Ronald Reagan said: “The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Democrat Barack Obama promises to do all that:

In a major economic address at Cooper Union today, Senator Barack Obama called for immediate relief for homeowners hit by the housing crisis, modernization of our regulatory framework, and an additional $30 billion stimulus package to jumpstart the economy and help protect families from the economic slowdown. …

In his speech today, Obama made the case that while markets are the engine of American progress, the government’s role as umpire and steward is critical to the function of the free market. For too long, he said, special interests have been able to bend the rules to maximize their profits on the backs of hardworking Americans.

Obama pledged to restore confidence in the markets, tackle the housing crisis and protect families from the economic slowdown by:

Ø Creating 21st century standards for transparency and oversight of the financial system in order to prevent future abuses and crises.

Ø Providing immediate relief to homeowners hit by the housing crisis.

Ø Enacting a second stimulus package to stabilize and strengthen the economy, provide aid to homeowners and states hardest-hit by the housing crisis, and extend and expand unemployment insurance.

But who needs Obama? Even if the democrats don’t win, Republicans like George W. Bush, and certainly John McCain, will do nearly every bit of very much the same.

Bloomberg:

Treasury Secretary Henry Paulson is likely to call for the creation of new regulatory agencies with broad powers over lending, the securities industry and business conduct, according to the draft of a study he commissioned.

The report, which recommends more power for the Federal Reserve, also proposes combining the Office of Comptroller of the Currency — which dates back to the Civil War — and the Office of Thrift Supervision into a single banking overseer. In addition, the draft, which was circulated to government agencies this week and obtained by Bloomberg News, calls for the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission.

New York Times:

The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades. …

According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.

John Mangum argues that the US Government’s failure to strengthen the dollar is a clever and deliberate (and unannounced) gambit in the economic contest between the US and China.

we must ask, why is this happening? Why have the prices of commodities like oil and gold risen so dramatically in the last year? Why has the dollar fallen so much? Normal business cycle? Bad management from the world’s financial institutions? And why hasn’t the world’s largest and strongest economy, backed by the most powerful government, been able to change the course of the situation?

Perhaps the larger picture is that the United States is waging an economic war against China.

The United States could strengthen the value of the dollar. It has not. China is hurt because now Chinese products are very expensive in the United States, and this will reduce the US trade deficit with China. China must import huge amounts of oil and strategic metals which are very much more expensive now. China holds hundreds of millions of physical dollars, the value of which is now much less.

China has refused to revalue its currency to a realistic level to improve its trade position with the United States. China has used its huge dollar reserves as a sword against the United States by threatening to sell those dollars, and thereby causing the dollar to drop in value. In effect, the United States is using China’s strength against China.

In order for China to maintain the levels of its trade with the United States, it will be forced to lower the value of its currency. However, if it does that, it faces two major problems. Foreign direct investment (FDI) into China would become less expensive, and China is worried that more and cheaper FDI would spur China’s inflation. Further, a devalued currency would reduce the profit to China for its exported goods.

If China keeps it currency at its present levels, the United States will buy less. The United States wanted a stronger yuan to reduce trade, which China was unwilling to do. That objective is now achieved by a weaker dollar.

China’s dollar holdings are worth much less when buying goods like oil and metals that China depends on for its development and growth. Further, China has been talking and trying for some time to diversify its foreign-reserve holdings form dollars to other currencies and gold. Now, their dollars are worth much less when buying gold, yen and euros. …

the “crisis” is being used to further the US economic position, long-term position, particularly with regard to China. From Sun Tzu: “All warfare is based on deception.”

Caroline Baum points out the obvious alternative to the Bush Administration’s behavior in the face of the sub-prime mortgage meltdown: Just get government out of the way.

Fed Chairman Ben Bernanke encouraged mortgage servicers to write down a portion of the principal on home loans, which would give owners some equity and discourage foreclosure. He advocated a bigger role for the Federal Housing Administration, a Depression-era agency that insures mortgages. Congress envisions an even larger role for the federal government.

Any day, I expect some government official to unveil the John Galt plan to save the economy.

Galt, the hero of Ayn Rand’s magnum opus “Atlas Shrugged,” stops the world by going on strike. He and the “men of the mind” literally withdraw from the world after watching their wealth confiscated by the looters (the government).

Toward the end of Rand’s 1,000-plus page novel (or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to “tell us what to do.”

Galt refuses, or rather tells them “to get out of the way.”

