AMERICAN CONSERVATISM IN 2008 AND BEYOND

C.I. wrote:

Nope. MAC governing philosophy does not discriminate as to political party. The guiding principle is less government, period. But the Reagan admin seems to have benefited the American economy overall while the Bush admin and the republican Congress definitely forgot those principles both I and MAC’s, support. Bush’s Medicaid part D seemed an attempt to head off liberal attempts at National health care by using market based methods involving the private sector. This actually worked quite well. I remember being at a Pharmaceutical convention where one of the speakers discussing all the initial problems of its implementation and final form intimated that it ended up costing almost 25% less than they thought it would. The competition between the private insurance companies had brought down the cost.
C.I. wrote:
MAC principles address this in an elegant and indirect way: smaller government requires less of the people’s money (capital) to run, so fewer tax revenues are needed. Your real world evidence can be found by retro-examining ever more previous years of smaller and smaller government attended by ever decreasing government expenditures. Why would increasing taxes help our economy? Capital is a limited resource and the more the government takes out of the economy the less efficient its use becomes. People who spend other people’s money do so less efficiently and frugally then those who have earned it.

Given those who earn the capital are better at finding its most efficient use why would taking more of their capital away from them via “legal plunder” (taxation) be better for our economy? If your argument is that the government can spend the money better than some people, MAC’s would not have any problem with that scenario. But since this is America they should have a choice. If they feel that Obama, Nancy Pelosi, or Barney Frank is the better one to spread their wealth around then so be it, otherwise they should be able to spend, save, or invest their capital as they see fit.

Seriously and with all due respect, we here on A2K seldom know the economic background or life experiences of our interlocutors and perhaps this is a source of misunderstanding. So, we could equate the efficient use of capital (say, the money we get in our paycheck) to buying a car or just renting it on vacation in a distant locale. Let’s say the location is Needles, Ca where it gets really hot in summer. In one case you have bought (with cold hard cash), after much saving and self denial for 12 years, a nice shiny black BMW 535i--it’s your baby. In the other you have rented the same car in the same exact condition. You drive each to the Mall on a sunny 103 degree day (Needles probably doesn’t have a Mall but…). You pull into the parking lot and see a spot open right across from the front door of the Mall, a walk of 5 yards .The spot is plagued with people constantly pulling in and out with all kinds of trucks and vehicles the ages of which vary widely. But on the way in you saw the back of the lot was completely empty, problem is the back lot is 200 yards away. Where would you park the car in each particular instance? When people earn their money, it is perceived, rightly, a limited resource and must be husbanded carefully. Run this thought experiment with the rented car being yours and the renter a government employee and we have governments’ stewardship of your hard earned money. Where will you park your money?
C.I. wrote: .
Excellent point and as you may or may not have observed this behavior has been fostered by government policies past and even present that have distorted pricing of Housing, money (credit), and even the price of gasoline. Gasoline prices are subject to demand and supply and to government fiscal policy (taxation, especially the constant threat of so called “Windfall Profits Tax”"a favorite political red herring, American oil companies see little reason to invest in more refining capacity (this is not to mention EPA regulations which raise similar questions regarding further investment). Additionally, recent government monetary policy (lowering interest rates) has led to a decline in the value of the dollar thereby leading to where we must use more dollars to buy a given barrel of oil. The price of gas just dropped because demand is way down (globally) and the dollar recently strengthed.
Housing I will leave to last but government monetary policy (specifically the Fed’s cheap money policy has, since the late 90’s led essentially to a negative interest rate. This policy made chumps out of savers so that one would be a fool not to borrow and spend. Why save the 30G’s to buy a big SUV while paying government taxes on the interest, what little there was, when you could use GMAC’s money at O% interest for 5 Freakin years? . Hell, at one time (2003) if you owned a business you could receive a Tax credit for buying a large SUV. If that’s not government picking favorites what the hell is? But I digress. Government monetary policy (the FED) was considered relatively neutral back then-- don’t think we can say that now and for the next 5-10 years. The danger is the FED suffers the very real danger of increased political influence in the future.



