire economic machine, always overlooking myriads of other important economic matters, and mishandling the levers that they can pull.
It is best to let the markets run the economy, the markets that efficiently take the billions of freely-made economic decisions of the whole population every day, drawing upon the combined knowledge of everyone, and turn them into economic growth and expansion. The interference of the government policies got us into the current recession, and the increased interference has intensified it. Now it is time to back off, and let the people make their decisions, all of the people, and watch this economy soar. That formula has always worked.
Unemployment continues to grow, with the best predictions calling for a turn around in 2010. The economy continues to shrink. Trade—imports and exports—is contracting. The number of bank failures has been growing in recent weeks. The stock market, after a hope-led surge in the Spring, is languishing. And the great State of California is bankrupt, literally bankrupt. It cannot even borrow money. The state government is making payments with IOUs—as long as people will accept them, and patience is running very thin.
We are now into a full year of trying to run the economy from Washington—stretching back into last year’s failed economic policies under President Bush and continuing at an accelerated pace under President Obama. Things have gotten progressively worse. Maybe it is time to admit that Washington cannot run the economy, at least not if you measure success by economic growth, business expansion, and generation of good (rather than make-work) jobs.
After one year of trying everything, if government-directed, Washington-led economic control worked, you would think that we would see strong evidence by now. The evidence is just the opposite. The job creation engines—business and investment—seem to be on strike. Or maybe they are just frozen out by government programs trying to take their place. With efforts to control all aspects of the economy, from taxes that reach to anything that uses energy, to proposals for government to “compete” with the private sector for health care (you ever try to “compete” with the umpires in baseball?), to plans to have brand new government agencies control the banking system (protecting the “consumer” by making consumers’ banking decisions for them), how can investors figure out where to place their money? How can businessmen make plans for growing their businesses?
The problem is not that the people in Washington are not smart. They are smart. They are just not smart enough. No mortal is. The economy of a great nation like the United States is far too complex for any small group of people to run it. It is impossible for them to know enough or to do enough. These smart people desperately pull on a handful of economic levers and hope to run the entire economic machine, always overlooking myriads of other important economic matters, and mishandling the levers that they can pull.
It is best to let the markets run the economy, the markets that efficiently take the billions of freely-made economic decisions of the whole population every day, drawing upon the combined knowledge of everyone, and turn them into economic growth and expansion. The interference of the government policies got us into the current recession, and the increased interference has intensified it. Now it is time to back off, and let the people make their decisions, all of the people, and watch this economy soar. That formula has always worked.
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