You probably can sense where I’m going. Today’s economic and financial crisis would resolve itself more quickly and efficiently if the government got out of the way. Yes, there would be pain. Some banks would fail. Others would clamp down on credit to atone for the years of lax lending standards. Homeowners-in-name-only would become renters. Housing prices would fall until speculators found value.

That’s not going to happen. The bigger the mess, the more urgent the calls for a government solution, the more willing government is to oblige.

We want laissez-faire capitalism in good times and a government backstop against losses in bad times. It’s a tough way to run an economy.

Real Estate Investor Sam Zell identifies the source.

The US economy will avoid recession as the housing market begins to recover this spring, according to billionaire investor Sam Zell.

Speaking on “Squawk Box” this morning, Zell attributed much of the current economic troubles to fear-mongering and politicking by Democratic presidential contenders Hillary Rodham Clinton and Barack Obama.

“Obviously what we have going on is an attempt to create a self-fulfilling prophecy,” said Zell, chairman of Equity Investments Group and owner of the Chicago Cubs, Chicago Tribune, Los Angeles Times and other companies. “We have two Democratic candidates who are vying with each other to describe the economic situation worse.

Zell should have added the stock market’s turmoil wouldn’t be occurring if there was a real Republican candidate who appeared to be likely to win. Current market pessimism is principally based on fears of the economic impact of the democrat demagogues promised higher taxes and attacks on corporations.

Roger Kimball responds to Hillary’s promise that “if she became president, the federal government would take a more active role in the economy to address what she called the excesses of the market and of the Bush administration.”

As Hayek observed, the socialist, the sentimentalist, cannot understand why, if people have been able to “generate some system of rules coordinating their efforts,” they cannot also consciously “design an even better and more gratifying system.” Central to Hayek’s teaching is the unyielding fact that human ingenuity is limited, that the elasticity of freedom requires the agency of forces beyond our supervision, that, finally, the ambitions of socialism are an expression of rationalistic hubris. A spontaneous order generated by market forces may be as beneficial to humanity as you like; it may have greatly extended life and produced wealth so staggering that, only a few generations ago, it was unimaginable. Still, it is not perfect. The poor are still with us. Not every social problem has been solved. In the end, though, the really galling thing about the spontaneous order that free markets produce is not its imperfection but its spontaneity: the fact that it is a creation not our own. It transcends the conscious direction of human will and is therefore an affront to human pride.

The urgency with which Hayek condemns socialism is a function of the importance of the stakes involved. As he puts it in his last book The Fatal Conceit , the “dispute between the market order and socialism is no less than a matter of survival” because “to follow socialist morality would destroy much of present humankind and impoverish much of the rest.” We get a foretaste of what Hayek means whenever the forces of socialism triumph. There follows, as the night the day, an increase in poverty and a diminution of individual freedom.

The curious thing is that this fact has had so little effect on the attitudes of intellectuals and the politicians who appeal to them. No merely empirical development, it seems—let it be repeated innumerable times—can spoil the pleasures of socialist sentimentality. This unworldliness is tied to another common trait of intellectuals: their contempt for money and the world of commerce. The socialist intellectual eschews the “profit motive” and recommends increased government control of the economy. He feels, Hayek notes, that “to employ a hundred people is … exploitation but to command the same number [is] honorable.”

Not that intellectuals, as a class, do not like possessing money as much as the rest of us. But they look upon the whole machinery of commerce as something separate from, something indescribably less worthy than, their innermost hearts’ desires. Of course, there is a sense in which this is true. But many intellectuals fail to appreciate two things. First, the extent to which money, as Hayek put it, is “one of the great instruments of freedom ever invented,” opening “an astounding range of choice to the poor man—a range greater than that which not many generations ago was open to the wealthy.”

Second, intellectuals tend to ignore the extent to which the organization of commerce affects the organization of our aspirations. As Hilaire Belloc put it in The Servile State, “The control of the production of wealth is the control of human life itself.” The really frightening question wholesale economic planning raises is not whether we are free to pursue our most important ends but who determines what those “most important ends” are to be. “Whoever,” Hayek notes, “has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower—in short, what men should believe and strive for.”

Read the whole thing.

Hat tip to The Barrister.

Former Oklahoma Congressman Ernest Istook, now at Heritage Foundation, identifies the key problem with America’s economy.

We can’t afford Congress. It’s driving America’s cost-of-living through the roof.

