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How Low Do You Think the Dow Will Fall?:
This morning the Dow Jones Industrial Average is down again another few percent: Right now it is around 6600. I'd be interested to know what readers think about how low the Dow will fall. Over the next 5 years or so, how far down do you expect the Dow to drop?

How far do you think the Dow Jones will drop in the current recession?
It has already reached the low point.
Between 6000 and 6500.
Between 5500 and 6000.
Between 5000 and 5500.
Between 4500 and 5000.
Between 4000 and 4500.
Below 4000.
I don't know.
  
Free polls from Pollhost.com


Jon Roland (mail) (www):
I expect below 1000, and perhaps below 100, or that Dow-Jones will go out of business and there won't be any index.
3.5.2009 11:38am
sonicfrog (mail) (www):
Just last week I was sure that the bottom would be somewhere around 6200, but now I'm starting to get the feeling it will get down to 5000 before this is all over.
3.5.2009 11:44am
SMatthewStolte (mail):
I just voted for the most pessimistic option, without any real historical sense of what that would mean.
3.5.2009 11:46am
Vanceone:
How low can it go? Well, unless things change--and they don't seem to be--the rate of freefall is staggering. The Dow is down what, 50 % since mid september, when Obama pretty much wrapped up the election? And dived well over 1300 points since his inauguration?

There's no sign of a bottom yet, what with GM pretty much throwing in the towel and GE now on the fast track to bankruptcy. Citi is toast too. Hope and Change!

I.E. I hope I have some change left in 2012. But All signs point negative still.
3.5.2009 11:46am
GD:
We should have truth-in-advertising on the S&P 500 soon.
3.5.2009 11:47am
mogden (mail):
It is not a recession. It is a depression.
3.5.2009 11:50am
Apodaca:
Who cares? Through the magic of time travel to the March 8 Washington Post, I have it on good authority from James K. Glassman himself that Dow 36,000 is still a lock.
3.5.2009 11:52am
Vanceone:
To be a bit more specific: Obama is clueless, and the world has figured it out. He doesn't know the first thing about economics. Witness his "pep" talk the other day--getting the most basic things wrong on the P/E. Plus, everyone knows the stimulus is just a political payoff, and tremendous spending. All that money has to come from somewhere, and that means T-Bills are sucking all capital out of the market.

Plus, the proposed business killing taxes coming down the pipe, such as cap and trade, will destroy the energy market for all consumers, who will be paying out the nose for electricity, gas, fuel, etc. They won't have any money to spend on anything else. Remember, Obama is on record as loving gasoline over $4 a gallon.

And all of those "indispensable people" like Geithner, et al--they haven't done a thing except appear clueless. Who trusts them?

The fundamental problem is that the Obama administration has destroyed any trust in the market. Who's going to invest today? We have no guarentees of stability, and Obama has shown he's a tax and spender on a scale never before seen. Obama is either incompetent at best, or deliberately TRYING to destroy the economy to get everyone hooked on government. So why would the stock market go up?
3.5.2009 11:52am
Bart (mail):
That depends upon whether the Obama Administration ever comes up with a viable bank plan and whether his spending, borrowing and taxing proposals are defeated by an increasing restless group of Blue Dog Dems.
3.5.2009 11:56am
Mike in KC (mail) (www):
Looking at the situation some what rationally you would see that the market is grossly undervalued. Yes, some banks had "toxic assets" on their balance sheets so there should have been some market revaluation. All banks, however, have suffered the fallout. If you look at the markets today, you will see more than a few companies trading below the book value of their assets.

There are two main players in the markets free fall. One, individuals fearing the worst and pulling their money out. Much like the bank rushes that caused the collapse of many profitable and viable savings and loans institutions. Two, people with cash (and some credit) available are speculating on day to day prices and long-term prices. Day to day, they are putting money in and pulling it out to capture short-term gains. Long-term, they are holding out to make long-term investments until they are fairly confident the market has bottomed out. Thus, you see blue chip stocks struggling because no one is ready to hold for the long-term.

Short answer, the markets will fall as much as people will let them. Once people settle down and believe that we have reached a bottom there will be a huge up swing. We are talking 2,000 points in a couple of days.
3.5.2009 11:56am
Apodaca:
The fundamental problem is that the Obama administration has destroyed any trust in the market.

Exactly. What else could possibly explain the present lack of trust in the market and our financial institutions?
3.5.2009 11:57am
PC:
3.5.2009 11:59am
sg:
Nobody knows what will happen in the stock market. Those who say they know are fools.
3.5.2009 12:00pm
Gramarye:
"I don't know" is the only accurate answer to this question, but also the least entertaining to debate.
3.5.2009 12:05pm
Soronel Haetir (mail):
And the scary part is that this period will be forgotten so that if the market is around 8-9k in 2012 Obama will take credit for it and say "Look at how good we're doing." The markets will have to remain tanked for it to stick. And while I can easily see that being true for 2010, I'm not at all sure about '12.
3.5.2009 12:05pm
kdonovan:
My understanding (and quick back of the envelope translation of S&P500 to Dow) is that Robert Shiller's cyclically adjusted P/E ratio of 20th century bear market troughs following bubbles shows the bottom should have the Dow at around 3800 - assuming corporate earnings don't fall any further. Given that, I think Orin's choices might not include the relevant range of choices.
3.5.2009 12:06pm
Tracy Johnson (www):
Need some Limbo music... "How LOW can you GO? A little limbo lower now ..."
3.5.2009 12:08pm
Highmesa (mail):
This is a trick question.

Before one can truly make a guess, we have to know whether we are talking real dollars or nominal dollars.
3.5.2009 12:08pm
Vanceone:
Look: For those who are trying to absolve Obama here, it's real simple: The Saving's and Loan debacle in the 1980's was, objectively speaking, equivalent to what happened in the credit markets last year. So why are we in such a problem now?

Or, indeed, look at 9-11: We had the dot com bubble bursting, combined with 9-11 having a devastating impact on things.

So why are we seeing a fundamental difference in reaction? Tell me, O wise Obama backers, when is the market going to rebound? Why would they? When are you going to put any money into this current market? After all, you make any capital gains and Obama's going to tax it. If you pick the wrong company, Obama will nationalize it. You think he won't? What evidence is there that Obama would never nationalize a company?

Am I defending Bush? No, this started on his watch. But Obama is making things worse. How could you pump a trillion dollars into the economy with less impact than Obama is? It's almost uncanny.

No one is making a bet that things are going to get better--that's why the market is dropping like a rock. And it's not panic selling either, like a 700 point drop in one day. It's steady, continuous decline. Is it all Obama's fault? Of course not. But who has any confidence that Obama's solution will work: Tax and spend! Take more money from companies and people, and spend them on pet Democratic projects. How does that help? Cap and trade--there's a system designed to help struggling companies! Taking what was it, 600 billion dollars from them will make them meet their bottom line!
3.5.2009 12:08pm
bc4 (mail):
Panceona,

Good spot on most of the drop happening since Obama locked up the election in mid-September. See here, for example. What's really interesting is that the market was totally fine when Obama first declared he was running for president a few years ago. Now look at us.

Anyway, I think you've make a good case that the stock market has fallen because of Obama. It's either that or all the toxic assets and ridiculous leveraging. Or you know what else I just noticed? The economy was doing fine until the Buffalo Bills began to fall out of the playoff hunt last year. Hmmm.
3.5.2009 12:09pm
js (mail):
I would say the fundamental explanation is that everything in the stock market was overvalued, both according to historical metrics and according to the fact that the finance industry (credit default swaps in particular) and the real estate market were based on fantasies or ponzi schemes.

see Bloomberg article "Buffett, Janet Tavakoli Flag Ponzi Scheme Bigger Than Madoff's" or any other articles written on the subject.


the stock market went up and up but it never created anything of value, and now investors have figured that out. it's been dead cat bouncing since before obama got elected, that doesn't mean that there ever was any real recovery or move towards recovery thus far. and i don't really think that much of what is happening in the stock market now can be laid at his doorstep, it was bad fundamentals.
3.5.2009 12:14pm
Granny44 (mail):
We used to have a saying:
"The Dow will never break 1000 and the Erie Lackawanna Railroad will never pay a dividend."

And the breaking 1000 refers to from below to above.

Alles ist relativ
3.5.2009 12:19pm
Jon Roland (mail) (www):
The drop is somewhat steady because there is a lack of buyers for stock at any price. Then once in a while a timid buyer appears to buy a few shares, perhaps below the asking price, and the price is reset. Look at volume, not just price.

What we are headed for is a world without any wealthy people in it. Just a lot of gold held by Dubai, which the U.S. may decide to "liberate" to "protect" it from "terrorists". I already get reports of Administration plans to once again make it illegal to hold gold, and perhaps silver as well, and there have already been raids on gold and silver vendors to seize their inventories.
3.5.2009 12:21pm
PC:
The Saving's and Loan debacle in the 1980's was, objectively speaking, equivalent to what happened in the credit markets last year. So why are we in such a problem now?


Ask Europe. This bubble is an order of magnitude larger than the S&L crisis. The S&L crisis was estimated to have cost $160 billion. AIG alone is $160 billion in the hole. Citi and BofA are insolvent. The ibanking sector of Wall Street has been destroyed. But hey, keep on believing this is the market reacting to Obama instead of the real problem: the unwinding of a massive global credit bubble. You can probably get a gig on CNBC with talk like that.
3.5.2009 12:21pm
sarcastration (mail):
this has nothing to do with Obama, everyone knows markets are not forward looking. In fact, because obaba is president, the market has tanked less than it would have, he's actually saved you money.
3.5.2009 12:28pm
Bart (mail):
js:

I would say the fundamental explanation is that everything in the stock market was overvalued, both according to historical metrics and according to the fact that the finance industry (credit default swaps in particular) and the real estate market were based on fantasies or ponzi schemes.

The markets dropped to or below historical P/E levels back in October 2008 before the elections. Since then the markets started going sideways with downward spikes when Obama was elected, when Obama was inaugurated and finally went on this free fall starting when Congress enacted the monster Porkulus spend and borrow bill.
3.5.2009 12:29pm
Vanceone:
PC: You are incorrect. Yes, there was a massive global credit bubble. Yes, that has a lot to do with it.

So since we've lost over 50% of our stock market wealth in less than a year--probably worldwide--are you suggesting that the credit bubble really was inflating the worlds economy by 50 %?

The answer is that it's BOTH. The credit bubble imploding, and the total lack of confidence in liberal tax and spend policies to fix it.

What is Obama doing differently than Roosevelt in 1932-33? The same thing, except bigger and "better." Why not the same results? 8 years of economic malaise and punishment of anyone who manages to succeed. Yes, it started before Roosevelt. But Roosevelt made it worse. Obama is doing the exact. same. thing. Taking a problem and making it worse!

And yeah, darn those CNBC'ers! how dare they criticize The One? It's Unamerican to dare speak a word of approbation towards our One True Savior!

Anyone seen the seas recede yet, by the way? I remember that was promised too.
3.5.2009 12:31pm
Hadur:
I am currently playing the online Stock Market Game with some of my friends, many of whom have far more business experience than I. I short-sold a bunch of stocks. I am by far in the lead as of today.

:-)
3.5.2009 12:34pm
Jon Roland (mail) (www):
By the way, I am predicting that the stock exchanges that have "floors" will all go out of business, like the daily newspapers. Only electronic exchanges like NASDAQ will survive, and even they will only barely survive after cutting back on staff.
3.5.2009 12:37pm
A. Zarkov (mail):
The Dow should bottom out somewhere around 3,600. I base this on using (modified) Tobin's q as presented in the book Valuing Wall Street. We have already dropped below the historical average for q, but I expect undershoot so look at the low point on the q versus time graph. Tobin's q does better than P/E at predicting general market increases and decreases. But note q cannot be used for individual stocks or market timing. It gives the probability of future direction, and it could take years to reach the predicted value.

On the other hand, if Obama succeeds in his mission to destroy the American economy, then all bets are off. The US market could collapse and go out of business as many other markets have in history. At this point, I think there is about a 50% chance this will happen. So my alternate prediction is Dow= 0.

George Bush wounded the American economy and Obama is trying to finish it off. So far he's off to a good start. The markets are spooked, and in my opinion investors are giving a resounding vote of "no confidence" in Obama. Of course others might differ. We will see whose the schmuck in a few years.
3.5.2009 12:39pm
PC:
Vanceone: The derivatives market is estimated to be between $500 trillion and $1 quadrillion dollars. Let that sink in for a bit. The Gross World Product is an estimated $54.62 trillion. Do you see the problem yet?

I know it's fun to blame the tax 'n spend Democrats, but this problem has been building long before Obama.
3.5.2009 12:42pm
Vanceone:
Another issue is that people are sick of Obama punishing success and rewarding failure.

Take the mortgage debacle: It's pretty clear that Obama wants to reward those who recklessly went in over their heads by bailing them out. How? By taxing those people who were responsible. And it's not just first mortgages--the Washington Post says that people with second mortgages are going to be bailed out too. See this link for an illustration of the fundamental problem with Obamanomics: He cannot be trusted.

In short, under Obama, those who are not productive are better off than those who are working hard. You work hard and succeed, you are going to pay for all those freebies people who do NOT work hard will get. The Stimulus plan destroyed the 1990's welfare reform, remember. Now it encourages welfare abuse once more. Responsible, hard working Americans are watching those who are not get all the benefits of Obama's new "Change" and they are figuring out that "Hope and Change" means that those who don't do anything are getting the change out of the pockets of those who do.

Why work in Obama's new society? He's gonna pay my mortgage and give me a new house! And my second mortgage! And all my medical bills! And food stamps! Who needs a job?

It's no wonder that this, along with the existing problems, is making people pull out of the stock market.

There is a booming industry, though.... Guns and ammo! Oh, and food stocks too. Gold and silver as well.
3.5.2009 12:45pm
LN (mail):

The Saving's and Loan debacle in the 1980's was, objectively speaking, equivalent to what happened in the credit markets last year. So why are we in such a problem now?


How was the S&L crisis objectively equivalent to what's happening now? As PC noted, the total cost of the S&L crisis was $160 billion. Compared to what happened in 2008 to AIG, Citigroup, Lehman Brothers, hell the entire investment banking industry.

Also consider global equity markets -- the US stock market has gotten off easy compared to the international markets in general.

This is not a defense of Obama. But the financial sector has basically been wiped out, and no it's not because of the GIGANTIC PORKULUS BILL.
3.5.2009 12:46pm
LN (mail):
AIG is currently trading at 37 cents a share, down from 70 dollars a share back in mid-2007.

Citigroup is currently trading at 1 dollar a share, down from over 50 dollars a share back in mid-2007.

Clearly if we canceled research on volcano monitoring, these companies would be in much better shape.
3.5.2009 12:49pm
A. Zarkov (mail):
How big is a trillion?

A number this large is outside of human experience and I suspect most everyone has a problem conceptualizing it. I'll try. If $1,000 bills existed, then a $1 million would give you a stack 4.2 inches high. A million is still and lot money to most folks and at one time you could live off the interest.

How high would a trillion dollar stack be? Answer 66.29 miles!
3.5.2009 12:50pm
Michael B (mail):
1) Are we projecting a truly systemic and foundational settling of Obamaesque politics qua tribalism, one that effectively and long-term does in fact supplant conceptions as represented in the founding?

2) Are we projecting it will be arrested at some point, but not reversed?

3) Are we projecting it will be both arrested and reversed?

The jury is still out but the indicators are not propitious, certainly not decidedly so. The good news is it depends upon the American people; the bad news is similar, together with attendant facts that include administration/media cooptations together with wider and related cooptations.

Promised, vs. what we have. (Pictorial and highly generalized only, but indicative nonetheless.)
3.5.2009 12:51pm
LN (mail):
How much has the Iraq war cost?
3.5.2009 12:52pm
PC:
How much has the Iraq war cost?

The Iraq War was the US government's own level 3 asset.
3.5.2009 12:55pm
NTB24601:
The stimulus package wasn't large enough to pull the nation out of this depression. President Obama made a mistake similar to FDR's mistake that lengthened the Great Depression; namely, he diluted the recoverage package by compromising with the advocates of discredited Republican economic theories. Recovery from this depression will require something approaching the order of what ultimately pulled us out of the Great Depression: the truly massive government spending required by World War II.
3.5.2009 12:56pm
Vanceone:
You Obama defenders don't get it: the problem is that NO ONE has any confidence in Obama fixing anything. Yes, the financial sector has gone belly up. But it went belly up last year--in September and October. AIG was in trouble last year. So was Citi. Why, then, has the market plunged so much SINCE Obama's inauguration? It's because no one thinks he has a clue.

Look, the economy faces real problems. But the poster who pointed out that all of the significant fast drops in the stock market have occurred around Obama things is correct.

Just watch the markets--they start dropping every time Obama or one of his economic flunkeys open their mouths. It's pretty good investment advice: Sell on an Obama statement. If you'd have done that this year, you would be sitting pretty so far.

Who has confidence that Obama can fix this? Or that his current policies can fix this? Anyone? Yes, we have a dead financial sector. Or dying, at least. What's the remedy being offered? Who thinks it's gonna work? anyone? Bueller?

Even Bill Clinton had to tell Obama to stop talking down the market--he was making it worse.

We are looking at Obama seizing this chance to implement a socialist if not communist economy and destroying anything that stands in his way. How much in spending has Obama and the democrats proposed so far this year? Isn't it well north of 3 trillion dollars? And it's only March! We still haven't gotten to this years budget! Who is going to pay for it? That's what the markets are worried about. If the problem is too much debt, then how is the US government going 30 percent deeper in debt in two months reassuring?
3.5.2009 1:01pm
TruePath (mail) (www):
The fact that readers expect the dow to continue to fall by large amounts suggests they are substantially more pesimistic than the major players in the stock market.

After all the Dow Jones is primarily a reflection of investor's predictions of it's future value. If everyone thought a particular stock would be certainly worth 2x tomorrow what it is today it would jump up to that price immediately (no one would sell at less).
3.5.2009 1:06pm
Prof. S. (mail):
PC - re: whether the 2000-2001 crash was Bush's fault that you cite to - Yes, the Nasdaq went down 33% during an equivalent period for Bush, but the Dow only moved from 10,900 to 10,600.

