Wednesday, September 17, 2008


Well unfortunately I could get no Democrats to take the bait. No one cared to explain what government actions are causing our current economic problems.

That is probably because it is not caused by the government. I will let you in on a little secret. Government action is not the only or even biggest driver of economic trends.

The current crisis has a couple of components to it. One was high oil prices. This was caused by a number of concurrent international developments as well as some speculation in the market. However the market is correcting itself and prices are coming down. By Christmas I predict a gallon of Gas will be down to at least $3.00.

The second is the housing. Housing prices typically trend upward. However every 8 to 10 years the market gets overly exuberant and something happens that causes a correction. This usually hurts people trying to sell and developers but helps people trying to buy. It also has some effect on the general economy although short term in nature

This time is a little different. people can not take lower prices because they borrowed too much. This causes foreclosures which hurts lenders.

So this problem was caused by individuals and financial institutions making some bad decisions.
Not by a government action or inaction. Certainly not by tax cuts or any other Bush policy. BTW lest we forget it was the Republican tax cuts that that prevented a major recession after 9/11.

You could argue that the problem would have been avoided by more federal regulation of financial markets. However the Democrats really do not want to go there as Democrats have shielded Fannie Mack and Sallie Mae from stricter oversight and it was the Clinton Administration who deregulated financial markets blurring the lines between commercial and investment banking.

You could also argue that if the government had stayed out of the housing market instead of adopting policies that encouraged lending to people who really can not afford home ownership the problem would have been avoided but who wants to touch that sacred Cow?

Besides more regulation means less risk taking. Less risk taking means leass reward.

All in all the financial crisis we are in is just part of the business cycle. There will be winners and losers by the time it is all done. It is part of capitalism. More Government micromanagement of the economy is not the answer.

Next up what role should the government play in the economy?

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