Well...“The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis.
If the cause was an unsustainable boom in house prices and irresponsible mortgage lending that corrupted the balance sheets of the world's financial institutions, reforming the housing credit system and correcting attendant problems in the financial system are called for. But if the fundamental structure of the financial system is flawed, a more profound restructuring is required.
I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.
The 2001 recession was brought on when a speculative bubble in the equity market burst, causing investment to collapse. But unlike previous postwar recessions, consumption and the housing industry remained strong at the trough of the recession. Critics of Federal Reserve Chairman Alan Greenspan say he held interest rates too low for too long, and in the process overstimulated the economy. That criticism does not capture what went wrong, however. The consequences of the Fed's monetary policy lay elsewhere
In the inventory-cycle recessions experienced in the last half of the 20th century, involuntary build up of inventories produced retrenchment in the production chain. Workers were laid off and investment and consumption, including the housing sector, slumped.
In the 2001 recession, however, consumption and home building remained strong as investment collapsed. The Fed's sharp, prolonged reduction in interest rates stimulated a housing market that was already booming -- triggering six years of double-digit increases in housing prices during a period when the general inflation rate was low.
Buyers bought houses they couldn't afford, believing they could refinance in the future and benefit from the ongoing appreciation. Lenders assumed that even if everything else went wrong, properties could still be sold for more than they cost and the loan could be repaid. This mentality permeated the market from the originator to the holder of securitized mortgages, from the rating agency to the financial regulator.
Meanwhile, mortgage lending was becoming increasingly politicized. Community Reinvestment Act (CRA) requirements led regulators to foster looser underwriting and encouraged the making of more and more marginal loans. Looser underwriting standards spread beyond subprime to the whole housing market.
As Mr. Greenspan testified last October at a hearing of the House Committee on Oversight and Government Reform, "It's instructive to go back to the early stages of the subprime market, which has essentially emerged out of CRA." It was not just that CRA and federal housing policy pressured lenders to make risky loans -- but that they gave lenders the excuse and the regulatory cover.
Countrywide Financial Corp. cloaked itself in righteousness and silenced any troubled regulator by being the first mortgage lender to sign a HUD "Declaration of Fair Lending Principles and Practices." Given privileged status by Fannie Mae as a reward for "the most flexible underwriting criteria," it became the world's largest mortgage lender -- until it became the first major casualty of the financial crisis.
The 1992 Housing Bill set quotas or "targets" that Fannie and Freddie were to achieve in meeting the housing needs of low- and moderate-income Americans. In 1995 HUD raised the primary quota for low- and moderate-income housing loans from the 30% set by Congress in 1992 to 40% in 1996 and to 42% in 1997.
By the time the housing market collapsed, Fannie and Freddie faced three quotas. The first was for mortgages to individuals with below-average income, set at 56% of their overall mortgage holdings. The second targeted families with incomes at or below 60% of area median income, set at 27% of their holdings. The third targeted geographic areas deemed to be underserved, set at 35%.
The results? In 1994, 4.5% of the mortgage market was subprime and 31% of those subprime loans were securitized. By 2006, 20.1% of the entire mortgage market was subprime and 81% of those loans were securitized. The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. If this crisis proves nothing else, it proves you cannot help people by lending them more money than they can pay back.
Blinded by the experience of the postwar period, where aggregate housing prices had never declined on an annual basis, and using the last 20 years as a measure of the norm, rating agencies and regulators viewed securitized mortgages, even subprime and undocumented Alt-A mortgages, as embodying little risk. It was not that regulators were not empowered; it was that they were not alarmed.
With near universal approval of regulators world-wide, these securities were injected into the arteries of the world's financial system. When the bubble burst, the financial system lost the indispensable ingredients of confidence and trust. We all know the rest of the story.
The principal alternative to the politicization of mortgage lending and bad monetary policy as causes of the financial crisis is deregulation. How deregulation caused the crisis has never been specifically explained. Nevertheless, two laws are most often blamed: the Gramm-Leach-Bliley (GLB) Act of 1999 and the Commodity Futures Modernization Act of 2000.
GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.
Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB.
When no evidence was ever presented to link GLB to the financial crisis -- and when former President Bill Clinton gave a spirited defense of this law, which he signed -- proponents of the deregulation thesis turned to the Commodity Futures Modernization Act (CFMA), and specifically to credit default swaps.
Yet it is amazing how well the market for credit default swaps has functioned during the financial crisis. That market has never lost liquidity and the default rate has been low, given the general state of the underlying assets. In any case, the CFMA did not deregulate credit default swaps. All swaps were given legal certainty by clarifying that swaps were not futures, but remained subject to regulation just as before based on who issued the swap and the nature of the underlying contracts.
In reality the financial "deregulation" of the last two decades has been greatly exaggerated. As the housing crisis mounted, financial regulators had more power, larger budgets and more personnel than ever. And yet, with the notable exception of Mr. Greenspan's warning about the risk posed by the massive mortgage holdings of Fannie and Freddie, regulators seemed unalarmed as the crisis grew. There is absolutely no evidence that if financial regulators had had more resources or more authority that anything would have been different.
Since politicization of the mortgage market was a primary cause of this crisis, we should be especially careful to prevent the politicization of the banks that have been given taxpayer assistance. Did Citi really change its view on mortgage cram-downs or was it pressured? How much pressure was really applied to force Bank of America to go through with the Merrill acquisition?
Restrictions on executive compensation are good fun for politicians, but they are just one step removed from politicians telling banks who to lend to and for what. We have been down that road before, and we know where it leads.
Finally, it should give us pause in responding to the financial crisis of today to realize that this crisis itself was in part an unintended consequence of the monetary policy we employed to deal with the previous recession. Surely, unintended consequences are a real danger when the monetary base has been bloated by a doubling of the Federal Reserve's balance sheet, and the federal deficit seems destined to exceed $1.7 trillion.”:

Phil Gramm

Mr. Gramm, a former U.S. Senator from Texas, is vice chairman of UBS Investment Bank. UBS. This op-ed (from WSJ Feb 20, 2009 page A17) is adapted from a recent paper he delivered at the American Enterprise Institute. Gramm received his doctorate in economics from the University of Georgia in 1967. He then taught economics at Texas A&M University from 1967 to 1978.[1] In addition to teaching, Gramm served as a partner in the economic consulting firm Gramm & Associates (1971"1978).

Note: I do not blame greed. Greed is a human foible that we all share. It is only when the rules are changed by government to pick favorites that allows certain individuals or entities to profit and others to suffer. It is government meddling in the economy that creates imbalance, distorts prices (including that of money), and favors excessive behavior of economic actors (See reference to CRA, Fannie Mae , and Freddie Mac above).

Looking forward the simplest and quickest path for the U.S. government to instill confidence in the markets and shorten the recession is to leave the capital that remains in private hands (The government hasn’t had any capital for years which wouldn’t be a problem if it didn’t have so many future obligations.) First pass laws allowing for the repatriation of corporate profits (Capital earned outside the U.S. and owned by American Corps that sits overseas because of current U.S. tax laws) and extend Bush tax cuts if not make them permanent (If necessary rename them to make the Democrats feel better. They seem to like the obfuscation of names such as “Pay Go” or AMT: Alternative Minimum Tax " Which grants no alternative and maximizes one’s federal tax liability.). Then Congress should promptly recess for the next year and a half while collecting only 10% of their salaries the balance going towards paying off Chris Dodd’s sweetheart mortgage deal from Country Wide’s Anthony Mozilo. Any excess can be grudgingly applied to those who bought Florida Condos right before the end of Chris and Barney's Ponzi scheme and missed the ”Flipp’n” opportunity of a lifetime.