By contrast, here, everything is down. Since McCain's brief RNC bump, the Dow has gone from about 11,500 to nearly 6,500 today. The Nasdaq from 2,200 to 1,300. The S&P from 1,200 to <700.
3.5.2009 1:07pm
A. Zarkov (mail):
"Recovery from this depression will require something approaching the order of what ultimately pulled us out of the Great Depression: the truly massive government spending required by World War II."

You are making several serious mistakes. We have a very different economy from the days of the Great Depression. The US was a manufacturing power house and we had much idle capacity-- we were exporters. Today we are big importers, buying 2/3 of our energy and a massive amount of consumer goods from foreigners. During the 19230s debt was owed to Americans, not foreigners.

In the 1970s Keynesian counter cyclical fiscal policy failed giving us stagflation instead of a recovery. It stands as a discredited theory. Sure a stimulus is going to put people to work, but as soon as this artificial force is removed the recession will return.

Finally please tell us where this money is going to come from? I think you will have to admit-- money creation. Now do you really think printing money is going to rescue the American economy?
3.5.2009 1:07pm
LN (mail):
Vanceone, you seem to be confused about the bank bailout policies and the stimulus spending policies. These are two separate policies.

It seems to me that investors are very sensitive to information about the financial sector, and seem much less concerned about Obama's budget and government borrowing. The US dollar is strong and getting stronger, and the US government can borrow money basically interest-free. By your logic, they are not at all concerned with Obama's communist spending policies.

On the other hand, I fully agree with you that investors don't seem to think that Obama can turn around the financial sector. What do you propose he do instead? Maybe cut taxes on the rich? Do you think that will bring back AIG's stock price?
3.5.2009 1:09pm
Thales (mail) (www):
"I already get reports of Administration plans to once again make it illegal to hold gold, and perhaps silver as well, and there have already been raids on gold and silver vendors to seize their inventories."

Are the raiders coming in black helicopters?
3.5.2009 1:09pm
Some Dude:
Depends on which Dow Jones Industrial Average. The current one, with the current 30 stocks?

They can replace stocks from the average. If GM goes out of business it will be replaced. I always found that weird.
3.5.2009 1:15pm
Jam:
<a rel="nofollow" href="http://bailout.uslaw.com/?p=346">How Does this Bear Market Compare to Others?</a>
3.5.2009 1:15pm
Elliot123 (mail):
Are investors wrong?
3.5.2009 1:16pm
Jam:
Lets try this again.

How Does this Bear Market Compare to Others?
http://bailout.uslaw.com/?p=346
3.5.2009 1:17pm
PC:
Are the raiders coming in black helicopters?

Right before they round everyone up to send them to FEMA camps.

I think Obama is handling this poorly, fwiw. The capital markets are seized up because nothing is being done about the rampant fraud that has existed for the past decade, as well as the fraud occurring right now. Until people start going to jail I don't blame private investors for not buying into the market.
3.5.2009 1:19pm
Sarcastro (www):
Elliot123 NEVER!
3.5.2009 1:19pm
A. Zarkov (mail):
"Are the raiders coming in black helicopters?"

That's the kind of comment that contributes little to the discussion and generally drags down the intellectual level of this blog.

The confiscation of gold is not a paranoid delusion because it happened. FDR issued Executive Order 6102 in 1933 based on a WWI act that prohibited trading with wartime enemies. His order was clearly unconstitutional, and was replaced with Gold Reserve Act of 1934.

Thus if you have real reasons for thinking that Obama won't or can't confiscate gold then share your thoughts and contribute to the discussion.
3.5.2009 1:21pm
RPT (mail):
Vanceone:

What would be happening if McCain had been elected?
3.5.2009 1:21pm
CJColucci:
I'm gathering cash to take advantage of buying opportunities. As Dan Akroyd told Eddie Murphy in Trading Places: "Fear -- that's the other guy's problem."
3.5.2009 1:22pm
Sarcastro (www):

The confiscation of gold is not a paranoid delusion because it happened.


That is why I don't think the bottom will come until Japan bombs Hawaii. I read on the internet that there are plans in the works...
3.5.2009 1:23pm
LN (mail):
To provide a little more perspective on numbers, here's AIG stock price:

-June 29, 2007: $70
-Nov 4, 2008: $2.41
-Jan 20, 2009: $1.37
-Today: 36 cents

So the stock price is down something like 70% since inauguration day. Of course in absolute dollar terms the drop in market cap was about 70 times larger over the previous year and a half.

Not sure if Elliot123's comment was directed at me, but I'll be honest: I have no idea how to turn around the broken financial sector, and I figure investors can tell better than I can about Obama's odds of success. But I don't even know if the stock market is the right measure to use: maybe the best solution is to wipe out the current shareholders, because possibly these institutions are basically insolvent and the only thing propping up the share price are hopes of a taxpayer-funded bailout. I do think that if investors were truly distressed by the impending Obama communist dictatorship, they wouldn't be holding dollars and cheaply lending money to the US government, which is what they seem to be doing.
3.5.2009 1:23pm
Jam:
At what point will electronic trading be cut off? At that point the Dow = 0

At what point will the Plunge Group (aka Working group on financial markets) will jump into the fray and what will/could they do?
3.5.2009 1:24pm
PC:
Thus if you have real reasons for thinking that Obama won't or can't confiscate gold then share your thoughts and contribute to the discussion.

At the time gold was a circulating currency. That's not the case today.
3.5.2009 1:25pm
A Law Dawg:
Thus if you have real reasons for thinking that Obama won't or can't confiscate gold then share your thoughts and contribute to the discussion.


Perhaps because the currency is no longer backed by gold?
3.5.2009 1:27pm
htom (mail):
Back before the election I was saying "New Year's: under $6000 if Obama wins, over $15,000 if McCain wins", but I didn't expect it like this. Now I'm thinking a lot of bubbles are breaking, remembering the fuss about the DJA breaking 1000 (roughly 40 years ago), the expectation of 3% annual return (why?), and come up with 1.03^40 * 1000 = 3262. Double that, it's 6,524; double it again, it's 13,048. The more that Obama (and his crew) talk, and the more the Congress votes like fools, the less confidence I have in them and the more confidence I have that this has been a huge foam that's collapsing.
3.5.2009 1:32pm
Harry Eagar (mail):
'What is Obama doing differently than Roosevelt in 1932-33?'

Well, Roosevelt wasn't president in 1932, so Obama's doing that different.

Vance, Obama isn't the problem. The problem is unsupervised markets. Unsupervised markets always crash.

It's Reaganomics: Let the market take care of itself. It is.

(My estimate: short term, stocks continue to fall. Long term: excellent chance still of a worldwide collapse, deflation and huge reductions in production of almost everything.)
3.5.2009 1:40pm
OrinKerr:
Elliot123,

Before you continue to comment here about other matters, please respond to this first.
3.5.2009 1:41pm
Vanceone:
There's two things going on: the bailouts, and the general Obama "stimulus" i.e. printing money and sending it to various democrat pet projects.

For one, if McCain had been elected, we probably wouldn't have had a "stimulus" that doesn't stimulate. Obama was elected promising something along a two hundred billion dollar stimulus--not a 800 billion boondoggle. McCain has, for all his faults, been reliably anti-pork. He wasn't my first choice by any means, though. I only voted for McCain because Obama was, as he is proving, a disaster in the making. My choice was Romney. Do you think the stock market would be tanking if Romney were president right now? I can assure you we wouldn't have such lovely displays of ethical behavior as nominating several tax cheats.... including someone to head up the IRS.

Obama is fundamentally being inflationary with his printing trillions of dollars. Right now, it hasn't really impacted things yet, but name me the last successful attempt to print money and have it work a country out of recession. Weimar Germany, Argentina in the 1980's, Zimbabwe--they worked out really well.

A poster above asks me what would be a better idea. There's several things that will work. Suspend the mark to market rule. The last thing people need is capital gains taxes right now. After all, they impact stock sales, home sales, other sales.

Remember what TARP I was supposed to do? Buy troubled assets? Well, it didn't do that--they spent the money on loans to banks instead of buying the stuff that the banks had. If we have to spend the money, buy the assets instead of bailing out the banks over and over.

Give people a real tax cut: Suspend the payroll taxes. Like Fica and Medicare. Do this for a while--8 months, say. That's a lot of extra money in regular people's pockets, instead of wealth transfers like rebate checks.

That's something--much better than hundreds of millions to study pig odor in Iowa, like our current president thinks is a grand idea.
3.5.2009 1:42pm
Duce:
For what its worth.

VIX Premium Shows Stocks Bear Market Lasting 2 Years (Update3)

March 2 (Bloomberg) — Options investors are paying twice this decade's average to protect against losses in U.S. stocks through 2011, signaling the bear market that already wiped out $10.4 trillion of equity value may last two more years.

"There's a real panic in the markets, with some people wanting to buy long-term insurance at any price," said Peter Sorrentino, who helps manage $16 billion, including $130 million in options at Huntington Asset Advisors Inc. in Cincinnati. "People have lost hope."
3.5.2009 1:43pm
No Kool-aid (mail):
I hear Obama will decree a 6 month freeze on any more Dow losses, somewhat akin to Hillary's idea to "freeze foreclosures".
Sounds like a joke but seriously, Obama has no clue about markets, his past (and only) history as a glorified community organizer really shows. Every day that he does not come up with market oriented incentives makes it more expensive to remedy. Let's say 3 months ago 8% of mortages were troubled, now it's 12% or more. In other words the hole is getting deeper and Obama keeps digging.
3.5.2009 1:44pm
Jim Ison (mail):
Well, I've patiently plowed through all these responses to find ones that say Obama is a saviour or that say "don't you dare criticize our hero" and I can't find ANY. Nearly every item that doesn't blame Obama says, in effect, "there are other causes, HELLO!" To which I would add, as a foreigner, Boy! Do you guys ever expect a lot of a president!! ...and in a few months, too. Or does that suggest I worship Obama??!!
3.5.2009 1:45pm
wfjag:
Zark:
While I think you're generally right, I don't think that the Dow will reach 3600.

In addition to enacting and proposing deficits that are greater than the cumulative total of all deficits by all administrations from G. Washington to G. Bush (#43) and the Congresses, Pres. Obama and the current Congress will be aided by the Federal Reserve which has increased the money supply by nearly 300%. The Dow is meansured in nominal dollars. So, before it gets to 3600, we'll start getting hyperinflation that will make the Carter years look like healthy growth. That will rapidly inflate stock prices.

Also, people are getting fed up with the bailouts -- so I expect firms like GM, GE and AIG being told to go to bankruptcy court to work out their problems (their stock is nearly worthless now, so that won't decrease the Dow much). While "painful" it will also reduce the downward crash somewhat.

A lot depends, however, on the "mortgage bailout" (horrible idea), whether the Mart-to-Market rule gets revamped (about 95% of the mortgages are still paying and not in default or foreclosure, so MBS still should have substantial value, and if they were debundled and the performing mortgages discounted and sold, and the ones in trouble re-worked so they could be discounted and sold, a lot of value would be "added" to the books), and whether "National Health Coverage" gets enacted (the costs of which would sink the US economy).

Maybe people will learn a basic civics lesson -- Congress enacts the budget and appropriates the money (and enacts the laws that govern lenders, etc. and oversight). When the Dems took control of Congress in 2007, the Dow was at around 14,000. Now, it's under 7,000 and still free falling. General awareness of the importance of Congress could have a big effect on the 2010 elections.

The one good thing about the hyperinflation is that (assuming we sell the gov't bonds to the Chinese and Saudis now) we'll be repaying with dollars worth a whole lot less than what they were worth when we borrowed a $ Trillion.
3.5.2009 1:46pm
Vanceone:
Unsupervised Markets! Yes, if only we'd had Barney Frank and Christopher Dodd overseeing Wall Street, we'd have avoided this! Can't trust evil Capitalists!

Except, you know, we DID have Dodd and Frank running things. And they were very susceptible to bribes and paid off their political favors by mandating bad loans in the name of "fairness" and then they promptly talked the market down. Anyone remember Dodd causing a bank crash by blabbing his mouth, causing a run that forced the FDIC to kill the bank? It was last summer.

So the solution is to let them run even MORE of the henhouse! Great idea!

Look, people win and lose in the markets. Sometimes you win, sometimes you lose. We can't prevent losses, despite socialist and communist dreams of fairness of outcome. Everyone equal! Only way to do that is make everyone miserable.... that can be done. Making everyone happy? No can do.
3.5.2009 1:48pm
Sagar:
LN: "Also consider global equity markets -- the US stock market has gotten off easy compared to the international markets in general.

This is not a defense of Obama."


'course not, it is a defense of Bush":)
- - - - - - -

otoh,

seriously though, how quickly does a simple poll on DOW forecast (unscientific) degenerate into blaming and defending obama/bush ...
3.5.2009 1:49pm
A. Zarkov (mail):
PC:

"At the time gold was a circulating currency. That's not the case today."

Actually there still are circulating US gold coins as you can see here. While these coins carry a stated face value, you won't get one in change because the numismatic value greatly exceeds the face value. There actually was a legal case where someone paid for services at the face value of the gold coin. He was charged with a tax crime but it was overturned on appeal because the coins were deemed legal tender. Obviously the court saw that the potential for making US fiat money valueless if US money really carried the numismatic value and the not face value.

The Federal reserve has a large gold stock that exceeds Fort Knox kept 85 feet underground in Manhattan. The Fed puts an official value of about $20 per troy ounce on this stock. I don't know why, but it might have to do the face value of gold coins.
3.5.2009 1:49pm
PC:
Yes, tax cuts will certainly root out the corruption in the shadow banking system. If we cut taxes then groups will not be attacking viable companies with naked CDSs. Tax cuts will uncover "the bezzle" that still exists in the market.

I wonder what I should have for lunch? Tax cuts. What's on TV tonight? Tax cuts. That's the beautiful thing about tax cuts; it's the answer to everything.
3.5.2009 1:49pm
NTB24601:
A. Zarkov: The US was a manufacturing power house and we had much idle capacity-- we were exporters.

IANAE*, but I believe there is excess capacity in the current economy as well. I agree, though, that the U.S. needs to restore its manufacturing base.

Sure a stimulus is going to put people to work, but as soon as this artificial force is removed the recession will return.

Again, IANAE, but I have always understood that economic downturns are largely about a loss of confidence. In the much-derided words of John McCain and Phil Gramm, our economic woes are "psychological." Once an adequate stimulus gets the economy moving again, it should sustain itself.

Finally please tell us where this money is going to come from?

How about the investors who are fleeing the stock market?

*Is "I Am Not An Economist" a generally recognized acronym?
3.5.2009 1:50pm
Steve the Taxpayer:
The Dow will hit 5000 around the time that the dollar crashes. Then the Dow will move up nominally but keep sinking in real terms.

Gosh, it would be nice to have a President and a Congress that wasn't intent on killing the country. When did my government declare war one me? What did I do?
3.5.2009 1:52pm
Ed:
I suspect it will go as low as 1400, which would be a 90 percent decline from 14k.

There are some models that say it will test the lows of the great depression which would put it in the low triple digits.
3.5.2009 1:54pm
Thales (mail) (www):
Um, yeah. So evidence of the administration plans to confiscate gold, which somehow only Roland is privy to, and the occurrence of said raids (other than his say-so) would seem to be required before one can conclude that my sarcastic remark about black helicopters is out of bounds.
3.5.2009 1:54pm
LN (mail):

Obama is fundamentally being inflationary with his printing trillions of dollars.


You use the wisdom of stock market as evidence that Obama is ruining the economy, but why is the dollar getting stronger? Why are interest rates on Treasuries basically 0? Isn't this direct evidence that you are wrong? Are investors too stupid to realize that Obama is ruining the American currency?

Saying "it hasn't impacted yet" is a cop-out -- maybe the stock market right now is finally being impacted by things that happened last year. You can prove anything if you get to specify any time lag you want.

Where's the consistency?
3.5.2009 1:54pm
No Kool-aid (mail):
"....study pig odor in Iowa, like our current president thinks is a grand idea."

Nah, he probably thinks it stinks, but the purpose is to give every Democrat in Congress pork so they will continue to support Obama even after the Messiah effect has evaporated.

For the pitiful few here that are still blaming Bush, you are misguided. The CONFIDENCE component in the market collapse is 100% due to Obama, and that is what is driving the markets lower, the is no confidence Obama has even a remote clue. Obama is still in a campaign mode, organizing secret campaigns against Rush Limbaugh, divorced from reality.
3.5.2009 1:55pm
thenakedemperor (mail):
This is not rocket science.

When you consistently demonize capitalism, those who provide the capital will either move it to a more friendly environment, or remove it from the field of play entirely.

Remember that capitalism is dynamic. Money, on it's own, is useless. Only when it is moving does money have value.

If those providing the capital choose to take their ball and not play the game, there is no game. Then the only solution is for Government to provide the capital itself by printing money. See Zimbabwe.

We are in for dark times, my friends.
3.5.2009 1:55pm
Sagar:
Vanceone: Anyone remember Dodd causing a bank crash by blabbing his mouth, causing a run that forced the FDIC to kill the bank? It was last summer.

i believe it was Chucky Schumer. Dodd was commenting last week or so about potential nationalization of banks or some such ...

why can't pols just shut up! obama won over McCain in part due to his ability to not react this way last Fall when Mccain was hyper-reacting to the crisis of the day.

someone above asks what would have happened if McCain had won. I am sure McCain wouldn't have done any better w.r.t the financial industry, but he wouldn't have spent a trillion dollars on the "stimulus" - whether that would have made a difference to DOW or not, it would have kept the total debt/deficit lower than it is under Obama.
3.5.2009 1:57pm
Sagar:
Prof Kerr,

Have you heard, Obama has "created or saved" over 6620 points on DOW today?
3.5.2009 1:58pm
Ed:
I also would not blame Obama directly. I would say trace it back to 2006 and the congressional change as the turning point. Congress more then the president can effect the economy, Obama's sin is that he has used his popularity to give a democratic congress what it wanted.
3.5.2009 1:58pm
Seerak (mail):
Thus if you have real reasons for thinking that Obama won't or can't confiscate gold then share your thoughts and contribute to the discussion.

1. The primary goal of confiscating gold was to demonetize gold in people's minds. This have been a complete success; gold is now just another commodity in the mainstream mind (at least in America; this varies from culture to culture worldwide).