Any tax cut or “economic stimulus” we might get this spring is peanuts compared to how Washington keeps jacking up the price of everything that’s important.

By itself, last month’s energy bill will make food, cars, gasoline and even light bulbs more expensive. Washington is also the culprit behind high medical bills and health insurance, washing machines that have doubled in price, and our wonderful, more-expensive “lo-flo” toilets that don’t flush right.

All this is on top of what red tape already costs us. A 2004 government report admitted that federal regulations cost our economy at least $1.1 trillion each year. That’s $3,666 per person, so multiply that by the number of people in your household. And remember that’s before the 2007 energy bill. And in addition to taxes.

The new energy laws are a leftist’s dream and a supply-sider’s nightmare. As 2008 starts, we’re paying $3 (often more) for a gallon of gasoline. That’s up about a fourth (64 cents) from a year ago. The Heritage Foundation calculates the new energy bill will boost gas prices over $5 a gallon by 2016. Yet rather than let us produce more oil domestically, Congress keeps areas off-limits from drilling that could raise supply and lower prices. Nor will Congress let us expand nuclear energy, which likewise would help energy prices.

Read the whole thing.

Steven E. Landsburg subjects the current campaign issue of domestic jobs lost by export overseas to a philosophical re-examination.

Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside? …

Some people suggest, however, that it makes sense to isolate the moral effects of a single new trading opportunity or free trade agreement. Surely we have fellow citizens who are hurt by those agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?

One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.

Hat tip to Frank A. Dobbs.

Megan McArdle, in the Atlantic, identifies a number of the economically distorting impacts of Social Security.

The real problem with the Social Security system: not that it is bankrupt, but that it encourages people to make extremely bad decisions about providing for their future.

It starts with childbearing: social security systems seem to exert downward pressure on birthrates, in effect undermining their own actuarial base. Social security socializes the benefits of childbearing in providing for retirement, but no one has yet figured out how to socialize the main cost, which is turning your life choices over to a screaming pre-verbal dictator. People are thus tempted to free ride on the childbearing of others, and the more generous benefits are, the more they seem to free ride. This is one reason that Social Security, which used to have more than 30 workers for each retiree, now has only three, headed towards two.

Social Security also encourages people to leave the workforce earlier than they otherwise would. People are healthier than ever at 65, but while in 1950, almost half of all men over the age of 65 worked, that number is now less than 20%. This appears to be highly correlated with the spread of defined benefit pensions such as social security, which offer no advantage to delaying retirement. Indeed, Social Security perversely penalizes anyone who takes early benefit but continues to work, docking a third of their earnings.

Finally, Social Security discourages private savings. This is terrible for two reasons. If future fiscal problems force the government to reduce benefits, the people who didn’t save enough because they relied on those promises will be made much worse off than they would otherwise have been.

The other problem is that Social Security is not a productive investment. Privately saved money is mostly lent to corporations that mostly use the money to do things that make the economy more productive, such as R&D and capital equipment upgrades. Social security “contributions” are lent to the government, where they are mostly spent on things that could not be remotely described as improving our economy’s productive capacity, such as farm subsidies.

Via Hal_10000, who adds:

The hilarious thing is the response from the liberals. Everything McArdle says is supported by economic research. You will find no economist, for example, who will dispute that Social Security cause earlier and more costly retirements. But the liberals, as they do on everything related to Social Security, stick their fingers in their ears and scream, “Nah! Nah! Nah! Nah! Nah! I am not listening. FDR was great! You hate old people!”

The biggest problem with government is people focusing on what programs purport to do rather than what they actually do.

There is also the problem with liberals’ worship of the State leading them to believe that the kind of thing which leads inevitably to economic disaster in the private sphere (for example, a Ponzi scheme) will work out differently if undertaken by government.

Ultimately via the Barrister.

Merle Hazzard meets Arthur Laffer and sings.

4:30 video

Hat tip to the New York Times.

Freakonomics’ Mellisa Laffey interviews British economist Philippe Legrain.

Legrain has served as special adviser to the director-general of the World Trade Organization and worked as the trade and economics correspondent for the Economist. His new book, Immigrants: Your Country Needs Them, has been nominated for the Financial Times/Goldman Sachs Business Book of the Year Award.