JM

Foxfyre wrote:

Diest TKO wrote:
DTKO some assumptions of mine:
Your words above are in response to Foxfyre’s quote immediately preceding yours.
and
Your “It's still about the individual and not the society as a whole. “
Equates Fox’s “constituents” to your “individual”

If true then:

Yes, it’s not only still about the individual it was originally and continues to be about the individual. Charity begins at home, God helps him who helps himself, the protestant work ethic"all this is what our country (U.S.) is based upon and held it in good stead. The philosophy works in a smaller setting and even more so in larger settings such as ours where 40% of those who work for a living do not pay taxes (this includes those whose tax liability and even income is subsidized by “the government”). Fact: in 2006 the top 1% of earners paid 39.9 % of total personal income tax. The top 10% paid over 70% of that figure. ( http://www.ntu.org/main/page.php?PageID=6 ) Those that argue that the rich must pay more might be rightly asked to direct their attention to these facts. Given fairness, a flat tax might better fit this reasoning, if it’s honest. The evil capitalist system driven by American individuality, innovation, and efficiency (the very qualities that seem to be disappearing) has produced a system so productive it can support a wasteful socialism that us MAC’s rail against. So, perhaps, we MAC’s are wrong. Perhaps our system can support a little more socialism. But, like the actuarial nightmare that is Medicaid and, especially, Medicare, would it not be wise to ask how much is a “little more” socialism? When will the top 1% support, well, all of us? Indeed, when will the golden goose of socialism finally be cooked? Who will pay? Should we all get state, local or federal jobs? Many have great benefits. Eureka! But wait, where will these government entities get the money to pay us?

What would be a good national outlook and why should Americans adopt it?

JM

What utter NONSENSE!

I CHALLENGE U on that: HOW did the USSC make the choice for us?
Exactly HOW ???

We elcted W because we were fighting against the left.

W was bad, but Gore n Kerry were much much worse.


Now, please TELL US how the USSC made any choice for us.

Here they are again



In Walter Williams' essay that I posted yesterday, he provided a beautiful illustration of that 'invisible hand' or laissez-faire economics and why no President and no government can possibly be able to factor all of that into the mix when they start meddling with the economy. And that is why providing no impediments and providing encouragement for the free market to work is the only sensible approach to take re the current economic downturn.

The only thing that would make this excellent video better (post 3,579,343) would be one depicting Barney Frank "rolling the dice" and how it affected the housing/credit mess. Let's see THAT multiplier effect!

JM

Thank u, Foxfyre.
This is the first time that I 've seen that acronym.

I have some degree of familiarity with the concept.
It is one that I have adopted and endorse.
I am indeed a classical liberal supporter of laissez faire economics.
I hold Adam Smith and Ludwig von Mises in the highest esteem.

The essence of liberalism is DEVIATION from something,
be it a body of rules, a fashion, a statute, a belief, a contract or a constitution.
Conservation thereof entails inflexibly and rigidly unyeilding, unbending,
whereas treating it liberally is to compromise its concepts,
deviating from the original paradigm.

I 'll check the Walter Williams essay that u posted. Thank u !



David

DiestTKO actually coined the acronyn MAC. Some MACs liken it to Reagan Conservativsm but that really doesn't describe it as well as 'classidcal liberalism' does. Most people on A2K (or anywhere else) aren't educated in the concept of classical liberalism so that term doesn't really say it either and 'liberalism' in America now is used to describe the leftwing ideology shared by most. MAC is used to distinguish modern 'conservatives, as they see themselves,' from the rigid conservatism of the dictionary (and as the liberals want to define it) and also from the neoconservatives and far right wing wackos.

So far fellow MACs have been able to understand the concept. The liberals, of course, continue to bash conservatism in general and have so far proved incapable of discussing any pros and cons of the values/concepts within the definition for MAC. I trust some are capable of that kind of critical thinking and analysis, but unfortunately on this thread, liberalism seems to come with so much bigotry and prejudice that it blinds its advocates from being able to see or discuss any other point of view.

