by Ray Keating
I was watching CNBC early one morning this week, and a prominent Wall Street analyst was assessing the ills of our economy, declaring that no one saw how bad this was going to be. Really?
Quite frankly, the only way anyone could have misdiagnosed the poor economy of the past eight-plus years was if the actual causes of these troubles were ignored. But many so-called experts have done just that. They’ve ignored that our lengthy economic woes are rooted in public policies that have increased both costs and uncertainties for entrepreneurs, businesses and investors.
I’m no genius (as most of my family and friends will attest), but on this Throwback Thursday consider the following points I made in columns in late 2008 and early 2009, amidst the height and frenzy of the credit and economic meltdown.
Consider a September 26, 2008, Long Island Business News column in which I observed:
But before it gets etched in history that this was a case of government coming to the rescue of a market gone awry, the government’s role in helping to create this mess must be noted. Consider, for example, the following points:
• When the government set up Fannie and Freddie as public-private entities, problems were inevitable. Stockholders would reap rewards, while taxpayer got stuck with the losses. And while politicians could deny responsibility for Fannie and Freddie problems, they also could use the two mortgage giants to push their affordable housing agendas, and as a source of patronage opportunities. Not exactly a situation in which politicians have incentives to keep a close eye on things.
• The Federal Reserve ran a monetary policy that was far too easy. This kept interest rates too low, created a bias in favor of debt and fueled over-leveraging.
• After the Enron mess, new accounting rules imposed, with approval from the Securities and Exchange Commission, mark-to-market asset valuation. In the current housing debacle, financial institutions have been forced to revalue assets, even when the value of those assets may not be currently known, when price declines are temporary for assets that could be held to maturity, and/or when a mortgage, for example, is not in default. The write-downs require larger reserves, and hence financial firms get sucked down.
So, maybe it’s not just about greedy people on Wall Street, as so many politicians keep chattering on about these days. Perhaps it’s also about politicians and their appointees who fail to fully grasp the consequences of their policies.
Unfortunately, word out of the halls of Congress is that more government regulation is on its way. That’s typical. Troubles bubble up in the market, and no matter what the actual causes, politicians decide that something, anything, must be done – whether it makes economic sense or not…
Even if some folks on Wall Street have temporarily given up on sound economics, that doesn’t mean the rest of us have to go along. Jeez, does anyone honestly think more government will fix things?
In a November 8, 2008, column, I offered the following outlook (bold added):
What’s ahead? Well, the current recession only promises to deepen in the current quarter. And given the many problems on the credit, confidence and public policy fronts, it’s unfortunately too easy to envision a longer-than-usual recession followed by a very sluggish recovery.
In fact, the economy is unlikely to get back on a robust growth path until entrepreneurs and investors see clearly that higher taxes, trade protectionism, increased regulation and bigger government in general are off the policy table, replaced by clear commitments to tax and regulatory relief, free trade and restraint in the size and reach of government. When the nation might return to that kind of agenda, however, is anyone’s guess.
And on February 3, 2009, I wrote:
More federal government spending is being offered as the right tonic for the economy. On top of already staggering levels of federal government outlays, the plan is for politicians to throw around another $600-billion-plus to jumpstart the U.S. economy.
The Congressional Budget Office released an analysis of this “American Recovery and Reinvestment Act” on Jan. 26. It turns out that only $92 billion of the spending would occur during the current fiscal year. Another $225 billion would wait for fiscal year 2010, and $159 billion for 2011. So much for the idea that quick government spending on “shovel ready” projects is the path to reviving our economy.
But even if most of this government spending were doled out over the next few months, it would not be a positive for the economy. Instead, it would be a negative in both the short run and over the longer haul.
Shifting resources out of the private sector in order expand the size of government is not the road to economic revitalization. Instead, it is the path to economic stagnation and relative decline.
Nailed it! All of it!
Okay, am I guilty of patting myself on the back? Perhaps. But if you understand free enterprise, markets, and the impact of public policy, this should have been quite obvious. And yes, we continue to pay the price today, and will for the foreseeable future without a dramatic change in policy direction.
Mr. Keating is an economist and novelist who writes on a wide range of topics. His Pastor Stephen Grant novels have received considerable acclaim, including The River: A Pastor Stephen Grant Novel being a finalist for KFUO radio’s Book of the Year 2014, and Murderer’s Row: A Pastor Stephen Grant Novel nominated for Book of the Year 2015.
The Pastor Stephen Grant Novels are available at Amazon…