2. The government's only motive to confiscate gold now would be to prevent the cultural remonetization of gold, i.e. people start demanding payments in gold instead of dollars. So far, there is no evidence of that happening on any scale, not even on the gold market itself. Remonetization of gold would be a huge cultural shift.

That being said, I don't think that the remonetization of gold is a zero possibility; the idea of returning to a gold standard is still around, and IIRC there have been moves on the legal front lately, in a state or two, towards the return of gold clause enforceability in contracts. But if things proceed to a point where gold confiscation was seen as necessary once more, I would expect that a whole lot of other gigantic upheavals would be going on... in which case ammo and food might be what you'll wish you'd stockpiled.
3.5.2009 2:00pm
A Law Dawg:
When the Dems took control of Congress in 2007, the Dow was at around 14,000. Now, it's under 7,000 and still free falling. General awareness of the importance of Congress could have a big effect on the 2010 elections.


The Bear Market began on October 9, 2007. That is 10 months after the Democratic Congress was seated. But is it any coincidence that this is THE DAY AFTER Marion Jones surrendered her gold medals? That had to shake investor confidence in America's leadership.

But that's obviously silly. I'm sure the bear market wasn't really in effect until December 27, when Bhutto was assassinated and it was clear the US was going to be mired in Afghanistan for a long time.

Feel free to show me how the Democratic control of Congress made a difference to the Dow.
3.5.2009 2:00pm
PC:
When you consistently demonize capitalism, those who provide the capital will either move it to a more friendly environment, or remove it from the field of play entirely.

Or, you know, money is going to leave when it finds out that nothing is being done about the systemic fraud in the markets. Two individuals committed $60 billion in fraud. One of them is sitting in his $7 million apartment under house arrest, the other hasn't been arrested.

That's a pretty strong vote of no confidence.
3.5.2009 2:00pm
A. Zarkov (mail):
wfjag:

I agree with you. But with a few reservations. We learned in the 1970s that stocks can easily fall behind inflation. Then as now almost all asset classes were decreasing in both real and nominal amounts. It's possible asset deflation will keep going for a while until general price inflation drags the asset prices even if at a feeble rate. To put it another way, stocks won't provide much of a hedge against against the coming inflation.
3.5.2009 2:00pm
Thales (mail) (www):
"Or, you know, money is going to leave when it finds out that nothing is being done about the systemic fraud in the markets. Two individuals committed $60 billion in fraud. One of them is sitting in his $7 million apartment under house arrest, the other hasn't been arrested. "

This hits it on the head. Sorry guys, this is not primarily punishment of Obama/Congress/Bush, but the failings of the private market and failings of regulation. The market rise yesterday was due to China *spending* money on a stimulus that makes the Obama plan look tame.
3.5.2009 2:05pm
A. Zarkov (mail):
Seerak:

Very well said. See there are adults around here.


When people start to lose confidence in US fiat money, they will adopt other mediums of exchange. Just study Latin American to see what happens, barter, gold etc.

Once the US government starts to lose power because the people reject its money they will do things like confiscte gold, pass laws against barter, etc. Study the Yugoslav inflation of the early 1990s. The government tried making inflation illegal! Nothing worked and the country fragmented.
3.5.2009 2:10pm
sonicfrog (mail) (www):

Plus, everyone knows the stimulus is just a political payoff, and tremendous spending.


BINGO!!! 30 years of pent up spending rage is being released at the worst possible time.

Here is a pretty good video describing how we got to this point in the economic crisis.
3.5.2009 2:12pm
LN (mail):

When you consistently demonize capitalism, those who provide the capital will either move it to a more friendly environment, or remove it from the field of play entirely.


Funny how "those who provide the capital" can be either the superheroes oppressed by Obama/Schumer/Frank or the evil frauds who bankrolled Obama/Schumer/Frank depending on whatever point you want to make.
3.5.2009 2:12pm
MarkField (mail):
How big is a trillion?


A number this large is outside of human experience and I suspect most everyone has a problem conceptualizing it. I'll try. If $1,000 bills existed, then a $1 million would give you a stack 4.2 inches high. A million is still and lot money to most folks and at one time you could live off the interest.

How high would a trillion dollar stack be? Answer 66.29 miles!


Here's the example I use: A thousand seconds is 16 minutes. A million seconds is 13 days. A billion seconds is 32 years. A trillion seconds is 32,000 years.
3.5.2009 2:15pm
Seerak (mail):
You use the wisdom of stock market as evidence that Obama is ruining the economy, but why is the dollar getting stronger? Why are interest rates on Treasuries basically 0? Isn't this direct evidence that you are wrong? Are investors too stupid to realize that Obama is ruining the American currency?

The answer usually given is "deleveraging"; a lot of debt in the world is US Dollar denominated, so dollars are being bought up in order to pay them off.

Because of the zero interest rates in Japan for the last decade or two, there has been something called the "yen carry trade" , where yen were borrowed at zero interest, and used to buy debt elsewhere in the world that paid interest.

When this crisis started exploding, the "carry trade" began unwinding, as investors sold the bonds and bought yen to pay off the original loans. That buying buoyed the yen for the last year or so. Well, in the last few weeks, the "carry trade" has just about completed that process, and the yen has since sunk back from from 80:1 dollar down to 100:1 dollar or so.

The idea here is that there is a similar unwinding process going on in US Dollars; deleveraging creates a huge demand for dollars with which to pay off dollar-denominated loans. When it reaches bottom, the dollar will drop.

I'm betting that once this process plays out, it will cease to mask the inflation which was already manifesting itself in 2007 before this crisis hit. When the masking effect of "deflation" comes off, you'll have all those extra dollars pursuing significantly fewer goods (thanks to the recession going on right now). That will happen even if the economy is still in the dumps; welcome to "stagflation".

But don't ask me *when* that will happen. The "dollar carry trade" is bigger than yen carry, by what ration I do not know.
3.5.2009 2:15pm
LN (mail):
Did anyone ever figure out how much the Iraq War cost? I'm not so interested in the raw dollar amount as I am in dollars per day since Jesus was born and the corresponding height of a stack of $1 bills in miles.
3.5.2009 2:16pm
A. Zarkov (mail):
You can go anywhere and communicate with either gold or a gun. Everyone understands what you mean. Buy both.
3.5.2009 2:17pm
LN (mail):
Thanks Seerak.
3.5.2009 2:18pm
Fidelity (mail) (www):
LN, when I was in Qatar in 2004 an Army General said it was costing a billion a week, now they're saying 2 billion a week.
3.5.2009 2:19pm
A Law Dawg:
You can go anywhere and communicate with either gold or a gun. Everyone understands what you mean. Buy both.


And yet, neither one will get me a coke from a vending machine or MP3s on iTunes.
3.5.2009 2:21pm
byomtov (mail):
Amazing. Only 9% of respondents, incluidng sg and Gramarye, were willing to admit:

"I don't know."
3.5.2009 2:22pm
NTB24601:
A Law Dawg: "And yet, neither one will get me a coke from a vending machine or MP3s on iTunes."

Doesn't that depend on how you use the gun?
3.5.2009 2:23pm
A Law Dawg:
Doesn't that depend on how you use the gun?


I am not so skilled with a gun that I could quickly get a coke out of a machine with it. I am certainly not so skilled with a gun that I could use it to download MP3s.
3.5.2009 2:25pm
NTB24601:
byomtov: Amazing. Only 9% of respondents, incluidng sg and Gramarye, were willing to admit:

"I don't know."


The poll question is: "How far do you think the Dow Jones will drop in the current recession?"

None of us know how far the Dow Jones will drop...

... but some of us know what we think.
3.5.2009 2:26pm
NTB24601:
A Law Dawg: I am not so skilled with a gun that I could quickly get a coke out of a machine with it.

Come on. I have no skill with a gun, but I still think I could shoot the lock off a vending machine. It might take several tries - and I might shoot myself in the process - but I still think I'd end up with a Coke damnit!
3.5.2009 2:31pm
JK:
So want do all you doomsdayers think are the odds of hyperinflation nullifying my student loans?
3.5.2009 2:32pm
A. Zarkov (mail):
A gold coin will induce folks to get cokes out of the machine, or download an MP3 for you. So will a gun.
3.5.2009 2:33pm
Prof. S. (mail):

Here's the example I use: A thousand seconds is 16 minutes. A million seconds is 13 days. A billion seconds is 32 years. A trillion seconds is 32,000 years.


If you strung 1 trillion dollar bills end to end, it would reach from here to the sun, a distance it takes light more than 8 minutes to travel.

Thankfully, we are spending $2 trillion, so you've got enough to make the return trip.
3.5.2009 2:33pm
mattski:

You can go anywhere and communicate with either gold or a gun. Everyone understands what you mean. Buy both.


If you choose to communicate with a firearm you may get more conversation than you bargained for, especially if you're also packing gold...
3.5.2009 2:33pm
BJW (mail):
If you read one thing today please read this. Karl Denninger has been calling this exact situation for at least 2 1/2 years now.

http://market-ticker.org/
3.5.2009 2:39pm
A Law Dawg:
A gold coin will induce folks to get cokes out of the machine, or download an MP3 for you. So will a gun.


Or I could live life as normal and save on the transaction costs.
3.5.2009 2:40pm
A Law Dawg:
Come on. I have no skill with a gun, but I still think I could shoot the lock off a vending machine.


Take a look at a vending machine sometime. They don't rely on mere padlocks.
3.5.2009 2:41pm
A. Zarkov (mail):
Dow is down about 4.5% today-- yesterday was a "dead cat bounce."

Better not say this in front of my two felines.
3.5.2009 2:44pm
tim maguire (mail):
Interesting that the answers were all over the board. No response has more than 20%, and two have that so currently there is no leading choice. I went with 4,000-4,5000, but that is what's known as a WAG.
3.5.2009 2:46pm
Soronel Haetir (mail):
I would think t rather easy to use a gun to get a coke. You threaten someone else whom you believe to have change. The same would likely work for iTunes as well. Even better, if done correctly, you still have the gun afterward. Done really well you also have your bullets.
3.5.2009 2:48pm
RPT (mail):
"Vanceone:

Except, you know, we DID have Dodd and Frank running things."

Wow. Who knew? Was Speaker Delay, Majority Leader Frist, President Bush, and/or Alan Greenspan aware of this? They were even more powerful than John Yoo!
3.5.2009 2:49pm
cboldt (mail):
If you started a business around the time Jesus Christ was walking the planet, and that business lost 1 million dollars a day, day in and day out, year after year, 700 years from now your company will be 1 trillion dollars in the hole.
3.5.2009 2:49pm
EvilDave (mail):
As I learned from the election, "It is racist of anyone to criticize Obama".
3.5.2009 2:51pm
jukepoxgoad (mail):
Mainly though, it seems to me, the question is whether or not Obama's policies will help me?

Why is no one evidencing concerns about me?

A simple enough question, yet it's been avoided throughout this thread.

Oh, and Rush is Hitler. Recently it was Bush, but domestic enemies need to be updated, so now it's Rush. Stay on message, people!!!
3.5.2009 2:52pm
Apodaca:
neither one [gold or a gun] will get me a coke from a vending machine

Actually, the latter will, but you'll have to answer to the Coca-Cola Company.
3.5.2009 2:54pm
Fidelity (mail) (www):
cbdoldt, that can't be true, how does the united states owe $10,951,083,354,735.30? Are you trying to say this country has been around since the time of the dinosaurs?

That's $35,815.80 for me and your grandchildren, since most you won't be alive to pay it.
3.5.2009 2:56pm
Cover Me, Porkins (mail):
It'll drop to 45-40 percent approval ratings before capital gains tax cuts and other relief come grudgingly, at which point the stock market will lift.
3.5.2009 2:58pm
Jam:
Fidelity: Add all the past annual deficits since we had no debt.
3.5.2009 3:01pm
PC:
Add all the past annual deficits since we had no debt.

Reagan proved deficits don't matter.
3.5.2009 3:07pm
RPT (mail):
Again I ask:

-How did Delay, Frist, Bush &Greenspan allow this to happen; and

-What would McCain be doing different to generate better results?
3.5.2009 3:11pm
Curious Passerby (mail):
I don't know how low it will go but it will keep going down until it is clear Obama is on his way out, either in 2012, or by impeachment, or resignation, or something...
3.5.2009 3:11pm
Jam:
PC: And the Democrats too
3.5.2009 3:12pm
Fidelity (mail) (www):
Curious Passerby - it would be an atrocity if Obama is impeached and Bush was not. We're talking about "truth" investigations, because everyone in congress is to scared to call him a criminal. Have you considered the possibility that Congress and the Executive have a plan to screw us over, that this is not just accidental?
3.5.2009 3:15pm
Curious Passerby (mail):
I hear Obama has some great parties at the White House every Wednesday night. Kind of Nero-esque.
3.5.2009 3:18pm
A Law Dawg:
Have you considered the possibility that Congress and the Executive have a plan to screw us over, that this is not just accidental?


Because if there is anything we can count on, it's that a churning committee of 535 members plus a vast administrative apparatus is putting the final touches on its plan to screw us over.

And that none of these self-interested people have exposed the conspiracy to an adulatory media.
3.5.2009 3:19pm
Jam:
From:
http://www.cedarcomm.com/~stevelm1/usdebt.htm

Graph of National Debt since 1938
http://www.cedarcomm.com/~stevelm1/USDebt.png
3.5.2009 3:20pm
A. Zarkov (mail):
"you'll have to answer to the Coca-Cola Company."

Coke closed at $38.11 today down almost 45% from its peak. At a trailing P/E of 59, it seems over priced to me.

I have always been amazed that people will pay so much money for sugar water, and not even cane sugar at that. If coke had to depend on customers like me they would have been out of business long ago.
3.5.2009 3:23pm
Fidelity (mail) (www):
And that none of these self-interested people have exposed the conspiracy to an adulatory media.

Really?
3.5.2009 3:24pm
Calderon:
NTB24601 said President Obama made a mistake similar to FDR's mistake that lengthened the Great Depression; namely, he diluted the recoverage package by compromising with the advocates of discredited Republican economic theories.

I can guess what you think President Obama's compromises were, though Keynes said tax cuts could stimulate the economy as well, and "cutting taxes" / transfers to low income people while letting taxes increase on higher incomes doesn't seem like what liberals typically argue is a "discredited Republican economic theory."

But what were FDR's compromises with the Republicans from 1932-40? The Democrats had overwhelming majorities in Congress from 1932-40 and Roosevelt had no reason to compromise with Republicans. Your statement seems like an ahistorical attempt to shift the blame for the length of the Depression in the US from Roosevelt to someone else.
3.5.2009 3:27pm
RPT (mail):
The most striking aspect of this thread is the avoidance by Obama critics of any consideration that any action or omission by any business actor or leader or Republican political leader since 1980 had anything to do with the current predicament. No errors, no self-dealings, no fraud, no problem. Only the president who has been in office six weeks and two Democratic legislators who were in the minority at the time of their alleged conduct are blamed, and they are blamed for anything. How can anyone take this approach seriously?
3.5.2009 3:27pm
htom (mail):
Perhaps we're more interested in fixing the problems and less interested in fixing the blame?
3.5.2009 3:33pm
Harry Eagar (mail):
Obama doesn't understand markets? This is a joke, right? The guys who drove something on the order of $5 trillion out understand it better?

On my blog, I've started a drive to erect a statue to Phil Gramm, on the lines of Enterprise, Alabama's, statue to the boll weevil.

But some folks still don't get it.
3.5.2009 3:34pm
wfjag:
So, Zark, are you seeing this as more similar to the Yugoslav economy in the early '90s or to Argentina when Peron came to power and ruined it? The former is very scary. The latter is more of a pain in the back (from having to run a wheelbarrow to the grocery store with a load of cash to buy a loaf of bread).

I was inclined towards the Peronist analogy, till I was talking to a friend who teaches CCW classes and does repairs for a small gun store (his classes are booked out for several months, even with added spaces, and 30'06 ammo is back ordered with no firm delivery date). I'm still inclined towards the Peronist analogy, because I don't think that the US military would stand by while criminals terrorized the population (which is what the JNA did), and the Argentine military kept the nation stabilized despite what Peron's policy did to the economy.

PC wrote:

Reagan proved deficits don't matter.

Deficits don't matter. Ability to borrow to fund deficits do. If the Chinese, Saudis, etc., won't buy gov't bonds, then the choices are sell gold and other precious metals reserves (when Peron took power, Argentina had the world's largest gold reserves -- which he quickly blew through) or print more money (the Fed. has already increased the money supply by nearly 300% -- so you have to wonder how much more money it can print before inflation explodes at double digit rates). As very few people now live on farms, and as most cities have only about a 1 week supply of food in them, should US money become worthless, the response will be?
3.5.2009 3:38pm
A. Zarkov (mail):
RPT:

The looking backward blame game is no help. Let's blame everything on the Republicans and be done with it. Now we need to look forward and see whether Obama's policies are likely to make the economy better or worse.

Does he give any indication that he understands what's going on? I submit he does not. He doesn't appear to understand or want to understand the concept of self-liquidizing debt. He just wants to spend on mostly make work projects and give money to the minority groups that help put him in office.
3.5.2009 3:38pm
Fidelity (mail) (www):
Zarkov, was there a candidate this time last year that look like they did?
3.5.2009 3:40pm
stephanie (mail):
I agree with Mike in KC, who posted way above- the markets will fall as far as we let them fall.
So stop letting them fall! that's one of the reasons i'm starting to invest. We have the power to break this
3.5.2009 3:43pm
A Law Dawg:

Really?


I find it very plausible that martial law would be an eventual consequence of not passing the bank bailout.
3.5.2009 3:43pm
betheweb:
Assuming BHO does not go full monty Communist like his background suggests, I would guess 6,000 to 6,500. If he does, the answer is certainly below 4,000, since BHO would hold that Capitalism is incompatible with a modern, progressive America. The Dow will be cancelled.

