Much has been written about the proposed bailout of the Big 3 automobile manufacturers.  I agree that simply giving them money is only going to postpone the inevitable and, thus, should not be done.  That does not mean that I am necessarily opposed to a bailout.  There are arguments (some more persuasive than others) that we cannot lose all 3 of these companies.  The reality is that if the Republicans are viewed as simply being an impediment to the bailout and the Big 3 or a portion thereof fail that Republicans are going to have a hard time finding any support in Michigan, Ohio, etc. for a very long time.  Plus, it is my understanding that we (the taxpayers) may be on the hook for the pensions if the Big 3 fail which further suggests something needs to be done to address this issue.  What the Republicans in Congress need to do is oppose a pure infusion of case or the government acquiring an interest in the companies but come up with some alternative means of providing money with sufficient structural changes to make it possible for the companies to become competitive over the long term.  (No - I don’t know exactly how to do that and since I have an Answer to a Counterclaim to finish and depositions to prepare for I can’t figure it out this morning).  Then, they are going to have to start selling the idea as being the only real long term solution to the problem and sell it not only to the other members of Congress but to the current and former employees of the Big 3.  If the RNC has any money left in its coffers, an ad buy in the Rust Belt setting forth the alternative and why might be a really good long-term investment.  We have to offer alternatives to the problems Americans are facing (with the caveat that there are going to be some problems we cannot and/or should not fix) and not simply oppose the Democratic agenda.

I know that many of you in SA Land are inherently suspicious of economics (having, as it does, only a limited impact on abortion), but some of us think it’s kind of important. If you are part of this group, I ask your indulgence.

The Heritage Foundation has recently released a brilliant, easy to digest issue backgrounder that reminds us that government does not create jobs or wealth, nor can it provide stimulus to the economy. It can only shift money from productive areas to less-productive areas, which inhibits economic growth. I think this is a must read piece and a reminder that, mandate or no, the Democrats are destined to repeat the failures of the past (with the help of some Republicans).

Bonus: The article also explains why Bush’s “tax rebates” in 2001 were a bad idea.

Everyone is going to the federal trough for bailout money now. It’s like a game of musical chairs; once the government starts playing the bailout tune, everyone scrambles to get in on it lest they be the company that was foolish enough to attempt to survive through normal means, i.e., trimming operations, greater efficiency and, if necessary, bankruptcy.

The list of industries seeking bailout money has grown to absurd proportions. For example, the following entities are now being considered for bailouts:

1. Credit card companies.

2. The auto industry.

3. The City of Detroit (not an industry, but they always have their hands out).

And this is after the government already overstepped and decided to prop up AIG, which mainly deals in automobile insurance.

I understood the need for a bailout of the credit markets because every other aspect of the economy — from GE to a local restaurant — is directly affected by a lack of credit.  Using some government money to get the credit markets moving was at least a plausible way of preventing the economic crisis from spiraling out of control. However, when the government starts to prop up individual companies and sectors to prevent layoffs and bankruptcies, then we’re in serious trouble.

A key part of the American economy has always been our general willingness to allow companies to go through hard times, even if that harms workers and investors in the short-term. We haven’t socialized risk. This is why American recessions are usually short, whereas in Europe and Asia, where they lack the gumption to allow the market to work itself out, recessions tend to be much longer and more painful.

If we are weak and try to bail our way out of this, we may be in for a long haul indeed.

On Uncommon Knowledge — a new installment every day this week!  The overall topic is Sowell’s distinction between the “constrained” and “unconstrained” views of human nature, especially as reflected in political activity.  Especially if you haven’t read or heard Sowell on this topic before, you’re in for a treat.

In today’s WSJ, courtesy of Carnegie-Mellon economist Adam Lerrick.

This is a link to a clip from Fox News where Senator Obama is addressing a plumber who is concerned about his taxes going up in an Obama Administration.  Senator Obama response is that it is his plan to “spread the wealth around”.  Yet another reason why we have to keep up the good fight.

The mortgage based security crisis has confounded me because I keep thinking, “So what if the mortgages fail, that’s what the underlying asset is for. Why is this thing so intractable?”

One gentleman in particular seems to have it laid out in a sensible and understandable fashion. I give you the thoughts of a fella named Uncle Bud. Here’s a taste:

Uncle Bud goes on to break the problem down into comprehensible chunks. Check it out.

I think Bill O”Reilly is a blithering moron, but this clip is worth it for the sheer entertainment value.

Leave it to a Canadian to come up with the best explanation I’ve seen regarding the current Conservative schism over the bailout. A taste:

If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him.

Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive “injection of liquidities” engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001.

“Whatever happened to the modern followers of my free-market opponents?” Marx would likely wonder.

What, indeed.

The risk-adverse side of me wants to see Congress pump $700,000,000,000.00 into the private sector. When bad things are happening, I think it is natural to want to see a proactive approach — to do something. What is tough for me is recognizing that my bailout desire is a product of fear, and not a reasoned decision based on what is best in the long term. Let’s face it, any Adam Smith worshipper should cringe at the thought of a “government bailout” of private markets.

That said, there is an argument for doing nothing, and it is an interesting one.

I’m not one of those huge, anti-bailout guys, though I think it sounds like a mistake.  But I keep hearing commentators suggest that this will kill the GOP in the upcoming elections.  Perhaps.  But how does voting against something that a majority of Americans oppose hurt you?  Am I missing something in the political calculation of all this?  I’d really like an explanation on this one.

Wow.

Thoughts?

Howard Fineman has declared the “bailout” to be the end of Reagan-era conservative economic politics, and I believe he may be right. While we have been running around in circles over the upcoming election, the music stopped, and Conservatives are the ones without a chair. (more…)

Although no one thinks the CRA is the sole cause of our current financial crisis, it looks to me as if virtually everyone thinks it’s at least a partial cause of it — and many argue that it is the primary cause.  (I don’t have links for this proposition just now.  Trust me.  I’ll add some later.) 

