Thursday, October 30, 2008

Are we in a recession, or is capitalism really evil?

The economy is resilient, but its resiliency depends on the economic boat being able to right itself and not on the government pulling it into dry dock indefinitely. Sure you can't sink in dry dock, but you don't get anywhere either.

For me, the political world has taken center stage. I can not believe our choices this time and the risks to the economy if either win, however, the risks of the democrats to the economy are higher than I can ever remember. Capitalism is under full attack and siege. GDP down only .3 today (not a permalink).

The consensus forecast was -.5% and this from

"This has not been a recession - yet. Third quarter real GDP will be near flat. Regardless of whether it is a slight increase, as we expect, or a slight decline, the fact remains that the US economy has been far stronger than generally perceived. This has been due in large part to strong exports and a resilient consumer. Gas prices, home prices, and higher unemployment didn't lead to a recession in the first three quarters of 2008. Of course, everyone knows that it "feels like a recession." This is in part because the stock market is down, and it is often taken as an indicator of the economy (even more so than GDP). GDP is also now likely to support the recession argument. We expect fourth quarter real GDP to decline. The outlook into 2009 is for a sluggish economy at best, but the specifics depend highly on how well the liquidity crisis on Wall Street is addressed. That remains highly uncertain."

The uncertainty now is political. Don Boudreau, asks today in the Christian Science Monitor "Is Barack Obama really a socialist? (subtitled) Not exactly, but his 'socialist-lite' policies should still be cause for concern." This is a well written thoughful presentation at a time we should be paying attention to this.

I caught wind of Boudreau's letter to the editor in a blog presentation by Arnold Kling called Subtile Wisdom.

"To many people, the fundamental conflict in the economy is between the behavior of individuals (selfish, irrational) and the greater good. Shifting power from markets to government represents a move toward the greater good. (But) ... individual political leaders have less knowledge than is aggregated by markets. They face perverse incentives. And they pervert the incentives of others. Witness today's economy, in which everyone is asking not how they can create wealth but how they can get their share of a bailout."

Wasn't it President Kennedy that proclaimed: "Ask not what your country can do for you...?"

What I left out of Arnold Kling's words above in order to highlight them is his reference to the Masonomist position (worth reading). The George Mason school of thought is incredibly important today and in this election. Here is why. Take the words of Professor Kling to heart...

"At the University of Chicago, economists lean to the right of the economics profession. They are known for saying, in effect, 'Markets work well. Use the market.'

"At MIT and other bastions of mainstream economics, most economists are to the left of center but to the right of the academic community as a whole. These economists are known for saying, in effect, 'Markets fail. Use government.'

"Masonomics says, 'Markets fail. Use markets.' ... Masonomics worries much more about government failure than market failure. Governments do not face competitive pressure. They are immune from the "creative destruction" of entrepreneurial innovation. In the market, ineffective firms go out of business. In government, ineffective programs develop powerful constituent groups with a stake in their perpetuation."

"Things in our country run in spite of government, not by aid of it." Will Rodgers.

"Government's first duty is to protect the people, not run their lives." Ronald Reagan

"Man is not free unless government is limited." Ronald Reagan

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