The correct answer is "I don't know." Bet on BHO to follow his former pastor's injunctions and grab your ankles. C'mon Blue Dogs. You gonna' save us?
3.5.2009 3:46pm
David Larsomn (mail):
Obama is either deliberately attempting to destroy the economy to turn all of us into post-Katrina infantile government dependents (you know, those people standing on their roofs waiting for gubmint to come and rescue them) or he is an absolute, unmitigated ignoramous. There is no third option.
3.5.2009 3:48pm
David Larsomn (mail):
Wait--I suppose he could be both deliberately attempting to destroy the economy AND be an absolute, unmitigated ignoramous. I stand corrected.
3.5.2009 3:49pm
A. Zarkov (mail):
wfjag:

I'm inclined towards Argentina as a model for what's going on now. Obama does seem prone to the kind of reckless spending with little thought for the consequences that characterized Peron. But I know more (but not enough) about Argentina than Yugoslavia. I need more study.



Obama might give us what Sam Francis called anarcho-tyranny. The law is only enforced against the middle class while the criminals get ignored. You can see this happening with respect to illegal aliens.
3.5.2009 3:51pm
A. Zarkov (mail):
"Zarkov, was there a candidate this time last year that look like they did?"

No. Not at all.
3.5.2009 3:52pm
Harry Eagar (mail):
'Roosevelt had no reason to compromise with Republicans,' but he did have to submit to the Supreme Court, which wrecked the New Deal.

JK asks: 'So want do all you doomsdayers think are the odds of hyperinflation nullifying my student loans?'

About as good as deflation and another Great Depression. We're on the cusp. Sometimes people do things so bad that nothing can fix it.

The New Deal, if it had been permitted, would have dealt with the deflation given the kind of economic structure we had then. Nobody has any idea what to do with a deflated economy based on finance instead of industrial capital.

We do know how to stop hyperinflation, but you're not going to like it.
3.5.2009 3:56pm
Mike Keenan:
Dow 36000 (/10 or so)

Favorite Glassman quote:
"I think if there was a mistake in "Dow 36,000,""

Don't really need to see the end of that sentence!
3.5.2009 4:00pm
Fidelity (mail) (www):
I find it very plausible that martial law would be an eventual consequence of not passing the bank bailout.

Then you are suggesting we have that big of a threat against our civil liberties invested into our market and banks? That's acceptable to you so that we can all make a buck? If a market crash could be engineered, then bankers control more of our rights than our representative-government does. I've probably read too much Jefferson, but I'd prefer to live in a democracy.

I suppose the alternative is a government bought by bankers and business interests to consolidate and usurp monetary power in the hands of a few, while keeping the laborers in check against rebellion by removing rights and controlling their information. Perhaps this alternative government is more convenient: I'd never need to vote.
3.5.2009 4:03pm
veteran:
4000 or a little below and a 20% chance of rebounding to 9 or 10,000 by fall and then a total collapse. Just in time for Halloween.
3.5.2009 4:04pm
T. Shaw (mail):
I voted below 4,000. Based on the following formula: .2 * 14165 = 2,833.

The basis is: In 1977, the per capita GNP of Nicaragua was $2,500. In 1990, when the marist dictatorship got through with it, it was $500. That's 80% down. The 14165 was the Dow all time high.

Obama and all will try to do to the US what the reds did to Nicaragua and Cuba.

They going to shut down Rush and Jim Cramer because they'll say they're lying. And, you can't allow that. Then they'll massacre the John Galt/kulaks for resisting the revolution. See HR 645.
3.5.2009 4:06pm
Subotai Bahadur (mail):
My training in Economics is both minimal [a semester each of Macro and Micro] and decades old. With that caveat, I have to note that the entire legal environment that encouraged/mandated the "creative" loans that brought about the foreclosure crisis is still fully in effect and there is no prospect of it changing. Same people in charge, same policies. The only thing that has changed is that some of the crooks that were bribing the crooks sitting in Congress have been removed. They will be replaced as soon as some inventive non-elected crook figures a way to bribe them discreetly again.

Almost all of the Trillions appropriated so far have been dedicated pork, with almost none going to deal with the crisis. What little that is kinda-sorta aimed at the problem is being used not to fix the system, but rather to try to keep the scam going a little while longer. Until we change the rules to allow banks to again a) make loans on the basis of creditworthiness and not politically correct connections, and b) cease making the Treasury and large companies the piggy banks of politicians; all we are doing is wasting what few resources we have to fix things. Thus, absent a total change in governance, we are well and truly scrod. The odds of any change in governance by normal, honest, electoral means is vanishingly small.

Mind you, once the DJIA gets to around 4000, the tax increases kick in, Cap and Trade takes effect, and the next foreign crisis begins; electoral politics may be a memory. Cold and hungry people worried about feeding their children tend not to think in terms of caucuses.

Subotai Bahadur
3.5.2009 4:10pm
A Law Dawg:
I find it very plausible that martial law would be an eventual consequence of not passing the bank bailout.
Then you are suggesting we have that big of a threat against our civil liberties invested into our market and banks? That's acceptable to you so that we can all make a buck? If a market crash could be engineered, then bankers control more of our rights than our representative-government does. I've probably read too much Jefferson, but I'd prefer to live in a democracy.


My point is, when you have a big financial collapse, you have a big employment collapse. When you have a big employment collapse, you have a big kitchen table collapse. When you have a big kitchen table collapse, it ends with a law and order collapse.

If you bail out the banks, you fix the system and move on. If you have riots in the streets, then after the shooting stops you either fix the system and move on or have a wholly unpredictable new system.

Which of those three options is most favorable in your view?
3.5.2009 4:12pm
PC:
They going to shut down Rush and Jim Cramer because they'll say they're lying. And, you can't allow that. Then they'll massacre the John Galt/kulaks for resisting the revolution. See HR 645.

The tin foil is strong with this one.
3.5.2009 4:14pm
Calderon:
Harry Eagan said 'Roosevelt had no reason to compromise with Republicans,' but he did have to submit to the Supreme Court, which wrecked the New Deal.

How so? Most of the programs the court struck down like the NIRA are those that most modern economists, even liberal ones, think would have been more likely to hurt than help. And by the time the NIRA was struck down most in the Roosevelt administration thought it was a failure. The various programs that are most similar to Keynesian stimulus like the WPA, CCC, TVA, etc. were never struck down by the Court.
3.5.2009 4:14pm
A. Zarkov (mail):
Obama might be trying to provoke an economic crisis so he can grab more power. Let's say prices start to rapidly escalate as the printed money starts to circulate. The likely response will be wage and price controls effectively putting Washington in control of the economy. Washington will decide who makes what and what everyone gets paid. In this way he can reward and punish, and thus establish a permanent ruling elite. Look at Mexico under the PRI as an example.

I don't understand why so many people look up to this obvious ignoramus.
3.5.2009 4:16pm
Fidelity (mail) (www):
You can find my answer in the pages of Jefferson &Banking.
3.5.2009 4:17pm
George Smith:
Even though the market continues to go down, tons of money is still being pumped into it every month via 401k and similar programs. Most of this goes to mutual funds. The share prices of the funds are going down, but the money still pours in, and the miracle of dollar cost averaging is allowing people to buy lorts of cheap shares. I'm just hoping that things come back within five years, when I have to start moving most of my modest retirtement savings into bonds and income funds. As long as the prime focus of the Administration is growing government rather than the economy, that rocking chair is looking along way off still.
3.5.2009 4:19pm
Jerome Cole (mail) (www):
"What we are headed for is a world without any wealthy people in it. Just a lot of gold held by Dubai, which the U.S. may decide to "liberate" to "protect" it from "terrorists". I already get reports of Administration plans to once again make it illegal to hold gold, and perhaps silver as well, and there have already been raids on gold and silver vendors to seize their inventories."

Have you stopped wearing your tinfoil hat, Roland?
3.5.2009 4:30pm
Brendanav (mail):
"In short, under Obama, those who are not productive are better off than those who are working hard".

A microcosm of this process is the disastrous State of Kalifornica. The vast budget shortfalls are directly traceable to arrogant unions, the prostitution ring called the State Legislature, and non-union but statutorially overpaid state employees. No, the tidal wave of spending is not "for the children" or to fix deteriorating freeways: It's to line the pockets of these creeps. The insanity is so extreme that some high school graduates (and D students at that) that belong to the prison guards union get paid more than the physicians who actually do something at the prisons by seeing patients, not standing around. I don't know about you, but mispricing on this scale is an enormous disincentive to hard work and complex occupations.
The exploitation is ingrained in their religious conviction of themselves as "elites" who deserve their spoils. Yet they are incompetent, like streetwalkers who dream of bright new shoes and thus sell themselves while spreading disease. Productive people get tired of being raped by a shrieking band of insolent chimps, who's idea of thoughtfulness is flinging their excrement at the people they are supposed to be working for. Last year CA's population outflow was about 180,000 to 200,000 persons net. Bet you can guess who is leaving, and who is arriving to replace the other several hundred thousand of taxpayers who left. Good for you! you got it. Many of those arriving people are constitutively consumers of "social services". Now, the legislators have an operational IQ of maybe 160 (all of them together), so we see how they can believe in their work and they can ignore that the most creative and entreprenureal people are hitting the road. Functionally the tax savings from moving just over the border drop directly to the bottom of expatriate balance sheets, providing tremendous competitive advantages to both non-service and location insensitive service jobs. The expatriates subsequently bitch-slap the overtaxed former CA businesses still chained to the marxist state (as in Grouch Marx...hey, chains we can believe in!). Its an incredibly serious problem and the legislators say it isn't, but then the 40B deficit isn't a problem either is it? "I know!", they shout, "we'll just raise taxes!". These now include
bailout monies. Those in turn are taxes on citizens from States where legislators spinal columns don't taper at both ends. Thus the CA disease has spread far from CA.
Last "Real" taxpayer out, please shut off the lights.
3.5.2009 4:30pm
Brendanav (mail):
Sorry, an error in my post....

"The expatriates subsequently bitch-slap the overtaxed FORMER CA businesses still chained to the marxist state (as in Grouch Marx...hey, chains we can believe in!)."

should read:

"The expatriates subsequently bitch-slap the overtaxed businesses still chained to the marxist state (as in Grouch Marx...hey, chains we can believe in!)".
3.5.2009 4:42pm
Robert Arvanitis:
In the survey, the weighted average of those setting a level (excludes "don't know") is 4,875. Not unreasonable.

If we believe in the "wisdom of crowds" that's the consensus.

The race is not always to the swift, nor the battle to the strong, but that's the way to bet.
3.5.2009 4:42pm
A. Zarkov (mail):
Brendanav:

I live in the dysfunctional state of Ca and experience what you say first hand. I am seriously planning to leave depending on family circumstances. The new tax increases will not cure California's financial problems, it only puts them off for a while. No doubt the legislature will simply raise taxes again. Most people here don't have to pay the taxes especially the illegal aliens that work off the books. At this point there is little we can do except leave. This is an instance of how democracy can fail. It has failed.
3.5.2009 4:43pm
wfjag:
Zark:
The 2 books I'd recommend on the break-up of Yugoslavia are The Death of Yugoslavia by Allan Little and Laura Silber, and Balkan Ghosts: A Journey Through History by Robert D. Kaplan. Both Little and Silber were BBC correspondents, who lived in Yugoslavia and had knew the country very well before the conflict broke out (none of that "ancient ethnic hatreds" nonsense). The BBC also did a very good mini-series that follows the book very closely (but, if you watch it, I hope you have a strong stomach. It's been called an 8 hour snuff film). Kaplan's book is a lot shorter and doesn't have nearly the background info. However, he's also a good writer and hits key facts well.

A couple of important differences I see between the US military and the JNA of circa 1990, is that although the US is an all-volunteer force, roughly 2/3s of the service members come from middle and upper middle classes. The 2 socio-economic demographics that are very under-represented are the bottom 20% and the upper 5%, and racially the only group significantly under-represented are African-Americans. The JNA was overwhelmingly Serbian both among its conscripted junior enlisted and Officer Corps. Thus, when Milosovic told the JNA to strand aside in Croatia, Bosnia and Kosovo, and let "militias" (which were essentially criminal gangs armed with military weapons) do what they wanted, the JNA's troops felt no identification with the victims of the gangs. Generally, I don't see the US military reacting that way, since its troops will identify with the US population. The only place I'd see an exception to that is if there are riots, etc., in urban centers. The US military hates to do urban operations, so there could be a significant reaction from the top down of that's not our kind of mission, let the police handle it. However, if the police cannot handle it, then what?
3.5.2009 4:49pm
Uh, Clem (mail):
The important question is, just how much longer is this going to be Bush's fault?
3.5.2009 4:54pm
A. Zarkov (mail):
wfjag:

Thanks very much. I'm going to order those books. I want to study all the great inflations.
3.5.2009 5:01pm
JohnKT (mail):
mogden commented:
It is not a recession. It is a depression.

According to JK Galbraith, recession was a euphemism for depression that replaced the latter when it became an ugly word after the Great Depression.

But wait. Depression was the euphemism that replaced crisis when it became an ugly word. And that's not all. Crisis was the euphemism that replaced panic after panic became an ugly word. The wonder was that crisis was used at all, harkening as it does to Marx. Maybe after the panic of 1907 nobody much cared what Marx said.

So this recession is not really a depression. We need another euphemism. How about financial correction?
3.5.2009 5:01pm
htom (mail):
Banana and eggplant have already been used in a financial context; how about Bitter Melon?
3.5.2009 5:19pm
LN (mail):

If we believe in the "wisdom of crowds" that's the consensus.

The race is not always to the swift, nor the battle to the strong, but that's the way to bet.


If we actually believed in the wisdom of crowds we would think that the current value of the stock market is more or less its current value, because if people really believed that it would continue to go down then they would sell right now rather than wait.

So the wisdom of crowds doesn't apply to the actual stock market, but does apply to this group of internet commenters with no money at stake? The same group of people that apparently believe that the same politicians they accused of being in the pockets of Wall Street also have no respect for wealth or hard work and want to impose a communist dictatorship? That's interesting.
3.5.2009 5:19pm
ed (mail) (www):
Hmmm.

The DOW will go below 4,000 because:

1. Cap and trade on CO2 emissions will double, triple, quadruple or even quintuple the prices of energy and thus every other product and service in the US.

2. Private healthcare costs will skyrocket because Obama's big plan is to cut Medicare payments by 10%. Which means that privately insured will -again- have to pick up the difference.

3. Tax cut will sunset in 2011 which will tank the economy.

4. Tax increases will come into play in 2011-2012 which will tank the economy.

5. Mortgage interest will no longer be deductible which will crash the housing market even more.

6. Taxes paid are no longer deductible which means we will now pay taxes -on taxes paid-. So even less disposable income available to consumers.

7. Minimum wage is going up so further erosion in employment.

etc etc etc.

A real witches brew of incompetent idiotic nonsense promulgated by people without a clue. Seriously. Are there any adults in this White House?
3.5.2009 5:20pm
LN (mail):

the correct value of the stock market is more or less its current value


Whoops, sorry about that.
3.5.2009 5:22pm
Bill Kilgore:
The market will stabilize once "profit and earnings ratios" are back in line with historical norms.

Stop worrying, Barak has this one under control.
3.5.2009 5:26pm
Ken Arromdee:
Did anyone ever figure out how much the Iraq War cost? I'm not so interested in the raw dollar amount as I am in dollars per day since Jesus was born and the corresponding height of a stack of $1 bills in miles.

I don't know, but depending on how you measure, in terms of stimulus bills, it costs about 1.
3.5.2009 5:32pm
RPT (mail):
"Zarkov:

RPT:

The looking backward blame game is no help. Let's blame everything on the Republicans and be done with it. Now we need to look forward and see whether Obama's policies are likely to make the economy better or worse."

This is an amazing answer. Where does your wisdom come from if not an analysis of the past? If you characterize any effort to understand what has led us to the current situation as "the blame game", in which we should not engage, then you preclude the possibility, if not the likelihood, that you are advocating the same remedies which at least contributed to the current predicament. Your past record does matter. The actions of past "free market" administrations is relevant. Reagan-Bush I-Bush II were really presidents from 1980-192 and 1200-2008, yet we can't talk about what was done during those years? It's unfair? Your argument is that by ignoring those years your current analysis should have some credibility? Why should arguments about "Nicaragua" not also be "the blame game"? This is just too lame.
3.5.2009 5:45pm
RPT (mail):
To be more precise: "1981-1993" and "2001-2009" for the R presidencies.
3.5.2009 5:46pm
LN (mail):
So was the Iraq War a communist plot to destroy our economy?

By the way, the trillion-dollar stimulus package includes hundreds of bilions of dollars of tax cuts, right? Won't that miraculously cure the economy by itself?
3.5.2009 5:46pm
PC:
The important question is, just how much longer is this going to be Bush's fault?

The problem predates Bush, so it's not really his administration's "fault." The Bush administration certainly didn't do anything to help deal with the reckoning, but the Obama administration isn't doing any better yet.
3.5.2009 5:47pm
Eponymous Rex 2012 (mail):
I think that the market will continue to tank. Once it hits 4000, the Obama administration will begin to freak out, and will institute a bailout plan for the stock market (read: nationalization) and implement same if the Dow hits 3000. Not that I think that would be an intelligent or sane course of action, but I think that is exactly what this administration will do.
3.5.2009 6:03pm
sbron:
I wonder how this would have turned out if Mitt Romney was President. Maybe not much better, but I doubt he would be pushing a tax on production (i.e. carbon). Nor would his AG be denouncing us as cowards. And how would Romney have handled the auto debacle, given his background as the son of the American Motors CEO? I guess it would have been just too politically incorrect to elect a 1950's looking white guy. And wasn't there a survey that said more people would automatically refuse to vote for someone who was LDS than for a Black person?
3.5.2009 6:22pm
wfjag:
Zark:
When considering Yugoslavia, keep in mind the internal and international political considerations.

Internally, Yugoslavia was comprised of 6 nations and 2 autonomous provinces. Tito was the only leader who had the national standing to hold everyone together. He died in 1980. He'd set up a "rotating Presidency" so that all 8 internal governments would share power and supposedly none could gain too much power. However, demographically, of the 20 million Yugoslavs, some 10 million were Serbs, and they felt disenfranchised by this arrangement. The final break-up was triggered by Milosevic's refusal to let another nation's representative assume the Presidency.

One of the things Tito did to keep the peace was to buy off different groups by economic development projects in their areas. For instance, he had developed a huge aluminum mining operation in Herzegovina (part of Bosnia, but overwhelmingly Croatian in population) in an area of very low grade bauxite. Without heavy subsidies, the operation was completely uneconomical. But, it provided jobs and local employment and was popular with the government of Bosnia (in which it was located) and Croatia (which had strong ties with the area). The result was that the Yugoslav economy was disjointed and inefficient, and in many cases, based on obsolete technology that could not compete in the world's markets.

