Cox Crow

The key word there is faith.

There is a propensity for politicians, and in truth all of us, to act hastily when the times call rather for patience and calm.

Sen. Charles Schumer (D-NY), in discussing the Senate’s approval of a bill permitting the Treasury to buy worthless mortgage-backed securities, remarked, “It’s better than doing nothing.”

Not if “nothing” is the right thing to do.

Sen. Hillary Clinton (D-NY), on the same subject, said, “What we are doing here in an intangible way is restoring trust and confidence.”

Perhaps the tangible way the Senate could have helped would have been to stop panicking, and instead to exercise some restraint. Because, from my perspective, an industry that is still trying to sell the same kinds of products that got them into this mess deserves nothing but contempt.

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The newspaper says there’s a problem, but is there really?

via Tom Palmer, David Cay Johnston wonders the same thing. In a letter to his fellow journalists, he writes,

In covering the proposed $700 billion bailout of Wall Street don’t repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don’t assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don’t assume there is a case just because officials say there is.

(some observations, which I’ll hopefully clean up and form into a coherent post)

Some say the financial crisis is a market failure, fixable by regulation; others, that it’s a regulatory failure, fixable by the market. In any case, someone took a risk, and lost. Once bitten, twice shy? Not if the losers don’t feel their losses. Again, their risk is passed on to me. Why should I accept that when I do not profit from it?

It’s very difficult for politicians to do nothing and let the disease run its course. So they give Typhoid Fannie drugs which cover up the symptoms, and allow her to infect the rest of the population, when quarantine or execution would be better for the public health.

At times like these, you would think that the politicians, of all stripes, would also stop planning to spend more on entitlement programs whose costs can’t be controlled. But it’s very difficult for a politician to get elected without promising the voters 40 acres and a mule (and his friends, perks). And there will be no cost at all to this. We can do it all without raising taxes. We can lower taxes without cutting services. And who will pay for this, I ask?

Our mortgage is half of my net pay. Our other expenses consume the remainder. Because I’m paid twice a month, and bills come due throughout the month, we bridge the gap with credit. This works as long as our expenditures on credit do not exceed my earnings. Others do the same, but on a larger scale.

If they do, then we take funds from our savings; we borrow against our future. I think the questions we all need to ask ourselves now are these: Are my sources of credit sufficiently diverse? Is there such a thing as sufficiently diverse in the current circumstances? Assuming that I remain employed, can we live on cash?

For what it’s worth, historical data maintained by the FDIC shows that during the Great Contraction, many fewer banks failed than did during the Savings and Loan Debacle of the 1980s. I’m sure that’s reassuring.

http://www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30

I tend to agree with Greg Mankiw — more generally with Arthur Pigou — on his recommendation to increase certain taxes in order to cover the external costs that those products feed. However, there’s a flawed assumption in the analysis. Mr. Mankiw states,

[Pigovian taxes] raise revenue that the government can use to reduce other taxes, such as income taxes, which distort incentives and cause deadweight losses.

And then later,

The economists in the Treasury department are fully capable of designing a package of tax hikes and tax cuts that together internalize externalities and leave the overall distribution of the tax burden approximately unchanged.

I’m certain they are, too. Unfortunately, I’m also certain that the practical experience of government shows that taxes tend to go up, and that a new stream of revenue rarely leads to reductions in other taxes. Instead, it leads to the government spending, or redistributing if you prefer, the additional revenue.

So while I would prefer increased gasoline taxes and lowered income taxes, the chances of such are approximately equal to the likelihood of a snowball’s survival in Hell.

Or as Mr. Mankiw puts it,

I am eager for this tax only if the revenue is to be used to reduce other taxes, either contemporaneously or in the future.