Surely if Congress has any interest in making sure we don’t go through another such crisis in the future, it will repeal the Act. 

Right? 

Here’s Cato chairman William Niskanen arguing the case for repeal . . . in 1995.

The Texas Public Policy Foundation has just released a study comparing the economic environments of the big boys, Texas and California. I would make a big deal out of it, but I don’t see anyone being all that surprised to find out that, per capita, Texas has lower taxes, less regulation, less government spending, and faster income and population growth than its Left Coast rival. The TPPF determined that Texas is better suited to handle economic downturns in the general economy and is generally better able to avoid fiscal crises. I suspect Gov. Schwarzenegger has already figured that out.

From Senator McCain’s remarks ealier today:

Senator Obama talks a tough game on the financial markets but the facts tell a different story. He took more money from Fannie and Freddie than any Senator but the Democratic chairman of the committee that regulates them. He put Fannie Mae’s CEO who helped create this disaster in charge of finding his Vice President. Fannie’s former General Counsel is a senior advisor to his campaign. Whose side do you think he is on? When I pushed legislation to reform Fannie Mae and Freddie Mac, Senator Obama was silent. He didn’t lift a hand to avert this crisis. While the leaders of Fannie and Freddie were lining the pockets of his campaign, they were sowing the seeds of the financial crisis we see today and enriching themselves with millions of dollars in payments. That’s not change, that’s what’s broken in Washington. (more…)

Love him, hate him, or go up and down depending on the issue (like I do), you can’t say he didn’t try to warn us.

*  Amity Shlaes is being interviewed this week on Uncommon Knowledge.

*  Walter Williams lauds Texas A&M economist Edgar Browning’s new book, Stealing From Each Other: How the Welfare State Robs Americans of Money and Spirit.

*  There’s a photo gallery of the very cool, recently-unveiled statue of Adam Smith in Edinburgh here.

*  The 2008 edition of the Weidenbaum Center’s annual estimate of the federal regulatory budget is now downloadable as a PDF file here.

More to come . . .

The 2008 edition of Clyde Wayne Crews’s Ten Thousand Commandments was released earlier this month.  If you’re curious at all about the size and scope of America’s regulatory bureaucracy, Crews offers a very good survey.  You can download it as a PDF file by clicking here. (more…)

Blackadder nails it (as usual).

These two articles provide a pretty clear explanation of the structural flaws in Freddie and Fannie. Last night, the same institution that created these time bombs passed legislation “designed to provide better regulatory oversight” for them.

Riiiiiiight.

“You Can Go Home Again” by Quin Hillyer.

“Individual Liberty and the Constitution” by Robert Bork, and the responses by Roger Pilon, Steve Calabresi, and Barry Friedman.

“Talking About Everything But What Matters” by Robert Samuelson.

“What onions teach us about oil prices” by Jon Birger.

More from the SA A/V corner — I recommend this video from February ‘07 showing P.J. in fine form, turning Adam Smith into a insightful comedy routine.  Info on his related book is here.

Cool photo and story are here.

A quick look this morning at two of the big online prediction markets — Intrade and IEM — confirms that Obama remains a heavy favorite to win in November.   Lo!  The Lightworker approacheth.  Our deliverance/salvation is truly at hand.

And yet:  The Dow moved into “bear market” territory yesterday, closing at 11215 — down more than 20% from its October 2007 high of 14164.

So:  Where the heck is the Obama rally?  I guess we just have to wait a while longer for Wall Street to notice that Nirvana is just around the corner.

Courtesy of George Weigel (from “God’s Choice: Pope Benedict XVI and the Future of the Catholic Church“):

Both democracy and the market unleash tremendous human energies; those energies must be disciplined and directed by virtues, if free politics and free economics are to lead to genuine human flourishing, rather than to exploitation and degradation.*

*p.48

Sen. Obama has just released some vague information on his economic plans, and it comes as no shock to discover that his promise of “change” is a warmed over return to FDR’s Keynesian nightmare. Like always, his “plan” is long on rhetoric and short on specifics, but all the moldy oldies are there: ending current tax “cuts,” massive increases in government spending, raising the capital gains tax, and generally taxing the hell out of the rich (or as I like to refer to it, shifting resources from the productive to the counterproductive).

I particularly enjoyed when Sen. Obama responded to McCain’s push for tax cuts by stating, “I’ve seen no evidence that…would actually boost the economic growth and productivity.” How nice for him, then, that the WSJ took the time to profile a new study showing that small government works.

For those who don’t want to read the whole piece, here’s the money shot:

The early supply-siders were right. My findings firmly reject the widely held view that lower taxes inevitably result in cuts in public services, slower growth and widening income inequalities. Today’s policy makers should take note of how tax cuts and the pruning of inefficient government programs can stimulate sluggish economies.

Reagan 1, FDR 0

Senator McCain has announced his support for offshore drilling.  As I was driving home from my parents’  home this weekend, I noticed an SUV with the words “Start Drilling Now” written on the back windshield with shoe polish.  I suspect that is a sentiment shared by many.

The GOP nominee delivered a populist rant against Big Oil, nefarious “speculators,” and “so-called economists” at an appearance in New York on Thursday.  The NY Sun editorial page scorched him for it yesterday.  This man desperately needs some help and advice in this area.

This seems an appropriate spot to recommend Stuart Rothenberg’s gloomy meditation on the possible meaning of a McCain win for the rest of the GOP.

Will someone in the McCain campaign please read this article and forward it to whoever is in charge of formulating the senator’s economic policy!