The reason Tito was able to do things like this is that early in the Cold War, he broke with Stalin and established the Non-Aligned Nations movement. From roughly the beginning of the formation of NATO till the break-up of the Soviet Union and Warsaw Pact, Yugoslavia played the two power blocks off against each other. Yugoslavia would provide political support in international matters to one side or the other in return for economic aid. When that side became too demanding politically, Yugoslavia would then get aid from the other side and provide political support to that side. This worked well till the USSR and Warsaw Pact collapsed and the US/NATO no longer needed support from Yugoslavia.

Also, Yugoslavia exported its workers. Many went to Germany, but they were found throughout Europe. They sent home large amounts of hard currency. When the Berlin Wall fell, and East and West Germany were unified, the FRG needed to worry about supporting former East Germany, and so Yugoslav workers were politely told that their work visas would not be renewed. This cut off a large source of hard currency.

Meanwhile, Saddam invaded Kuwait, so that the U.S. paid little attention to what was happening in Yugoslavia and was in no position to intervene for several years as the U.S. military was downsized to provide a "peace dividend." The political will to intervene only developed when women and kids being shot by snipers in Sarajevo became nightly fare on CNN. Before that, all most Americans knew of Yugoslavia is that was where WWI started, and there was no interest to commit resources there.

Interestingly, Pres. Clinton said that one reason that he did not intervene sooner was due to conclusions he drew from Kaplan's book, Balkan Ghosts. Kaplan, however, disputed that, saying that he'd written a travelogue, and if Clinton used it to make geo-political decisions based upon, he'd misused the book.

Personally, I didn't find anything in Kaplan's book that justified refusing to intervene. Saying that we have no strategic interests in the Balkans so we don't care if women and children are killed by snipers in Sarajevo would have been honest. Saying that anything in Kaplan's book militated against intervention seems like a disingenuous excuse.

My personal opinion is that when the USSR/Warsaw Pact broke up, Yugoslavia's economy collapsed since there was no one around interested in supporting what was essentially an international welfare recipient, and what followed was a land and power grab as groups (or, at least people viewed as leaders by groups within Yugoslavia) tried to hold on (or take from others) as much wealth as possible. Essentially it was a land and power grab, and broadcast media was used masterfully to frighten people into killing neighbors, relatives and friends who allegedly belonged to a different group. (When we pulled people out of mass graves, we couldn't tell different "ethnic groups" apart using DNA analysis -- so much for "ancient ethnic hatreds". There may have been hatreds and those hatreds may have been ancient, but, they weren't ethnic.)
3.5.2009 6:24pm
Harry Eagar (mail):
Calderone, by the time the court struck down NRA and (you forgot to mention) the very important AAA, they had been in operation for a few months. And they seemed to be working.

By that time, the free market-induced collapse was about 5 years old, with absolutely no indication of a recovery. In fact, things were getting worse and worse.

Airy assumptions that the New Deal fix would have made things worse are just that, airy assumptions. However, we know for a fact that unsupervised markets always crash.

Always.

Way back in '02, Bernanke was worrying about deflation. See
here.

Note that he said then that central banks have a variety of methods to forestall deflation, and that the Fed has already put most of them into effect.

Does that mean we'd be in a deflationary Great Depression now without that? Dunno, but it's plausible.
3.5.2009 6:29pm
Calderon:
Harry Eagan said Calderone, by the time the court struck down NRA and (you forgot to mention) the very important AAA, they had been in operation for a few months. And they seemed to be working.

Both those programs had been in place for years when they got struck down, not just a few months. To repeat myself, most people in Roosevelt's administration thought the NIRA was a failure by the time it got struck down. When the AAA was struck down, the administration simply replaced it with a very similar program. Both programs come in for a lot of criticism from modern economists, including those that are more liberal (for example, Brad Delong has said he thinks the NRA would have slowed recovery if it had been in effect longer). Are their any respected economists today that support either the NRA or the (still-existing) agricultural price support programs that started with the AAA?

By that time, the free market-induced collapse was about 5 years old, with absolutely no indication of a recovery. In fact, things were getting worse and worse.

There have been plenty of conversations on VC about competing theories on why things got worse, with tariffs, Hoover's tax increases, etc. and so forth. I'm not particularly interested in repeating them.

Airy assumptions that the New Deal fix would have made things worse are just that, airy assumptions. However, we know for a fact that unsupervised markets always crash.

Always.


And supervised and heavily regulated markets always crash as well. And partial or full socialism (in the real sense of the term, such as nationalizing industries like the UK and other European countries did after WWII) leads to economic malaise, and doesn't seem to prevent crashes. And total control of the economy always leads to brutal regimes and a lack of political freedom, in addition to lower economic growth. I guess economic utopia just isn't going to happen, so we should stop with making the perfect the enemy of the good, or even the enemy of the best of a series of "bad" options.

I've gone over the "airy assumptions" point before. It's just as much of an "airy assumption" to assume that any part of the New Deal program was a "fix" that made the economy better off. To support either that the New Deal either improved the economy or made it worse off, you're going to have to construct a hypothethical about what would have been without the New Deal, which necessarily involves assumptions.
3.5.2009 6:58pm
Aleks:
On the main question I don't think it's possible to do more than guess where the market will be in five years. The system is too random for that level of prediction, and the market could be anywhere: DOW 20000 or Dow 2000. But if we limit the prediction to a year's time (that's about all I think is really doable), I'll predict the Dow will be around 7500 by this time next year.

On the tone of many of these posts, what has happened to this website? It used to a place of intelligent discourse, mainly. Did someone invite the entire population of FreeRepublic.com plus a contingent of Larouchies to show and take a dump here?
3.5.2009 8:06pm
Allan L. (mail):
If you started a business around the time Jesus Christ was walking the planet, and that business lost 1 million dollars a day, day in and day out, year after year, 700 years from now your company will be 1 trillion dollars in the hole.

That's General Motors, right?
3.5.2009 8:43pm
Brendan (mail):
2. The answer is "2". Gold has never been worth "zero"
3.5.2009 8:44pm
Desiderius:
A (very sincere) question for progressives, say Eagar and RPT, who have decided that "free markets" (RPT's scare quotes) are the real culprit here:

What alternative do you have in mind? Unfree markets? Free central planning? Plato's Republic?

I'm genuinely curious.
3.5.2009 9:48pm
Desiderius:
As an addendum to the question. It is my estimation that much of the current support for Democrats, or at least the President, among libertarians and moderates is predicated on the assumption that the utility of freedom (including markets, enterprise, et. al.) is a settled question, and in the affirmative.

Are you contending that it is not? Do those presently enjoying high approval ratings, or at least a surge of new seats in the current Congress, so contend as well? If so, how do you expect that this will play long term?
3.5.2009 10:00pm
RPT (mail):
Hi:

Well, it should be clear that in the real world there are only markets with more or less controls.

Our difference is that I do not equate free market doctrine or ideology with divinely inspired revelation.
3.5.2009 10:01pm
RPT (mail):
P.S. People who favor free markets generally oppose no bid contracts and favor vigorous antitrust enforcement. This was not true in the Reagan or Bush eras (or Clinton, for that matter). They all liked their own oligopoly/monopolies.
3.5.2009 10:06pm
Desiderius:
RPT,

Thx for the response. NARAL calls their position "pro-choice" for a reason. You might wish to reconsider your framing, as it were.
3.5.2009 10:53pm
dick thompson (mail):
RPT,

The better judgment of the problems would be the Congress in charge of the spending and oversight during the years and that would be for the House (Dem 1981-1995 and 2007-20090 and Senate (Dem 1981-1995, 2001-2003 and 2007-2009). They are the ones who set up the final Budget and where the money goes. They are the ones who set Bambi up to fail unless he vetoes and he won't and they are the ones who stopped the Bush admin from policies that would have corrected a lot of the problems with the banks and mortgage groups as well as Freddie and Fannie.
3.5.2009 11:01pm
A. Zarkov (mail):
The mother of all bear markets.


As of today the Dow has fallen faster than any other bear market in history over the same time frame as shown here.
Thus-- so far we are doing worse than the Great Depression.

Of course the Dow went on to bottom out by 1934 at 11% of its peak reached in 1929.
3.5.2009 11:14pm
A. Zarkov (mail):
Whoops make that 34 months after reaching its peak in 1929.
3.5.2009 11:16pm
kdonovan:
dick thompson (mail):


The better judgment of the problems would be the Congress in charge of the spending and oversight during the years and that would be for the House (Dem 1981-1995 and 2007-20090 and Senate (Dem 1981-1995, 2001-2003 and 2007-2009).


The Senate was GOP controlled from 1981-1987.
Also there were enough conservative Democrats back in 1981-1983 that the Democratic leadership had very little real control in the House - they were in a much stronger position after the 1982 midterm elections.

Still I agree with your overall point - control of the Congress can be as important as the executive branch in economic policy.
3.5.2009 11:31pm
LN (mail):
Desiderius:

I don't think there's an easy "fix" that would have prevented the financial crisis from occurring. Clearly a LOT of things in the market went wrong -- lending practices, investment decisions, incentive packages -- and I honestly don't know what precisely should have been done differently. People who really know what they are talking about, if any such people actually exist, should be deferred to on that note.

What I do think has been discredited is not the idea of freedom but rather a certain strain of free-market ideology that assumed that any market arrangement in existence was necessarily for the best. You know, the lazy economist assumption that any misallocation of resources would quickly be corrected by market forces, so that outsiders could generally be assured that markets were working as well as possible. In my mind, the collapse in the housing and stock markets, as well as the collapse of several gigantic financial institutions, quite clearly proves that this assumption was very very wrong.

I know that there are some who can't accept market failure and insist that only government intervention must have been responsible for our current situation, but I just can't buy that. Too much of the damage was clearly done by perfectly self-interested individuals; I just don't see how AIG's collapse for instance can be attributed to government policy. The financial institutions are big boys who specialized in the art of making money, and they all went bust.

Now what does that mean for future policy? I don't know exactly -- I'm not sufficiently well-informed to make suggestions. But I'm really not afraid that Obama is going to create a totalitarian state and confiscate all the wealth. I don't understand how people can one day think that the financial crisis was caused because Chuck Schumer and Barney Frank were too cozy with Wall Street financiers, and the next day worry about how Chuck Schumer and Barney Frank are Communists who hate capitalism and wealth.

For all the worry about the size of the stimulus package, we are facing a massive output drop over the next year or two and the increase in federal spending will not cover that. Now there's definitely some debate about the validity of Keynesian economics, but it is definitely incorrect to say that there is a professional consensus AGAINST what Obama is doing.
3.5.2009 11:35pm
Mark in Texas (mail):
A.Zarkov - "Finally please tell us where this money is going to come from? I think you will have to admit-- money creation. Now do you really think printing money is going to rescue the American economy?"

It is not the method that I would choose, but I think an argument can be made that a couple of years of Jimmy Carter era inflation will raise the price of houses in nominal dollars to the point that many fewer mortgages are upside down. This will reduce the number of people who are forced into foreclosure if they have to sell a house that they are currently making payments on due to a divorce or a requirement to move.

Since the basis of the financial industry crisis seems to be that way too many people are stuck with way too many financial derivatives based on those upside down mortgages, making the houses worth more in nominal dollar terms than the mortgages, even at the cost of making the nominal dollars less valuable, will restore some degree of health to the financial industry.

Some time during this process, assuming that I am still employed and keeping relatively current with the inflation, I plan to take a wheelbarrow full of inflated dollars down to Wells Fargo to pay off my 30 year fixed rate mortgage.
3.5.2009 11:50pm
Soronel Haetir (mail):

What I do think has been discredited is not the idea of freedom but rather a certain strain of free-market ideology that assumed that any market arrangement
in existence was necessarily for the best. You know, the lazy economist assumption that any misallocation of resources would quickly be corrected by market
forces, so that outsiders could generally be assured that markets were working as well as possible. In my mind, the collapse in the housing and stock markets,
as well as the collapse of several gigantic financial institutions, quite clearly proves that this assumption was very very wrong.



This depends very much on how you define misallocated. Seems to me that for much of the decade the money was going where it produced returns. So what that those returns were largely fantasy, just as with the tech boom? If someone had known when to get out they would have done well for themselves. Misallocation can only be measured in terms of incentives, and those were incredibly fouled. Both government incentives and private.

Given that I'm currently paying off a recesssion proof business (retail liquor store), inflation would likely be good for me. Recession followed by deflation possibly even more so. But again it's a matter of what incentives for action/inaction the market has at any moment.
3.6.2009 12:22am
neurodoc:
Granny44: We used to have a saying:
"The Dow will never break 1000 and the Erie Lackawanna Railroad will never pay a dividend."

And the breaking 1000 refers to from below to above.

Alles ist relativ
Exactly how old are you?
3.6.2009 1:44am
Desiderius:
RPT,

"Our difference is that I do not equate free market doctrine or ideology with divinely inspired revelation."

Disclosure: I, literally, do. Or rather there is a fairly short chain of reasoning from my faith to the value I place on liberty (including, but not limited to, economic. There is also this sort, which I consider directly related to the economic), if not absolute freedom. Yet I still voted Obama and support him. There is a case to be made that the two are not in opposition.

You're not making it.
3.6.2009 6:39am
jukeboxgrad (mail):
wfjag:

In addition to enacting and proposing deficits that are greater than the cumulative total of all deficits by all administrations from G. Washington to G. Bush (#43) and the Congresses


The "cumulative total of all deficits by all administrations from G. Washington to G. Bush (#43) and the Congresses" is $10.6 trillion. Please show your evidence that Obama is "enacting and proposing deficits that are greater than" $10.6 trillion.

Maybe people will learn a basic civics lesson -- Congress enacts the budget and appropriates the money


The one who needs "a basic civics lesson" is you. The president has a great deal of influence over tax and spending policy. The federal budget process begins with a budget request created by the president.

Under Bush, the national debt grew 86%, an increase of about $5 trillion. 77% ($8 trillion) of our national debt was accumulated under three presidents: Reagan, Bush and Bush. Under Reagan, the national debt almost tripled. The debt is now 11 times higher than it was when Reagan took over. The born-again deficit hawks who sat on their hands while all this happened have no credibility when they now complain about Obama's spending.

================
ln:

How much has the Iraq war cost?


$3 trillion.

And speaking of big numbers, there's also the $2 trillion cost of Bush's tax cuts for the rich.

arromdee:

I don't know, but depending on how you measure, in terms of stimulus bills, it costs about 1.


Only if you ignore the various hidden costs, like what we'll be paying to take care of injured vets.

================
soronel:

if the market is around 8-9k in 2012 Obama will take credit for it and say "Look at how good we're doing."


Only Republicans with amnesia want to promote the idea of tying together the president and the Dow. During Clinton's term, the Dow more than tripled. During GWB's term, it dropped 25%. If the Dow is above 6,000 on 1/20/17, when Obama leaves office, he will have exceeded Bush's performance.

By the way, the Dow advanced this much during Bush's first term: zero percent. And the Dow was at this level the day Obama was inaugurated: below 8000. So "if the market is around 8-9k in 2012" Obama will also have exceeded Bush's performance.

It took 28 years for Reaganomics to bring us here, and it's going to take more than a few nanoseconds to fix it.

================
pc:

The capital markets are seized up because nothing is being done about the rampant fraud that has existed for the past decade, as well as the fraud occurring right now. Until people start going to jail I don't blame private investors for not buying into the market. …money is going to leave when it finds out that nothing is being done about the systemic fraud in the markets.


This is a key point. Financial systems run on trust. The world has figured out that major financial institutions have been run by (and are still being run by) people who aren't trustworthy. Investors will return when trust returns. But first heads have to roll, and that hasn't really been happening. Instead golf balls are rolling.

================
vanceone:

He's gonna pay my mortgage and give me a new house!


Yes, it's almost as if Obama said "the low-income homebuyer can have just as nice a house as anybody else." Or as if he suggested that it's a good idea to give loans to people with "bad credit histories." Thank goodness Bush never did anything like that!

Dodd and Frank … mandating bad loans in the name of "fairness"


Yes, it's almost as if Dodd and Frank said those things, too. But can you find where they actually did? I can't.
3.6.2009 8:00am
PC:
I just don't see how AIG's collapse for instance can be attributed to government policy.

Apparently AIG wrote $2.7 trillion in credit default swaps against less than $100 billion in assets. Since CDSs are not regulated like insurance they were allowed to get away with it. Well, they didn't really get away with it. They eventually got caught writing naked CDSs as the market collapsed. Regulation of the CDS market could have prevented this.
3.6.2009 8:48am
jukeboxgrad (mail):
I said a key part of the problem is that our financial institutions need to be placed in the hands of trustworthy people. But there's something else that's vital. Those institutions also have to become less important. A key and mostly hidden aspect of Reaganomics is the financialization of our economy. Now we are experiencing the de-financialization of our economy. A painful but necessary process.
3.6.2009 9:19am
M. Simon (mail) (www):
Do you know what is wrong with the US manufacturing base?

Robots don't buy houses.

Or to put it another way: manufacturing has the same problem farming has. Too much production with too little labor.
3.6.2009 10:19am
Jon Roland (mail) (www):
Mark in Texas:

Some time during this process, assuming that I am still employed and keeping relatively current with the inflation, I plan to take a wheelbarrow full of inflated dollars down to Wells Fargo to pay off my 30 year fixed rate mortgage.

The assumption that your wages will keep up with inflation of the prices of goods and services is not supported by historic hyperinflations. It is not just investors that lose in that scenario, but wageworkers as well. A "wheelbarrow of dollars" is based on the experience in the Weimar regime, but that was just a journalist's way of explaining the event. Not a lot of people actually had wheelbarrows of currency.
3.6.2009 10:35am
Jon Roland (mail) (www):
M. Simon:

manufacturing has the same problem farming has. Too much production with too little labor.

I have put it another way:
The good news is those offshored jobs are coming back. The bad news is that when they do they will be done by machines.