Conservative means orthodox.
Conservative means keeping rigidly unbending in the enforcement of a rule,
or law, or agreement or some paradigm; accordingly, conservatives conserve
that rule or agreement or paradigm (e.g., a common style of dress).

Liberal means deviating from some rule, or law,
or agreement or some paradigm, and not taking it too seriously.

For instance,
if men are playing poker n one rakes in the pot
alleging that he has a flush, when he has 4 clubs and a spade,
and when challenged on this behavior, he declares
the liberal motto: " hay, that 's CLOSE ENUF; don 't be
too technical; don 't split hairs; just don t be a ball buster, OK ?
I had a fight with my cousin, yesterday I got a flat tire,
I belong to a minority group and my left foot stinks, so gimme a break n deal the cards."
If he thereafter claims to have a flush with 3 clubs, a spade and a heart,
he is being MORE LIBERAL than he was before,
as to his interpretation of the rules of poker.

Hence, he advocates the position that logic shoud be SUBORDINATED to emotion
and that thay shoud take a LIBERAL VU
of the rules of poker because his sob story OUTRANKS
the technical rules requiring 5 cards of 1 suit for a flush.

"Conservative" means non-deviant.
"Liberal" means deviant.
Without having deviated from something no one can be liberal
because the essence of liberalism is turning away from something.

For instance, if u attend a formal banquet in a black tuxedo
with red sneakers, u deviate from the paradigm of formal dress,
thereby taking a liberal vu thereof. If u attend it in your underwear,
then u take a MORE LIBERAL interpretation of that paradigm.
If u attend it naked, then u apply a radical interpretation
( "from the root" ) of that paradigm.

Whether liberalism is good or bad
depends upon WHAT the liberal is veering away from.
Like when Boris Yeltsin veered away from communism, that was a GOOD thing.

Liberalism includes ANY kind of deviation,
in any direction of 360 degrees of arc + up n down.

There is no logical semantic constriction on liberalism
that it can only exist in the direction of collectivist-authoritarianism a/k/a socialism.
Deviation can be in the opposite direction or in any direction.


David

It can mean that and it can also mean appreciating and furthering traditional values, being prudently cautious, choosing a lesser risk, protecting/taking care of/preventing misuse of people, resources, or things, saving or holding in reserve, unwilling to squander, choosing the responsible path, and many other commendable, defensible attributes.

Yes.
Liberal and conservative are both relative words, having no meaning
of themselves, except insofar as thay relate to some designated standard.
To my mind, conservative means orthodox.
It means perfectly in keeping with some body of rules, with no deviation therefrom.
In a political or economic sense, conservative means in harmony
with the views of the Founders, as expressed in the Supreme Law of the Land.
By its curtailment of the domestic authority of government,
the US Constitution is an instrument of personal liberty.

The Founders knew that personal freedom and the authority
of government are INVERSELY PROPORTIONAL.





David

But there you share the liberal's definition of 'conservative' moreso than mine. Please see my immediately preceding post.

Conservative does not have to be rigid. For instance, I am a 'conservative' investor at this stage of my life which means that I am willing to assume less risk than I was willing to assume when I was 40. But that does not mean that I am inflexible or not constantly learning and changing my opinion and reworking my meager portfolio and redeveloping strategies all the time. Conservatives can change what needs to be changed, but they don't generally rush in willy nilly and assume that any change is bound to be better than what already is. And Conservatives don't see any virtue in changing what is known to work and work well.

Did u infer my post to intimate that inflexibility is bad ?
I did not intend to express that; I don 't believe it.

For instance,
a conservative mathematician will tell u that 5 = 5.

There is no room for a liberal interpretation
that 5 = 5.2 ; if a liberal argues that the latter interpretation
will aid the poor, it remains inflexibly true anyway that 5 does not = 5.2; regardless of the poor.

If the poor don 't like it, its just too bad.



David

Oh okay, we're probably arguing on the same side of the fence and just stating it from different perspectives.

