Steamboat Today: Murray Tucker, Ph.D.: Dire straits

Archive for Sunday, February 1, 2009

Sunday, February 1, 2009

Copy and paste the link:
Blog about this Blog about this page on your steamboatpilot.com blog.

Steamboat Springs — Economists will tell you that the impact of economic activity is at the margin. The proof, today, is that although the overwhelming majority of us have suffered paper losses, we must remember that we beamed about our paper gains. The problem at the margin is that 10 percent of our population is in dire straits - overextended on credit cards, overextended in mortgage payments and out of work.

The banks are holding the bag on most of these problems, suckered in by easy profits: collecting fees for outlandish mortgages, profiting from penalty fees and usury from extending credit to the noncreditworthy and not lending to business so that they could grow and keep their employees.

Congress approved a program called Troubled Asset Relief Program. What did the banks do with the money of which the government had no control? They paid executive bonuses, bought other banks and in no way contributed to what the economic need of the country cried out for - liquidity.

Broad-based tax cuts will do little to improve the economy. The people who get the most spend only 20 percent of marginal income. Outright cash to banks, what the Bush administration did, will do even less, as already proven.

Although some public works projects are just waiting for funding, such projects have a long-term multiplier impact, usually averaging two years.

If I were dictator, I would make the government lender of last resort, taking on risky private ventures, but doing what the economy needs - providing liquidity to the system. I also would reduce or eliminate state matching on such programs as Medicaid, freeing state budgets of one heck of a big burden that can grow only as unemployment increases forcing these locales to restrain other budget items, chief among which is education.

Tax reductions are popular, but in the end they will do little to improve the economy. Public works projects will be important only if this dire situation stays with us four or five years. Much has to be done, but so far, we have traveled the wrong road.

Murray Tucker, Ph.D.

Steamboat Springs

JLM (anonymous) says...

"Tax reductions are popular, but in the end they will do little to improve the economy."

The gross receipts of the Federal Treasury have increased substantially in the fiscal years following meaningful tax cuts.

The stock market has increased substantially in the fiscal years following meaningful tax cuts.

The Reagan tax cuts triggered one of the largest expansions in the economy since WWII.

Clinton's balanced budgets and surpluses were created by a Congress which refrained from spending all of the increased revenue.

The Bush tax cuts triggered one of the largest expansions in the economy since WWII and the Dow went to 14,000.

Consumer confidence was at an all time high.

The Congress increased spending at a rate higher than the rate of increased tax revenue thereby sucking the life out of the economy's ability to grow.

The expansion was undone, in part, by political intervention in properly functioning housing markets driven by political considerations which were compounded by slack regulation.

The SEC allowed "naked" short selling. The SEC allowed the creation of derivative securities (the demand for which was fueled by the enormous wealth looking for new investment vehicles) by 28-year old Wall Street whiz kids with mousse in their hair. Almost all failed derivative "bets" are more painful on the way down than "glorious" on the way up.

Not 1% of the people in Routt County could give an accurate description of these securities or what a credit default swap is or what it is used for.

Everybody in Routt County has more sense than to lend someone 5 x their annual income without income verification to buy a house particularly when they have a bad credit rating.

Nobody in Routt County would give more $$$ to someone who has wrecked their car --- with almost no strings attached --- and tell them to "keep up the good work!" Those idiots on Wall Street don't deserve to be saved. Darwin was right --- only the strong should survive.

Common sense is not very common these days.

Consumer confidence is at an all time low.

The answer is pretty damn simple --- reduce taxes for everybody, control government spending, get back to basics. We know this works as it has worked in the past.

If huge government spending was the answer we would not be in the fix we are because there has not been a bigger government spending program in recent times than the Iraq and Afghantistan wars. Government spending is not the solution.

[Please note that the words Republican and Democrat do not appear in the foregoing. This is an economic problem not a political problem.]

February 1, 2009 at 1:51 p.m. ( permalink | suggest removal )

60408 (Murray Tucker) says...

JLM I suggest you read the editorial by the paragon of conservative economists, Martin Feldstein, a person who was the voice of tax cuts in the Reagan years. Here is a url:
http://www.azcentral.com/arizonarepub...

February 2, 2009 at 10:35 p.m. ( permalink | suggest removal )