Robots don't buy houses but do consume, in a sense. They consume energy, maintenance, and shelter. They just don't consume as much as people do. However, they do compete with humans for resources. More importantly, the march of automation is dividing the economy into two parts: a machine economy nand a human economy, and humans are being excluded from the production cycles. The ultimate result of this trend would be machines serving machines and humans left rummaging through piles of waste or selling insurance to one another that won't pay off on claims.
3.6.2009 10:45am
Jon Roland (mail) (www):
As I have said previously, the meltdown is not the result of the failure of the market. It is the fault of our failure to prevent the emergence of organizations that are too large or too well connected to fail, or that all play the same business strategies. Markets operate among independent actors, not within organizations. And organizations can become a functional monopoly even if they are not formally incorporated as a single legal entity.

The solution to the problem of banking is what I forecast in an article in 1979, create virtual banks in all of our computers for secure transfers among one another without the need for large institutions. In that system currency would be a social convention with little or no need for government regulation. (However, collecting taxes would be a challenge.)
3.6.2009 10:57am
Poodouncle (mail):
All this negativity is bullish. With everyone selling already there is less downward pressure.
3.6.2009 11:10am
jukeboxgrad (mail):
roland:

the meltdown is not the result of the failure of the market. It is the fault of our failure to prevent the emergence of organizations that are too large or too well connected to fail


But who is the "our" who is supposed to "prevent the emergence of organizations that are too large or too well connected to fail?" If the market itself cannot "prevent the emergence of organizations that are too large or too well connected to fail," then who else can prevent that, other than the government?
3.6.2009 11:37am
Sagar:
jukeboxgrad,

i am not sure what exactly Barney Frank should have said that would make him bad in your opinion (probably nothing), but here is a link to an article

http://online.wsj.com/article/SB122290574391296381.html

also sometime last year Frank was on O'Reilly and o'reilly quoted several statements Frank made in support of subprime lending (fannie and freddie) and calling efforts to curtail these activities racist or something like that ... Frank didn't disown those statements, he defended his actions and blamed others for the mess. naturally it being an o'reilley show it degenerated into name calling ...

i don't have time to refute several errors in your post above, but here are a couple.

re: 3 trillion

nice try quoting a book by someone which estimates the total cost (including future costs AND the macroeconomic impact of increase in oil prices due to the war). you must have missed this line from the article:

"Now all these numbers are inexact, especially projections into the future."

re: tax cuts for the rich costing $2trillion

costing whom? do you think the money earned "belongs" to you or the govt? it is people's money that they earned. tax cuts don't give money to someone (unless they are the fake refundable tax credits). even otherwise, the proportion of the income taxes paid by the top 1% has increased since Bush tax cuts - how is that a tax cut for the rich? besides, the tax cuts were across the board for all taxpayers. if you want to be a class warrior, feel free to defend your position; don't be dishonest about it with the tired "tax cuts for the rich" nonsense.
3.6.2009 11:45am
M. Simon (mail) (www):
Won't that miraculously cure the economy by itself?

Depends. Are they cutting taxes on producers or consumers?
3.6.2009 12:07pm
M. Simon (mail) (www):
Jon Roland,

We managed the crash in demand for farm labor. After a while. The same will happen for manufacturing. It is just going to hurt a lot for quite some time.

The net result? It will take fewer producers to support all the consumers.

Or as Bucky Fuller said fifty or eighty years ago. "It will be an honor to be on the production team."
3.6.2009 12:15pm
jukeboxgrad (mail):
sagar:

here is a link to an article


I don't see anything in that article which comes close to the statements Bush made. If that's really the best you can do, you're doing a nice job of proving my point.

calling efforts to curtail these activities racist or something like that


I don't see any point in trying to respond to your vague allegation unless you're in a position to show me an actual quote. With a link, so I can evaluate the context.

quoting a book by someone which estimates the total cost (including future costs AND the macroeconomic impact of increase in oil prices due to the war)


What's wrong with trying to assess the true overall cost of the war?

all these numbers are inexact, especially projections into the future


Of course any kind of future projection is going to be "inexact." What's your point? That there will be no future costs? If you can find a projection that you consider less "inexact," you should tell us about it. And you should also tell us if you can demonstrate that any of the facts or assumptions in the book are wrong.

costing whom?


Bush's tax cuts for the rich weren't really cuts. They were just a way of transferring taxes to a group that's not in a position to complain: our children. That's "whom."

the proportion of the income taxes paid by the top 1% has increased since Bush tax cuts


Has it increased more than share of income has increased? Prove it. Undocumented factoids don't impress me. Lots of statistics suggesting otherwise are here.

the tax cuts were across the board for all taxpayers


The Bush tax cuts went disproportionately to the rich. You claim otherwise? Prove it.

don't be dishonest about it with the tired "tax cuts for the rich" nonsense.


Don't be dishonest with the tired "tax cuts were across the board for all taxpayers" nonsense. You want to make that claim? Prove it.
3.6.2009 12:22pm
Harry Eagar (mail):
Desiderius, what LN said, and especially this:

'What I do think has been discredited is not the idea of freedom but rather a certain strain of free-market ideology that assumed that any market arrangement in existence was necessarily for the best.'

I would put it this way: People who believe property=morality and morality=property got us where we are.

I do not believe that the protection of property is the highest function of government. Nor do I think that the greatest achievement of a society is a maximized GDP.

I'm not a progressive. I'm a New Dealer. The very last one, probably. Nobody reads Tugwell any more. His proposal was NOT for permanent government supervision of the economy. Only when it was broken, as it certainly was then.

People forget who the New Dealers were: They were agricultural economists who were concerned because the farm economy crashed in 1922 and never recovered. The government did not interfere, and the farm economy did not recover. Markets did not clear, consumption dropped, people starved.

Instead of repealing Glass-Steagall, it should have been extended to cover all bank-like operations. And we should not have elected -- 5 out of the last 8 times -- leaders who thought regulation was a bad idea.

There would still have been tremendous corruption and self-dealing -- there was all through the boom period from 1947 on -- but the thefts would have been caught early enough so that the whole system was not compromised.

Finally, the only economic statement that counts was what Harry Hopkins said: People do not eat in the long run. They eat every day.
3.6.2009 1:21pm
Sagar:
jukebox,

Income belongs to the people who earned it. if you don't understand that simple point, any further discussion on the topic is pointless and waste of both of our time.
3.6.2009 2:25pm
Desiderius:
Sagar,

"Income belongs to the people who earned it."

It is until it is "placed in the hands of trustworthy people."

Nice passive voice from our favorite (seven-time) graduate. Therein lies the rub. The active voice alternative fails to so deftly mask the violence inherent in the assertion, or the shared misery such activities have achieved throughout history.


Eagar and LN,

Many thanks for taking this thread to another, better, level. It will take me some time to respond in kind.
3.6.2009 2:43pm
Jon Roland (mail) (www):
jukeboxgrad:

But who is the "our" who is supposed to "prevent the emergence of organizations that are too large or too well connected to fail?" If the market itself cannot "prevent the emergence of organizations that are too large or too well connected to fail," then who else can prevent that, other than the government?

Of course the government as an enabling factor. It is what enables the existing of the organiations and the enforcement of their contracts. But not with an asrmy of bureaucrats wielding reams of regulations written for the last crisis, easily captured by their targets, and easily evaded by clever managers, who give a false sense of security to investors.

There are many alternatives:
1. International conventions not to charter organizations to grow beyond a certain size, or continue for more than a few years, or enter into more than a certain number of contracts with more than a certain number of other large organizations, or to make investment decisions that do not contain a ramdomizer to prevent using the same strategies.
2. Use of grand juries to probe organizations looking for dangerous decisions, that report their findings.
3. State laws forbidding banks to have more than a certain number of branches and none in another state. (Remember when that was the law?)
4. Require banklike organizations to maintain 100% reserves. (No more fractional reserve banking.)
5. Forbid the securitization of debt instruments.
6. Require those who would foreclose on a mortgage to produce the original note in court before they can proceed. (Remember the "best evidence rule"?)
7. Require currency be backed with something of intrinsic value, like joules of energy. Forbid debt-backed instruments as legal tender.

I could go on but some of the rest of you should come up with some ideas of yhour own.
3.6.2009 3:47pm
Jon Roland (mail) (www):
M. Simon:

It will take fewer producers to support all the consumers.

They are not consumers without money to pay for it. We are running out of sectors that are not automated. To paraphrase Pastor Niemoller:

First they automated farming, but I was not concerned, because I found a job in a mine. Then they automated mining, but I was not concerned, because I found a job in manufacturing. Then they automated manufacturing, but I was not concerned because I found an office job. Then they automated office jobs but I was not concerned because I got an education job. Then they automated education jobs but I was not concerned because I found a finance job. Then the finance jobs evaporated and there was no one left to be concerned about me.
3.6.2009 3:54pm
Jon Roland (mail) (www):
Marcus Garvey:

"All the shoes have been shined and all the cotton has been picked."

The problem of automation from a black perspective.
3.6.2009 4:06pm
Desiderius:
First the statists, now the Luddites. Where are the Malthusians?
3.6.2009 7:17pm
Soronel Haetir (mail):
Currency backed by energy units seems like a very odd idea. The entire reason gold worked, aiui, was that the supply was limited, at least for human purposes. No more being made.

Energy seems like a hugely inflationary medium, especially if any of the pie in the sky generation techniques ever pan out. The one thing I see with such methods, be it fusion or whatever, if the supply of energy were to suddly become more or less unlimited by current standards something else would be created that put all that power to use.
3.6.2009 9:45pm
Harry Eagar (mail):
Desiderius, as long as you are working on it, riddle me this:

Consider that scores or perhaps more than 100 million people have nothing to offer as inputs to the market but their labor. They are unable to manage risk, yet they are totally dependent on someone else's estimate of risk. But if that someone else bets right, Our Poor Sap gets little -- usually nil -- upside, whereas if someone bets wrong, OPS is exposed to 100% risk, often ending up destitute.

OK, so how come people who have non-labor inputs to the market are allowed to protect part of them via limited liability corporations? Shouldn't a Libertarian insist that all ventures be personal proprietorships, or partnerships?

That was the way during the good ol' days of laissez faire, wasn't it?

Shorter version: Why aren't the bankers selling pencils out of a tin cup?
3.6.2009 9:54pm
Desiderius:
LN,

"I don't think there's an easy "fix" that would have prevented the financial crisis from occurring. Clearly a LOT of things in the market went wrong -- lending practices, investment decisions, incentive packages -- and I honestly don't know what precisely should have been done differently. People who really know what they are talking about, if any such people actually exist, should be deferred to on that note."

To some extent. Then again, there should be something the common man should be able to say. I blame "too big to fail" and the moral hazards thus created which undermined the concept of limited liability.

"What I do think has been discredited is not the idea of freedom but rather a certain strain of free-market ideology that assumed that any market arrangement in existence was necessarily for the best."

That strain is neither new, nor confined to free-market ideology:

"Safe in the hand of one disposing Pow'r,
Or in the natal, or the moral hour.
All Nature is but Art, unknown to thee;
All chance, direction, which thou canst not see
All discord, harmony not understood,
All partial evil, universal good:
And, spite of pride, in erring reason's spite,
One truth is clear, whatever is, is right."

Pope - Essay on Man

Even among free-market ideologues, the noted assumption serves as a starting point from which to analyze anomalies or aberrations therefrom, placing the burden of proof on those who would advocate intervention, rather than a claim to reflect reality in all situations sans caveats. At least that is my, amateur, impression.

"You know, the lazy economist assumption that any misallocation of resources would quickly be corrected by market forces, so that outsiders could generally be assured that markets were working as well as possible. In my mind, the collapse in the housing and stock markets, as well as the collapse of several gigantic financial institutions, quite clearly proves that this assumption was very very wrong."

Well, if your beef is with laziness, perhaps it would be prudent to make that clear, instead of throwing the very valuable baby of freedom out with the bathwater of ideology run amok or half-assed reasoning. That said, I'm not sure that quickness was the claim, as opposed to self-correction being a least-bad alternative, given the impressive record of unintended consequences produced by the available alternatives.

Again, I'm at pains to distinguish here between regulation - the attentive and impartial umpire - and intervention - the umpire taking the mound, and thus compromising his vital role as disinterested arbiter.

"I know that there are some who can't accept market failure and insist that only government intervention must have been responsible for our current situation, but I just can't buy that."

I don't think I'd take the trouble to respond to those who can't accept market failure. Anyone who doesn't is no friend of markets or freedom. Likewise with government failure. I'd say lack of effective regulation by a government too busy putting its fingers on various scales, coupled with those who only read half of their Smith exploiting the situation led to our current fix. Further scale meddling opening up further opportunities for exploitation thus doesn't strike me as too promising a way forward, regardless of the inevitable change in the identities of the exploiters that would come with such massive ideological shifts.


"Too much of the damage was clearly done by perfectly self-interested individuals; I just don't see how AIG's collapse for instance can be attributed to government policy. The financial institutions are big boys who specialized in the art of making money, and they all went bust."

Not all. Just those blind to the moral hazards they were running, and not even all of those.

"Now what does that mean for future policy? I don't know exactly -- I'm not sufficiently well-informed to make suggestions."

I don't believe that, and I suspect that you don't either. It's a democracy - speak your piece.

"But I'm really not afraid that Obama is going to create a totalitarian state and confiscate all the wealth. I don't understand how people can one day think that the financial crisis was caused because Chuck Schumer and Barney Frank were too cozy with Wall Street financiers, and the next day worry about how Chuck Schumer and Barney Frank are Communists who hate capitalism and wealth."

If such people exist, why are you bothering with them?

"For all the worry about the size of the stimulus package, we are facing a massive output drop over the next year or two and the increase in federal spending will not cover that. Now there's definitely some debate about the validity of Keynesian economics, but it is definitely incorrect to say that there is a professional consensus AGAINST what Obama is doing."

Everyone has their quibbles. The question is whether Obama can unite enough around what they agree upon. So far, barely, so good. Blaming free markets will tend to alienate those needed to make that majority worth having, as Bush and/or his supporters alienated the liberals willing to work with him early in his administration. They have little enough reason to stay on board as it is.
3.6.2009 10:11pm
Desiderius:
Eagar,

"Shorter version: Why aren't the bankers selling pencils out of a tin cup?"

Because they have the strongest union going (Boards of Directors consisting of fellow CEO's and would-be/former CEO's). Like other unions, for the good of the rest of the people, it needs busting.
3.6.2009 10:14pm
Desiderius:
Eagar,

"I would put it this way: People who believe property=morality and morality=property got us where we are."

Well, "property" resembles "propriety" and "proper" for a reason. I would put it in the negative and ask whether you believe that a society that does not secure to a man the fruits of his labor is not more susceptible to immorality, or at least dramatically lessened creativity and productivity, if morality isn't your bag.

That poem still brings a tear...

I'd rather work with the grain of existing human nature rather than against it, however laudable the new nature I wish for might be.

"I do not believe that the protection of property is the highest function of government. Nor do I think that the greatest achievement of a society is a maximized GDP."

Nor do I, on either count, especially the latter. Much of what counts there is merely barnraisings now charging admission. However, any government that fails in the former is not worthy of the name. Without secure property, the Bill of Rights is so much paper. Without the Bill of Rights, property is indeed mere theft.

"I'm not a progressive. I'm a New Dealer. The very last one, probably. Nobody reads Tugwell any more. His proposal was NOT for permanent government supervision of the economy. Only when it was broken, as it certainly was then."

Power in one place is easier for the strong to dominate, for as long as they like and not just in emergencies, than power dispersed. What I can't figure is why so many progressives are so hot for King John over Robin Hood.

And you're far from the last New Dealer. Unfortunately, it ain't New anymore. You and your fellow conservatives should own up to supporting the "New Deal in Exile" movement.

"People forget who the New Dealers were: They were agricultural economists who were concerned because the farm economy crashed in 1922 and never recovered. The government did not interfere, and the farm economy did not recover. Markets did not clear, consumption dropped, people starved."

I'd be curious to hear more about this. I'll admit to being ignorant of this viewpoint. Then again, there really is no Golden Age to return to, so I'm curious how their ideas would apply to the present, especially with our massive agricultural subsides, and the even more massive subsidies in Europe, which together do a pretty damn good job crushing the developing world progressives supposedly care so deeply about.

"Instead of repealing Glass-Steagall, it should have been extended to cover all bank-like operations. And we should not have elected -- 5 out of the last 8 times -- leaders who thought regulation was a bad idea."

That seems a little overly simplistic, given the extent to which regulation had becoming an excuse for rent-seeking circa LBJ. Certainly libertarians and conservatives need to rethink how we/they approach the issue of regulation, especially vis-a-vis intervention. I like Roberts' umpire formulation. The public has grown weary of pick-up games.

"There would still have been tremendous corruption and self-dealing -- there was all through the boom period from 1947 on -- but the thefts would have been caught early enough so that the whole system was not compromised."

I don't think a close study of the Johnson years or even the Dem Congresses throughout that period would support as much confidence as you seem to hold in that approach. There wasn't enough in it for the catchers.

"Finally, the only economic statement that counts was what Harry Hopkins said: People do not eat in the long run. They eat every day."

Hopkins was a fine man, certainly better than, say, Wallace, but a people reliant on their government for their daily bread is a people not long free.
3.6.2009 10:47pm
Jon Roland (mail) (www):
Soronel Haetir:

Currency backed by energy units seems like a very odd idea. The entire reason gold worked, aiui, was that the supply was limited, at least for human purposes. No more being made.

No, gold and silver worked because the supply grew about as fast as economies at the time. If no more were to be available the effect would be deflationary, and that did occur at various periods.

What we want to back currency that grows with the real product of the economy (not necessarily the GNP, which contains much that is not real).
3.7.2009 12:14am
jukeboxgrad (mail):
sagar:

Income belongs to the people who earned it.


When you say this as an absolute (as you have done), you are suggesting that all taxes are wrong. If all taxes are wrong, then the very idea of government is wrong, and the Constitution is wrong, and America is wrong. In other words, you're an anarchist. Why didn't you just say so in the first place? We could have saved some time.

any further discussion on the topic is pointless


English translation: 'now that you're challenging me to show proof for various questionable claims I made, I'm going to cut and run.'

==================
desiderius/aka david warner:

"Income belongs to the people who earned it."

It is until it is "placed in the hands of trustworthy people."