I strongly resist labeling the MAC ideology as 'unyielding' or 'unbending' or 'inflexible' except as such should pertain to those things known to be right, good, valuable, correct etc. Your math example was a good example of that. Another would be the unwillingness to compromise certain principles for political expediency.

Did you have a chance to read Williams' essay--I think it is 2 or 3 pages back from here. I would be interested in what you thought about it.

Or here's the link:
http://www.gmu.edu/departments/economics/wew/articles/09/EconomicMiracle.htm

Foxfyre, it is sort of a myth that conservatives are inflexible or are unable to change. I have a few examples. Conservatives would love to bring drastic reform to education, perhaps to the tax system, to the labor issue in regard to unions, and to immigration policies, just 3 biggees to start with. And Conservatives would love to reform completely or totally eliminate some bureaucracies. In contrast, Obama and liberals wish to preserve government education and the teachers union, preserve the labor unions, and most of the bureaucracies. Democrats and liberals will fight to the death any consideration of reforming or eliminating many bureaucracies.

Conservatives want to conserve, conserve what works, what has been proven to be sound, sound business practices, honesty, good laws, basic morality, but where we have gotten off the well beaten proven path, conservatives want change back to what is sound and what has been proven to work. And conservatives will advocate something new, if the principles of that new thing are sound and proven in other ways.

That's what it has come down to isn't it Okie?

In so many ways, MAC's or Modern American Conservatives are the classidcal liberals willing to change what needs to be changed for the better while preserving time honored basic principles and promoting what is good and what works. . . .

It seems to be the MAL's or Modern American Liberals who have become the old hardlined conservatives with their heels dug in to protect all those social sacred cows that have long outlived any usefulness which they once might have had and now are just expensive and sometimes counterproductive bureaucracies.

I find it interesting, that for example, lets look at this last election, Obama ran on "change." In reality, he advocates more of the same old liberal policies, failed policies, except just alot more of it. Lets look at Huckabee, considered to be a conservative, yet he advocated one of the most daring and innovative policies ever proposed for government, doing away with the current taxing system and replacing it with the national retail sales tax. It did not receive traction, but it would have in fact engineered real change, drastic change to how the government works, how it funds its activities, and how commerce would work in this country, which affect the very fabric of how we do business. Also, I believe conservatives advocated totally reforming education by injecting vouchers or some alternative, to inject competition into a failing educational system. In contrast, Obama advocates throwing more money into the same old basic failing system.

In regard to Obama's change, I think he is some kind of extreme socialist or marxist, ultimately, it is really hard to tell, but one thing seems evident, he does not act as a proponent of free markets, his heart does not seem to be in it, and the markets and economy show it. But what he seems to want to gravitate to are old, old, failed policies that have been proven to fail in the past.

No you can want to change those things but you can still be conservative; i.e. cautious, principled, careful, not reckless, not imprudent. For instance you don't foist new math teaching methods onto kids without evaluating whether kids learn better when such methods are used as opposed to the old tried and true methods of using math.

When I graduated from highschool, it was an extremely rare kid who could not properly make change, tell time from an analog clock, or recite his/her multiplication tables at least up through 10 or 12. These days they are graduating kids by the gross who can't do these simple things or who have never experienced the exhilaration of honestly succeeding in mastering a difficult subject..

The 'conservative' point of view is that teachers should focus on the fundamentals of a subject and the kid should not pass until he or she has mastered a certain number of those fundamentals. It's okay to vary teaching methods so long as they accomplish the goal of teaching fundamentals and when a method doesn't work, it should be changed. But if something works effectively then you don't fix what isn't broke. A good teacher measures his/her success by his students legitimately earning a passing grade.

The 'liberal' point of view is that kids should be more free to express themselves and we need to understand why some children are disadvantaged and therefore can be excused for lagging behind and it is too damaging to their self esteem to not pass them just because they are lagging behind. (Or some equivalent nonsense such as that.)

There are certainly some good arguments for being hard nosed and unyielding about such things.