Comment 29701

By A Smith (anonymous) | Posted March 24, 2009 at 16:30:19

Ryan >> Trillions of dollars have simply disappeared - from both 'careless' and prudent investors, not to mention millions of lost jobs and disappeared retirement savings.

If you bought a home, or lent money to someone to buy a home from 2002 onward, then you have lost wealth. However, if you were smart and did not get involved in the bubble, you haven't lost anything. If you were sitting in cash and bonds, you are now able to buy stocks and other assets pretty cheap. Therefore, the pain that the bubble people are now feeling, is offset by the joy felt by the non bubble people.

As for the job losses, I told you before that when government increases spending it hurts the economy. Case in point, from 4th qtr 2007 to 4th qtr 2008, government spending has risen 11.4%, while the economy has grown 1.2%. Government has spent 10x faster than what the economy has produced in output. The result is a crowding out of the private sector, which leads to job losses.

>> Greed is not self-regulating and does not function as some kind of economic karma.

If government could help people understand that an asset bubble was forming, I suppose then that would be a good thing. However, why didn't the Democrats tell the American people that from 2002 onward? Even if Republican deregulation was causing too much investment in housing, I don't remember hearing the Democrats complaining about increasing levels of home ownership. If I am wrong, feel free to correct me.

>> When banks are allowed to mismanage money and fail, both the guilty and the innocent are hurt in equal measure.

If you regulate where people can invest their money, they will simply find ways around it. For example, there was nothing stopping a group of private individuals from starting a limited partnership that only financed mortgages. It could have pooled billions of dollars from individuals all around the world and financed the housing boom instead of the banks. If you truly want to stop bubbles, which is another term for over allocation of capital in one area of the economy, it's better to appeal to people's sense of caution. If the government had thrown up a chart like this one... ( ) , it would have done more good than any banking regulation.

>> The appropriate government response, when the private economy has lost confidence in the financial system, is to increase liquidity

In other words, people's desire to save money after they have suffered great losses is irrational and so the government needs to take their savings and spend them further into debt. Where is the evidence that suggests that decreasing savings in favour of consumption is good for increasing output? Here is a link that shows the complete

As you can clearly see, decreasing the amount of savings as a percentage gross national income hurts output, it doesn't help it. If the Obama wanted to increase the savings, he could keep taxes where they are and simply cut spending. Problem solved.

>> If there's not enough money in circulation to allow people to spend and invest, the answer is to put more money into circulation. This very policy in one form or another has been responsible for ending every single recession during the postwar period.

People have money, but they don't want to spend it, they're saving it. That's why Obama is frustrated, because the people aren't doing what he is telling them to do. As time marches on, people will get tired of saving and they will automatically feel more confident about spending. It just takes time.

>> I have no idea where you're getting your numbers.

>> Every economist from Milton Friedman to the left argues that Hoover's failure to increase lidquidity and inject countercyclical spending is precisely what allowed the 1929 crash to cascade into the Great Depression.

They're wrong.

>> In 1929, before the crash, Hoover cut the top marginal tax rate from 73 percent to 24 percent. Again, not sure where you're getting your information,

>> There you go again. Correlation != causality. Please, do yourself a favour and learn some actual economics - not this voodoo economic karma you keep peddling, but actual, empirical, evidence based analysis of how real economic systems work in practice.

I have shown a clear link between decreasing savings as a percentage of GNI and a reduction in real output. You have only provided unsubstantiated claims and appeals to authority. Show me some numbers and stop dropping names. Otherwise you argument in favour of big government is nothing more than folk wisdom.

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