What a nice example of quoting out of context (and of course not bothering to provide links). You are doing something very misleading and dishonest by suggesting that I said that taxes need to be "placed in the hands of trustworthy people." Which is a way of implying a view that the essence of government is to make sure it is made up of "trustworthy people." (Of course it's a good idea to try to place trustworthy people in government, but it would be naive to claim that government bureaucrats are inherently more trustworthy than corporate bureaucrats. You are essentially accusing me of making that naive claim, a claim I have not made.)

That's not what I said. I said this:

our financial institutions need to be placed in the hands of trustworthy people


What I actually said is quite different from what you implied I said.

But this is par for the course for you. You prove on a regular basis that "trustworthy people" is a group that doesn't include you.

The active voice alternative fails to so deftly mask the violence inherent in the assertion, or the shared misery such activities have achieved throughout history.


It's hard to tell because you are being characteristically opaque, but you seem to be saying that collecting taxes is inherently an act of "violence" and a cause of "misery." So I guess you're another anarchist like sagar.
3.7.2009 8:20am
Desiderius:
Sigh. This will of course end only in tears.

"our financial institutions need to be placed in the hands of trustworthy people"

If by this you mean, say, banks, they're not "ours" (yet) in that I own no stock in them. Perhaps you're speaking of yourself and your stock investment club, in which case you have my abject apologies. If you're speaking of the state, well, none dare care it socialism.

I don't believe that many of Obama's supporters, including myself, are actual socialists. Would you care to further elucidate your own position? You sound much like the many socialists, often fine people, that I have known. They say similar things about "our" institutions and where they should be "placed". Would you be so sanguine should I claim that our institutions of higher learning should be placed in more trustworthy hands, with the implication being that the government would be involved in the placement? Or am I misreading your statement?



BTW, I'm mystified by what you think that you're accomplishing by repeatedly linking to the same past comment of mine that I continue to stand behind wholeheartedly and has nothing to do with trust, one way or the other. Only on a pedantically narrow construal could it be said to be inaccurate, let along intentionally so.
3.7.2009 8:53am
jukeboxgrad (mail):
If by this you mean, say, banks, they're not "ours" (yet) in that I own no stock in them.


You're splitting pointless semantical hairs. When I say "our financial institutions" I don't mean "our" in the sense that you and I own them. I mean "our" in the sense of 'institutions that make up the financial system on which we all depend.' Similarly, if I said "our auto companies," I am not claiming I own stock in GM. I'm simply making reference to American auto companies.

am I misreading your statement?


I said this:

our financial institutions need to be placed in the hands of trustworthy people


Here's what that means: the crooks running our banks need to be replaced with non-crooks. There's nothing complicated or mysterious about that. Unlike you, I'm being direct and clear.

We're still waiting for you take responsibility for falsely implying that I made a claim about how our taxes "need to be placed in the hands of trustworthy people."

Only on a pedantically narrow construal could it be said to be inaccurate


There is no imaginable "construal" that could make it anything other than an outright falsehood.
3.7.2009 9:39am
jukeboxgrad (mail):
I also hope you're going to explain your claim that collecting taxes is inherently violent. I didn't realize you were an anarchist.
3.7.2009 10:30am
Harry Eagar (mail):
'I would put it in the negative and ask whether you believe that a society that does not secure to a man the fruits of his labor is not more susceptible to immorality, or at least dramatically lessened creativity and productivity, if morality isn't your bag.'

Short answer: No.

Longer answer: Plow through all 5 volumes of Singer's 'History of Technology,' noting carefully his scattered comments about the geographic concentrations of innovation. It's obvious that innovation is decoupled from protection of property. In fact, some of the greatest episodes of innovation have come in places and at times when government did a poor job of protecting property. England in the 17th c., for example, or France in the 18th.

Or try Mayhew's 'London Life,' focusing on the relationship of the market to an artisan's tools. (I note you dislike unions; but for a laboring man, his labor is his only asset, and unions do a better job of protecting that than governments usually have.)

'I'd rather work with the grain of existing human nature rather than against it, however laudable the new nature I wish for might be.'

Me, too. That's why I am not a Single Taxer, although logically it makes more sense than what we do now with real estate, taking into consideration, among other things, the Tragedy of the Commons and the Tragedy of the Irish Tenant. (Sagar said: 'Income belongs to the people who earned it.' Not true under laissez-faire, historically.)

People are too willing to kill for land to try to act rationally about it.

'What I can't figure is why so many progressives are so hot for King John over Robin Hood. '

Jeff Madrick says (in 'The Case for Big Government') that one reason he doesn't worry about that is that all of the richest, freeest nations have big governments with large welfare transfers. I suspect, also, that they dislike that Robin's redistribution was uneven. They are big on evenness. (Although not a progressive, I am with them here, which is why I believe the Office of Faith-based Initiatives needs to be shut down.)

'You and your fellow conservatives should own up to supporting the "New Deal in Exile" movement.'

Not me. I've explained why


We're not a nation with an economy based on 40% of households being primary producers any more.

'That seems a little overly simplistic, given the extent to which regulation had becoming an excuse for rent-seeking circa LBJ.'

I'd cheerfully trade that for an exemption from boom-and-bust. But it isn't a tradeoff that has to be endured. Anyhow, don't worry about rent-seeking. What do you think rentier means? (Read Henry George.)

You really should go back and read what the New Deal was about. It was about restoring the ability of small businesses to support themselves in a functioning market, which — obviously — they were not doing in 1933.
3.7.2009 2:23pm
Harry Eagar (mail):
Sorry, VC won't accept the very long URL I tried to link to after 'explained why.'
3.7.2009 2:30pm
Desiderius:
JBG,

"need to be replaced"

Again with the passive voice. Who do you visualize doing the replacing?

I linked Sagar's claim that a man owns the fruits of his labor (even intellectual labor) until such time as he gives his consent for it to be taxed away for the purposes of financing his government to your own earlier claim that the government has the authority to place "our" financial institutions in the hands of those it considers trustworthy as it highlights what I take to be the contrast between Sagar's understanding of property and your own.

Certainly the Congress has the duly constituted authority to levy such taxes as it deems necessary, even those that go beyond Sagar's personal consent, at which time he has the freedom to attempt to get them repealed, to move to another more promising State (as our ancestors did), or even to foment revolution against said government (as Jefferson envisioned happening periodically). Still, such property is properly Sagar's until the point at which Congress passes a law taxing it. It is not the government's until Congress decides in its infinite generosity to let Sagar keep it.

If I have misinterpreted your view, please clarify.

As for JBG's favorite link, those reading along can judge for themselves by reading further in the link he so helpfully and regularly provides whether I have put forward a falsehood, and furthermore intentionally so. Bush "shouted out" to atheists at the National Prayer Breakfast, of all places.

BTW, I value JBG's contributions here - if I wanted him to be gone, all I would need to do is post the following comment:

"I'm a conservative Republican. Jesus Christ is my personal Lord and Savior. I think commenting on VC threads is great."

He'd be gone in an instant.

Alas, I like having him around, even if I lack the self-control to avoid wading into his swamp now and again.
3.7.2009 3:00pm
Desiderius:
Harry Eagar,

Alright, I guess now I'll have to do my homework, despite how much I hate discovering data that punctures my favorite theories.

As for your previous two posts, I don't believe that the demarcation between labor and non-labor is quite so clear as you make it out. At the end of a hectic, productive day, your average newspaperman's aches may be limited to his feet, fingers, neurons, and conscience, but has he really labored less than the farmer who's been checking the pH levels of his soil or the machinist getting the co-ordinates right in his Mazak and charting his variances to make sure he stays within his tolerances?

Not to mention yours truly, who has been putting in 14-hour-days recently in and out of the classroom managing the education of over 120 students? Motto: any curriculum you like, as long as it's black.

Likewise, is there no value created in the act of making the market, or rather, to put it in less politically incorrect terms, determining where one's services are most pressingly needed? You say that a hundred million are unable to manage risk - do they lack the necessities, or is it something else? Does Warren Buffett create no value?

Limited liability is intended to encourage creativity and the risk-taking it requires. Investors assume the risk in exchange for a share of the reward. Should a team of line workers or a firm of teachers wish to raise capital to create new ways to produce their products and services, certainly their liability should be limited also, and it should certainly not be assumed by future generations without representation by the government, American or Chinese using the American as intermediary, acting as the middle-man.
3.7.2009 3:23pm
Harry Eagar (mail):
So far as I am aware, Buffett has never created any value, he just shifts it around.

There are a lot of people around VC who would deny the right -- or at least the desirability -- of allowing workers to organize to manage risk.

But I think you miss the point. If market capitalism really is a risk-reward system, it fails to distribute the risks to the people it distributes the rewards to. It is more like what Daniel Webster said, 'It seems to me plain that in the absence of military force, political power naturally and necessarily goes into the hands which hold the property.'

There were a few of us who foresaw the risks: Edward Herman did in 1975 in 'Conflicts of Interest: Commercial Banks and Trust Companies,' for example.

However, just because I was correct about what was happening and took steps to reduce my participation in that sort of risky behavior to $0.00, that has not meant that I am not being billed for the costs of the mistaken risks that controllers of large property took.

If they had been personally exposed to the consequences of their actions, perhaps they would have been more prudent. The prospect of being hanged in the morning concentrates the mind, it is said.
3.7.2009 6:04pm
Desiderius:
Harry Eagar,

"I note you dislike unions; but for a laboring man, his labor is his only asset, and unions do a better job of protecting that than governments usually have"

No doubt, as the mafia protects its made men, and the old railroad trusts protected the members of the cartel. I'd say the more pressing question is who will protect the public from the predations of such combinations, union and otherwise, and more to the point, who will protect future generations from feckless management, public and private, who tosses them to the wolves to placate their unions? We're already paying the piper for the results of past "bargains" struck by the UAW cartel and various public unions, bargains in which we mysteriously had no say under the Wagner Act framework. See, for instance, California and its wonderful Prison Guard union.

"So far as I am aware, Buffett has never created any value, he just shifts it around."

Here's hoping that someday you'll have the opportunity to discuss your view with our President. I get the sense that he does not share it, given, for one, Buffet's support for him. Would that there were a Buffet twenty years ago who foresaw the desolation that the corporate chains would wreak on local papers and had invested in those local papers to protect them.

"There are a lot of people around VC who would deny the right -- or at least the desirability -- of allowing workers to organize to manage risk."

I seriously doubt that, unless by "manage risk" you mean offloading it onto future generations who have no seat at the bargaining table or a public afraid to let the big fail. Of course "managing risk" is distinct from many of the activities that actually occupy the time of union leaders.

"Jeff Madrick says (in 'The Case for Big Government') that one reason he doesn't worry about that is that all of the richest, freeest nations have big governments with large welfare transfers."

That is indeed a strong argument, as is the one that notes that the richest and freest one has the least big government and the smallest welfare transfers, and plans to keep it that way, according to the Obama White House's assurances to Brooks.

As for the New Deal being about restoring the ability of small business to support themselves in a functioning market, why then has small business been at the core of resistance to the New Deal since its inception, even today serving as a key member in the Republican coalition? False consciousness?
3.7.2009 8:48pm
jukeboxgrad (mail):
desid:

Again with the passive voice.


I used the passive voice because I was making the point that they (the crooks running our banks) need to be replaced. I was not making a point about how this should be accomplished.

Who do you visualize doing the replacing?


There are lots of different possibilities, as far as how to get the crooks to leave. They could be ejected by shareholders and directors. They could be pressured by other managers and employees. They could be shamed by a publicity campaign against them. They could be hauled away by cops. Citizens with pitchforks and torches could run them out of their office. Or it could be a combination of these forces, or other forces I'm not thinking of.

But the important thing is that it happens.

your own earlier claim that the government has the authority to place "our" financial institutions in the hands of those it considers trustworthy


Except that I never made this claim. You should really stop making things up. What I actually said was this:

our financial institutions need to be placed in the hands of trustworthy people


Here's an idea: try responding to what I actually say, and not your fantasy of what you think I mean.

a man owns the fruits of his labor (even intellectual labor) until such time as he gives his consent for it to be taxed away for the purposes of financing his government


I'm sure the judge will be impressed with that statement when you use it to explain to him why you refused to pay your taxes. In our society, an individual does not have the right to withhold "his consent for it [the fruits of his labor] to be taxed away." Your taxes are an obligation, with or without your "consent." Then again, maybe you're an anarchist and you're promoting anarchy.

such property is properly Sagar's until the point at which Congress passes a law taxing it


Duh. And where did I say anything to contradict this?

Bush "shouted out" to atheists at the National Prayer Breakfast, of all places


Your original comment here cited this article, which quotes Bush II making a statement at the National Prayer Breakfast. Where is the support for your claim about Bush I?

More importantly, your original assertion ("references to non-believers go back at least to Bush I"), in context, was not simply claiming that Bush I, at some point at some minor event, had made some statement vaguely sympathetic to atheists (and even this is something you have still not demonstrated). The context was about the importance of Obama making his statement in his inaugural address, which obviously has an infinitely higher profile than a statement made at a prayer breakfast. Your statement implied that someone prior to Obama had made a similarly high-profile statement. And if this isn't what you meant, you had ample opportunity to clarify yourself in the original thread.

And this is not the only example of you inventing your own facts and then ducking when challenged.

He'd be gone in an instant.


Really? Why?
3.8.2009 10:49am
Desiderius:
"Your taxes are an obligation, with or without your "consent." Then again, maybe you're an anarchist and you're promoting anarchy."

Except for, you know, the following paragraph in my comment, where I make that very point. I'm really curious about what you think you're accomplishing by this sort of blatant slicing and dicing. Do you rely on people not following your links and quotes? Are you blind to the effect on your reputation of what they might find there? I don't disagree that we disagree about what weight to put on Obama's inaugural comments or PowerLine's ignorance of Palin, but where is the supposed evidence of my bad faith there?

Certainly there are conservative attack dogs who practice such diversionary cum defamatory tactics in a variety of fora, and perhaps there is some sort of tu quoque self-justification that might buoy you on, a regret that you have but one reputation to sacrifice for your cause, but this forum is not (merely) a political campaign where bygones will perforce be bygones or a courtroom where a new jury will be seated next week.
3.8.2009 1:16pm
jukeboxgrad (mail):
Except for, you know, the following paragraph in my comment, where I make that very point.


In other words, you contradicted yourself. That's your problem, not mine.

Do you rely on people not following your links and quotes?


Where have you shown that my "links and quotes" fail to support my statements?

we disagree about what weight to put on Obama's inaugural comments


But you didn't state an opinion that someone was putting too much weight "on Obama's inaugural comments." You implied that some prior president had made a similar statement in prior inaugural comments. Trouble is, that's false. And all you have ever shown is that Bush II made statements at a couple of minor events. Why did you make a claim regarding Bush I?

PowerLine's ignorance of Palin


What I demonstrated here was not just that Power Line didn't bother mentioning Palin. What I demonstrated was that you had made a false claim ("the only reason the media didn't know about her is that they get their news from HuffPo and Kos and she doesn't fit the left stereotype of a Republican").

where is the supposed evidence of my bad faith there?


When it is shown that you made a false statement, and you refuse to take responsibility for making that statement, that's evidence of bad faith.

And I've demonstrated a number of false statements. Like you claiming I said something I didn't say.

Certainly there are conservative attack dogs who practice such diversionary cum defamatory tactics in a variety of fora, and perhaps there is some sort of tu quoque self-justification that might buoy you on, a regret that you have but one reputation to sacrifice for your cause, but this forum is not (merely) a political campaign where bygones will perforce be bygones or a courtroom where a new jury will be seated next week.


My contract stipulates that I'm not required to decode 74-word sentences.
3.8.2009 1:37pm
Harry Eagar (mail):
'why then has small business been at the core of resistance to the New Deal since its inception, even today serving as a key member in the Republican coalition?'

Small business was on board with the first New Deal.

I'd ask you, why did masses of working men and women vote for Reagan to send their jobs overseas?

Why did smaller masses of stockowners give their money to an obvious fraud like Madoff?

Short answer: The economically rational man has never been born yet.
3.8.2009 3:08pm
Desiderius:
JBG,

As I said. Tears. My own only, no doubt.

"My contract stipulates that I'm not required to decode 74-word sentences."

Your loss, my good man. I get the sense that you're a bit long in the tooth to be learning new tricks regardless. Please stick around to continue providing your valuable service of dismantling weak conservative/libertarian arguments. Perhaps to expect you to recognize a strong one or good faith on the part of those advancing them is indeed too much to ask.
3.8.2009 3:47pm
jukeboxgrad (mail):
I assume good faith until a person makes false statements and then refuses to take responsibility for doing so. You're in that category. I've cited multiple examples.
3.8.2009 5:03pm
jukeboxgrad (mail):
And new examples pop up frequently.
3.8.2009 5:06pm
Harry Eagar (mail):
'Of course "managing risk" is distinct from many of the activities that actually occupy the time of union leaders.'

True, but then I ask, if every other economic actor is advised to act in his own interest, and somehow the magic of the market grinds all these actions up and spews out the very best possible result, why are working men not also advised to contribute their bit?

Surely you are not serious when you suggest the UAW cartel is responsible for the demise of the local automobile industry? That was management's choice for the past 40 years not to offer what the market very obviously wanted, like an American Corolla or a small pickup truck?

The Japanese auto industry was not nearly as incompetent, as I can go down to Toyota or Nissan and have my choice of not only a handy, economical small pickup, but also a whomping big V-8 competitor to the Ford F-150.

Why aren't the auto execs selling pencils out of a tin cup?
3.8.2009 8:21pm
Desiderius:
Great, more JBG wild goose chases. Let me put on my JBG hat and dig in for a bit in attempt to defend my honor and perhaps finally get to the end boss. Besides, there is work to put off.

(1) The 70% number likely comes from here, no doubt not on the JBG-approved list of sources, but reflective of the concern I've heard in various quarters, on-line and off, some like myself Obama voters, and some wavering in their support, which I am not. Yes, Hanson was not referring to marginal rates, but then again, 70% is closer to the total tax burden than 39.6%, which was the point in question. See the response to Brooks for effective means to respond to such concerns. Pretending that those concerned are crying wolf is likely to be less effective as is taking statistics out of context.

