Re: Townhall.com – 1/27/2009 – “What Are They Buying?” – Thomas Sowell

Typical one-sided thinking --- see only the facts that support your position, ignore the facts that discredit it.

Sowell says “The government is putting money into banks … in hopes that the banks will put it into circulation. But the latest statistics shows that banks are lending even less money now than they were before the government dumped all that cash on them.” The money government invested into the financial system is only a small fraction of the losses in assets the financial system suffered during the recent collapse and that investment went mostly to boosting capital to keep the financial system solvent. As banks bring their leveraging down, new lending will increase. But much pre-collapse loan volume was based on overleveraging and making lots of bad loans that had poor chance of repayment. Do we ever want THAT loan volume back?

Sowell says “Spending money for infrastructure is another time-consuming way of dealing with what is called an immediate crisis. Infrastructure takes forever to plan, debate, and go through all sorts of hearings and adjudications, before getting approval to build from all the regulatory agencies involved. Out of $355 billion newly appropriated, the Congressional Budget Office estimates that only $26 billion will be spent this fiscal year and only $110 billion by the end of 2010”. Is this an argument not to spend $26 billion now and $110 billion by the end of 2010? Furthermore, both the Great Depression and the Japanese economic difficulties lasted much longer than just a couple of years, and any realistic approach to our current economic problems must look further ahead than just an immediate time perspective.

Sowell says “If you cut taxes tomorrow, people would have more money in their next paycheck, and it would probably be spent by the time they got that paycheck, through increased credit card purchases beforehand”.  Unfortunately, lower taxes won’t help those out of work or minimum wage workers who pay relatively little in taxes in the first place. While I have no objections to rational tax cuts, I can see no reason why significant benefits to our current financial problems would come from tax cuts at this point in time. The question of lower taxes at a time when the economy is less sick is of course something else again.

Sowell sys “Crises have long been seen as great opportunities to expand the federal government's power while the people are too scared to object and before any opposition can get organized“. It seems that those who oppose federal power also see opportunity in crisis --- they claim good economy is the result of private enterprise and bad economy the fault of government, so when the economy is in crisis, take power from the government. This is not necessarily a wrong conclusion but is surely an illustration of milking a crisis. In fact, governments mainly step in to solve problems that private sector dynamics cannot solve --- yes, governments tend to act mostly in reaction to existing crisis. Forbidding government from dealing with crisis might eliminate some side effects that governmental action may produce but it will never solve any crisis. Of course, when problems have been solved and where side-effects of government problem solutions become worse than the problems itself, we the voters must instruct our elected government officials to stop trying to solve the solved problems. And we the voters must keep governments from attempting ridiculous solutions. If we can’t do our job, we are unfit to for democracy, and government overreach is the least of our worries. If we can do our job, let’s just do it.

Sowell says “In the name of protecting the taxpayers' investment, they are buying the power to tell General Motors how to make cars, banks how to bank”. As history has demonstrated, neither the government nor the banks seems to know how to make (or, more to the point, when not to make) loans and neither the government nor General Motors seems to know how to make cars. But the Treasury auction has proven to be at least as orderly a market place as the free market of corporate securities, and while the government doesn’t know as much about cars as BMW, Honda, Toyota, and maybe even Ford, GM doesn’t seem to know any more about cars than the government does.

Sowell says “To this day, we are still subsidizing millionaires in agriculture because farmers were having a tough time in the 1930s. We have the Federal National Mortgage Association ("Fannie Mae") taking reckless chances in the housing market that have blown up in our faces today, because FDR decided to create a new federal housing agency in 1938”. It is absurd to blame subsidized agriculture on Congressional reaction to the 1930’s agricultural crisis or FNMA’s financial overreaching on FDR. What government did to avoid future farm and financial crashes were appropriate for their time. What we the voters have let these programs become is something else again. We should consistently reelect those who keep government doing and only doing what government is supposed to be doing, and vote everyone else out of office. But ranting that the 1930’s government is responsible for all our financial troubles ignores the real issues of economic boom/bust cycles. And blaming government for everything is just plain stupid.