(2) I contested the weight being placed on the Obama inaugural shout-out to atheists, and the implied contrast to what came before. At JBG's request, I attempted to find support for my recollection of statements by Bush I in that regard, but failed to do so, other than an apocryphal statement attributed to him against atheists that was evidentlydebunked by Snopes, or as much as such a thing can be debunked (the problem with proving a negative, which is the same problem JBG has here - the lack of proof that Bush ever made such statements is insufficient to prove he never did, whereas had I claimed he hadn't, one counterexample would suffice, hence it follows that the claim that my recollection was false rather than unsubstantiated is a category error, and that it was deliberately so, baseless defamation absent proof of intent to deceive.)

I do not contest JBG's (narrow) claim that previous inaugural statements have not contained such shout-outs, and never have. Were I to do so, that would be a falsehood.

This is anyway a side issue to my larger argument, which as I said before, can be found at JBG's link. I don't expect JBG to agree with it, but disagreement is thin grounds for accusations of falsehood, let alone bad faith.

(3) Powerline, having been previously named blog of the year by Time Magazine, may well be a blog of choice among those whose first stop is Kos or HuffPo whenever they're curious what their foes are thinking, or those who still consider Time to be an authority on anything (as I did roughly from the time I was six until around twenty. I still have a framed fold-out of Vaclav Havel addressing Congress taken from the pages of Time hanging on my wall).

What Powerline is not is the end-all and be-all of the conservative/libertarian/non-left internet, and it is exceedingly odd to imagine that it is, even if they once made the pages of Time.

My typical first stops are RCP, VC, and Instapundit, on all three of which I read about Palin well prior to the nomination and followed links provided there to sites such as Beldar who were touting her candidacy for months prior. Given Instapundit's (no doubt malevolent) influence, a competent reporter might do well to have it linked, and to pay attention when he touts a candidate, even in his (usual) somewhat bemused tone. Likewise Douthat has expressed regret that when he was finally listened to by the R powers that be, it was to take his advice to pick Palin, which he had been mentioning off and on for weeks.

"In other words, you contradicted yourself. That's your problem, not mine."

If you choose to construe it as a contradiction rather than a clarification or a move from the general (government by the consent of the governed) to the specific (how conflicts between personal and general consent are handled), it is your responsibility to accurately reflect the sense of the text you quote. This you failed to do.

"I used the passive voice because I was making the point that they (the crooks running our banks) need to be replaced."

If you have evidence of their crookedness, rather than their poor decision-making or even incompetence, could you not bring suit? Is the Obama Justice Department incapable thereof? Governor Patterson?

"'such property is properly Sagar's until the point at which Congress passes a law taxing it"

Duh. And where did I say anything to contradict this?"


JBG:

"there's also the $2 trillion cost of Bush's tax cuts for the rich."

Sagar:

"re: tax cuts for the rich costing $2trillion

costing whom? do you think the money earned "belongs" to you or the govt? it is people's money that they earned. tax cuts don't give money to someone"

JBG:

"Bush's tax cuts for the rich weren't really cuts. They were just a way of transferring taxes to a group that's not in a position to complain: our children. That's "whom."

I agree with your conclusion, BTW. But costs are incurred when money is spent by the government, say on playing world policeman, or maintaining a military welfare state, as you often helpfully point out, or, you know, passing a $400 billion dollar stimulus bill, however justified that spending might be. Calling a tax cut, however ill-advised, a cost confuses the question of whose property is involved in the first place, which is what Sagar and I intended to highlight, likely in a sloppy manner. If this strikes you as unnecessarily pedantic, you can blame my background in (non-profit) finance and familiarity with the rhetoric of regimes not so keen on property rights, and, not coincidentally, tending to forget other rights as well.

I hope that I've managed to meet your standards for verbosity.
3.8.2009 9:58pm
Desiderius:
Eagar,

"I'd ask you, why did masses of working men and women vote for Reagan to send their jobs overseas?"

So "overseas" would have the money to loan us now at 0% interest to fund the stimulus? Seriously, I think we've reached an ideological chasm here that we're unlikely to bridge. Not, oddly, that I was that big of a Reagan fan at the time, though in retrospect I hold him in high regard for similar reasons to which I likewise hold Obama - the one was, and the other promises to be, effective Heads of State, in a manner in which the Bushes, and to a lesser extent Clinton, failed to achieve.

As for free trade, I wish I could direct you to the books I read back in school in the UK recounting Peel's brave (and, alas, sacrificial) stand against the Corn Laws (and thus against his class and party) that ushered in an era of free trade for Britain, with a consequent rise in living standards, power in the world, and resources available for the construction of a nascent liberal welfare state, and, ultimately, the Labour Party.

"Why did smaller masses of stockowners give their money to an obvious fraud like Madoff?"

Evidently it wasn't so obvious to them. Perhaps they should have invested in tulips or South Sea stock.

"Short answer: The economically rational man has never been born yet."

If perfection is the standard, that is no doubt true, but man is not called the reasoning animal for nothing. Both rationality and irrationally need to be accounted for.

"True, but then I ask, if every other economic actor is advised to act in his own interest, and somehow the magic of the market grinds all these actions up and spews out the very best possible result, why are working men not also advised to contribute their bit?"

They can contribute all they like. And the public likewise in our own interest. That said, Smith wrote another book - one of my favorites, which I believe I've already linked upthread. Enlightened self-interest requires constructing a self embedded in the context of one's community and intergenerational traditions and institutions.

"Surely you are not serious when you suggest the UAW cartel is responsible for the demise of the local automobile industry? That was management's choice for the past 40 years not to offer what the market very obviously wanted, like an American Corolla or a small pickup truck?"

Well, unfortunately, I worked in both a non-union and a union heavy manufacturing plant, the former in which we were selling our products to Mexico and China due to the ingenuity of our workers and their willingness to apply it to the task at hand (and of management to implement it), the latter in which union-management acrimony prevented us from tying our shoes properly. So however beneficial unions might be in the ideal, my reality doesn't fit the picture.

According to my uncles in the car business, the UAW and Big Three management have been locked in a battle to see who can be more fat, dumb, and self-satisfied these past few decades. The fat is now gone, and Chapter 11 should take care of the last. Perhaps JBG has the idea on the dumb part. But in general I'd say that American management, public and private, has more important things to attend to than placating their unions by throwing future generations of their business/community to the wolves.

As for the American Corolla, are you familiar with Project Yellowstone? The UAW liked the fat margins as much as, if not more than, management.

"The Japanese auto industry was not nearly as incompetent, as I can go down to Toyota or Nissan and have my choice of not only a handy, economical small pickup, but also a whomping big V-8 competitor to the Ford F-150."

With engines manufactured by some of my friends in Buffalo, WV. Fine American company, that Toyota. Non-union, too, although that's no doubt a coincidence.

"Why aren't the auto execs selling pencils out of a tin cup?"

Because our government won't let them go bankrupt? Can't have creative destruction without the destruction first.
3.8.2009 10:44pm
Harry Eagar (mail):
'Because our government won't let them go bankrupt?'

Not on point. The directors could easily ditch management and keep getting the loans. In fact, it would have been easier to do it that way.

You have carefully avoided answering the question, which I have now posed in several attractive formats: Why should anybody pay the slightest attention to the Smithian risk-reward conception when it so obviously does not reward the virtuous risk-takers and does punish the virtuous non-risk takers?
3.9.2009 2:30am
Desiderius:
Eagar,

"Not on point. The directors could easily ditch management and keep getting the loans. In fact, it would have been easier to do it that way."

Tenure? Sure could use some corporate raiders about now - what happened to those guys, anyway? As I said - tough union.

"Why should anybody pay the slightest attention to the Smithian risk-reward conception when it so obviously does not reward the virtuous risk-takers and does punish the virtuous non-risk takers?"

Because its worse than everything except the alternatives, if history is any guide. Folks were getting impatient with a liberalism that had delivered a half-century of unprecedented progress around this time last century as well. We all know how that turned out. Which gets back to my original question - what alternative do you propose?
3.9.2009 7:34am
jukeboxgrad (mail):
desid:

The 70% number likely comes from here


You are citing Hanson saying this:

Under your plan many in these high-tax states will pay nearly 70% of their incomes in FICA, Medicare, federal income, and state income taxes.


That statement is baloney. Effective federal tax rates are here. During the Clinton years, when the top rate was the same as what Obama is proposing, a family in the top 1% (by income) never paid an effective rate higher than this: 36%. That includes all federal taxes (income tax, FICA, Medicare). And no state has a marginal income tax rate of higher than 10%. So how on earth does Hanson get to 70%? Obama is letting the top marginal rate revert from 35% back to what it used to be (39.6%). What kind of voodoo math turns this into an effective rate of 70%?

Please note that when WSJ and Power Line were slamming Obama's tax plan last summer, the best they could do was this:

The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phase-out and Mr. Obama's new Social Security tax (of up to 12.4%) increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.8%.


(Emphasis added.) If the total combined marginal tax rate was 63% (assuming that the WSJ figure is correct, which I am not inclined to do), how does Hanson get to a total combined effective tax rate of 70%? Effective tax rates are always going to be significantly lower than marginal rates.

And when NR (along with Glenn Reynolds) was beating this drum last summer, the best they could come up with was "close to 60 percent" (for the total combined marginal tax rate).

So it sounds like Hanson is taking the most impressive number his pals came up with, and then substantially inflating that number, and then pretending he doesn't understand the difference between a marginal tax rate and an effective tax rate. Which is very much like Yoo pretending he never heard of Youngstown Steel.

70% is closer to the total tax burden than 39.6%


Really? Prove it. During the Clinton years, "the total tax burden" on the top 1% was never higher than 36%. Including all the factors Hanson mentioned, aside from state income tax (which is at most another 5-10%). So you should tell us how you're calculating "the total tax burden." 36% plus 10% does not get you close to 70%. And when Hanson's pals did these calculations, they never mentioned the combined effective rate (i.e., "the total tax burden"). They only talked about the combined marginal rate.

Pretending that those concerned are crying wolf


Hanson is pulling numbers out of thin air. So "crying wolf" is a good way to describe that.

At JBG's request, I attempted to find support for my recollection of statements by Bush I in that regard, but failed to do so


You're finally admitting that you can't prove that Bush I said something you claimed he said. All you have is your "recollection." What I find significant about this is that you're weren't willing to admit this at the time. You're only finally admitting this after much tooth-pulling.

I do not contest JBG's (narrow) claim that previous inaugural statements have not contained such shout-outs, and never have. Were I to do so, that would be a falsehood.


Your "do not contest" is another belated admission, that comes only after much tooth-pulling. And I "contest" your "never have." Your original assertion did indeed imply that "previous inaugural statements have … contained such shout-outs." And when I challenged this assertion, your evasive non-response seemed to be your way of sticking with your original assertion.

disagreement is thin grounds for accusations of falsehood, let alone bad faith


All you needed to say at the time was something like this: 'I did not intend to imply that previous inaugural statements have contained such shout-outs; also, I have no proof that Bush I ever provided any such shout-outs, even at minor events; my claim is based only on my recollection.'

That's what you're finally admitting now, only after much tooth-pulling. In my opinion, your refusal to say it at the time is sufficient to indicate bad faith.

What Powerline is not is the end-all and be-all of the conservative/libertarian/non-left internet


Except that I didn't just cite Power Line. I also cited NR and Weekly Standard. Can you think of any sources that play a more important role in representing the "the conservative/libertarian/non-left internet?" I can't. And I showed that all three did not take Palin seriously as a candidate (prior to McCain picking her). Which means the claim you made ("the only reason the media didn't know about her is that they get their news from HuffPo and Kos and she doesn't fit the left stereotype of a Republican") was wrong.

And speaking of bad faith: pretending that I only cited Power Line, even though I also cited NR and Weekly Standard, is another sign of it.

Given Instapundit's (no doubt malevolent) influence, a competent reporter might do well to have it linked, and to pay attention when he touts a candidate


You're implying that Glenn promoted Palin. More baloney. He barely mentioned her. I can find exactly one post, in 2/08, where he "touts" her (and I would be greatly interested if you can find any other examples). And the irony is that the article he points to points to other articles on the same subject that show how Palin was being ignored by the right. On 2/08 WSJ published a column called "McCain's Veep Options." Palin's name was mentioned this many times: zero. Likewise for similar columns by Stephen Hayes and Fred Barnes.

And on the same day, Glenn ran a post touting Thompson, Hunter, Coburn and Michael Steele. Palin isn't mentioned. And a couple of days earlier he touted Thompson. Palin wasn't mentioned in that post either. And the townhall.com article cited by Glenn, touting Thompson, mentions Palin this many times: zero. Then on 3/26/08 Glenn touted Condi Rice. Again Palin isn't mentioned.

By the way, this is what Glenn said about Palin on 9/22/07:

THERE'S A BLOG AIMED AT DRAFTING ALASKA GOV. Sarah Palin for Vice President. I don't see that as terribly likely, but I certainly like her action on the Bridge to Nowhere, and I wouldn't mind seeing her fill Ted Stevens' seat.


Yup, he sure was 'touting' her.

And speaking of bad faith, I notice you still haven't taken responsibility for saying I said something I didn't say ("the government has the authority to place 'our' financial institutions in the hands of those it considers trustworthy").
3.9.2009 9:53am
Harry Eagar (mail):
I already said: the New Deal, especially its oversight of financial markets. I think you said you agreed with that, in your remark about the difference between regulation and intervention.

The kind of intervention required for the first New Deal is no longer appropriate, we are no longer a nation of many small primary producers and we do not (yet) have deflation to contend with.

Probably a new kind of intervention is required. What that is should be discussed, but to even get there, we would have to get beyond these crazy ideas that unions are bad, that finance capitalism is superior to production capitalism, etc.
3.9.2009 12:36pm
wfjag:

"Probably a new kind of intervention is required."

Harry, we've already got a "new kind of intervention".

This unprecedented "spread" in the cost of money makes it unprofitable for any lender who doesn't enjoy government-guaranteed funds to go up against those with a favored status. Government is determining the "haves" and "have-nots." That is why companies are rushing to convert to bank holding companies, not a course feasible for Berkshire.

Though Berkshire's credit is pristine -- we are one of only seven AAA corporations in the country -- our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.

Page 12 from letter captioned BERKSHIRE HATHAWAY INC.
To the Shareholders of Berkshire Hathaway Inc
.,
dated February 27, 2009, from Warren E. Buffett, Chairman of the Board, online at
www.berkshirehathaway.com/letters/2008ltr.pdf

The "bailouts" have so thoroughly distorted the capital markets that being politically well-connected (and so having a government guarantee) is more important than sound economic policies and having a good business. The bailouts are rewarding the people and firms that caused the economic crisis in the first place, and those persons and firms are not under any apparent pressure to correct their prior mismanagement and poor decisions.
3.9.2009 5:08pm
Desiderius:
JBG,

"The best lack all conviction, while the worst are full of passionate intensity."

Yeats had you pegged. There are giant squids who would envy that cloud of obfuscatory ink. If I can manage to round up a team of paralegals with a few months on their hands, then maybe I can take a shot at finding the pony in that heaping mound of bullshit. Then again, I think even Hercules might quail as such a Kafkaesque task. As I was reading it - miraculously, I made it all the way through - this kept coming to mind, as if I was nearing the VC's own Colonel Kurtz.

Put this in your memory hole, and smoke it. At long last, have you no decency, sir?
3.9.2009 6:44pm
Desiderius:
Eagar,

"I already said"

Apologies. I realized, too late, that you had already answered the question. Maybe there's some potential there in the idea that the New Deal saved Capitalism from itself, and, more to the point, the alternatives. I'm game.

"Probably a new kind of intervention is required. What that is should be discussed, but to even get there, we would have to get beyond these crazy ideas that unions are bad, that finance capitalism is superior to production capitalism, etc."

Needless to say, I don't find the former to be crazy, nor do I claim to latter to be true, only that finance capitalism has a value of its own - likely incommensurate with production capitalism except in the most general terms. I don't even find the distinction particularly meaningful, as opposed to, say, the distinction between real estate (not making any more, etc...) and other forms of property which, at least potentially, engender more positive-sum activity, not being as scarce, if scarce at all.
3.9.2009 6:51pm
jukeboxgrad (mail):
desid:

a team of paralegals


It hardly takes "a team of paralegals" to grasp this:

- You said GHWB said something he didn't say.

- You said I said something I didn't say.

- You cited Hanson's completely bogus "70%" claim.

- You suggested that only the left didn't take Palin seriously as a candidate (prior to the time that McCain picked her), when in fact major righty commentators didn't take her seriously either.

Put this in your memory hole


That's feeble. Yes, Beldar liked Palin. Yes, Palin did well (17% of the vote) on an internet straw poll held last summer. She had her fans. When did I claim otherwise? I didn't. But at the same time, she was being virtually ignored by prominent righty commentators at Weekly Standard, National Review, Power Line and elsewhere. Which means your comment ("the only reason the media didn't know about her is that they get their news from HuffPo and Kos and she doesn't fit the left stereotype of a Republican") was wrong.

If "the media" was acting like it "didn't know about her," it's more likely because "the media" was following the lead of people like Stephen Hayes, Fred Barnes, Byron York and John Hinderaker. Because they all wrote articles listing veep ideas for McCain, as late as 8/20/08, and didn't even mention her name (despite what Beldar had been saying, and despite her success in the straw poll, which started in June). So it's not that "the media … get their news from HuffPo and Kos." It's that they got "their news" (on this issue) from places like National Review, Weekly Standard, and Power Line. And it's pretty silly to suggest "the media" should have been ignoring those sources and paying attention to Beldar instead (even though McCain ended up picking the candidate Beldar liked, and not picking the candidates those other sources liked).

If Hayes, Barnes, York and Hinderaker were ignoring Palin, and ignoring Beldar, and ignoring that wonderful straw poll, why was it wrong for "the media" to also ignore those things? And why didn't you accuse Hayes, Barnes, York and Hinderaker of getting "their news from HuffPo and Kos?" Because those four (and most other leading righty writers) ignored Palin as much as "the media" did.

And why did you suggest I cited only Power Line, when I didn't cite only Power Line?
3.9.2009 8:17pm
Harry Eagar (mail):
'The "bailouts" have so thoroughly distorted the capital markets that being politically well-connected (and so having a government guarantee) is more important than sound economic policies and having a good business.'

Wasn't this where we came in?

Some mistakes are so bad you cannot recover from them. Reaganomics looks to be one of them. My assessment is that we'll be doing very well if we manage to avoid deflation. The best tool for that is usually printing money.

These are not happy choices.
3.10.2009 2:16pm

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