Q: You argue that immigration is a good thing, under almost any circumstances. Why? Are there any circumstances in which it isn’t good?
A: I think freedom of movement is one of the most basic human rights, as anyone who is denied it can confirm. It is abhorrent that the rich and the educated are allowed to circulate around the world more or less freely, while the poor are not — causing, in effect, a form of global apartheid. So I think the burden of proof lies with supporters of immigration controls to justify why they think letting people move freely would have such catastrophic consequences. And, frankly, I don’t think they can.

The economic case for open borders is as compelling as the moral one. No government, except perhaps North Korea’s, would dream of trying to ban the movement of goods and services across borders; trying to ban the movement of most people who produce goods and services is equally self-defeating. When it comes to the domestic economy, politicians and policymakers are forever urging people to be more mobile, and to move to where the jobs are. But if it is a good thing for people to move from Kentucky to California in search of a better job, why is it so terrible for people to move from Mexico to the U.S. to work? …

From a global perspective, freer migration could bring huge economic gains. When workers from poor countries move to rich ones, they can make use of the advanced economies’ superior capital, technologies, and institutions, making these economies much more productive. Economists calculate that removing immigration controls could more than double the size of the world economy. Even a small relaxation of immigration controls would yield disproportionately big gains.

Read the whole thing.

Personally, I think Legrain is perfectly correct, with the exception of his ultra-libertarian perspective on Islamic immigration. I suppose it’s just the case that I believe that extremist views and hostility to the West are more common among individual Muslims than Legrain does.

Islam is not simply another religious denomination. Islam features even more intransigent claims to authority than the most authoritarian forms of Christianity extant today, and subscribing to a fundamentalist form of Islam is very likely to involve religious obligations to support violence against Western governments and/or non-Muslim inhabitants of Western countries.

Admitting Islamic immigrants at the present time would be a great deal like having an open borders policy for Germans or Japanese during WWII.

George Friedman, at Stratfor, discusses the fundamental contradiction of the current European Union.

How do you have multiple sovereign states within a single central bank? How do you reconcile national sovereignty with a multinational monetary system when it is impossible to create a single monetary policy that satisfies the policies of multiple sovereign nations? Someone must always be hurt. What is of great significance is that Sarkozy has made it clear that it is France, one of Europe’s founders, that is being hurt — to the benefit of its partner, Germany.

This leads to the more immediate question: If Germany and France undertake fundamentally different approaches to economic development, how can both of these strategies be contained in a single European structure? In a way, it would have been simpler had there not been a euro. Multiple economic strategies can be reconciled with a customs union, or even a multinational regulatory system. But reconciling multiple economic approaches with a single currency cannot happen.

The United States confronted this question in the past. In the 1850s, some states wanted a radical revision of social, economic and monetary policy that would benefit them but leave other states at an enormous disadvantage. The industrializing part of the country wanted policies that would protect its interests. The agricultural part of the country, heavily dependent on exports, wanted a different policy. A conference was held in 1863 at Gettysburg. Both sides made compelling arguments over three days, but in the end it was decided that not only would the policies of the industrializing states be followed, but no one would be permitted to withdraw from the economic, political and social union of the United States. State sovereignty was to be limited and federal power was to be paramount.

It was the Union Army that made the most convincing argument at Gettysburg. There is no Union Army in Europe. There is no sovereign center that can hold dissidents in the monetary or economic union. And there is, for that matter, no power on Earth that can keep France and Germany within a single system if they do not want to be there. Sovereignty, without the slightest shadow of doubt, rests with the nation-states of Europe — and the European institutions will last only as long as they reflect the interests of all of these nations.

George Friedman has started blogging.

Arthur C. Brooks argues quite trenchantly that what America needs is mobility and opportunity, not equalization of income.

those left behind, it’s important to note, will almost certainly not become happier if we redistribute more income. Indeed, they will probably become less happy. Policies designed to lower economic inequality tend to change the incentives of both the haves and the have-nots in a way that particularly harms the have-nots. Reductions in the incentives to prosper mean fewer jobs created, less economic growth, less in tax revenues, and less charitable giving—all to the detriment of those left behind. And redistribution can, as the American welfare system has shown, turn beneficiaries into demoralized long-term dependents. …

policies to redress economic inequality hardly affect true inequality at all. Policymakers and economists rarely denounce the scandal of inequality in work effort, creativity, talent, or enthusiasm. …

Finally, arguments against inequality legitimize envy. Americans may indeed have strong concerns about their relative incomes and may seek status as reflected in their economic circumstances. But to base our policies on the anxieties of those at the back of the status race is to bow before Invidia. A deadly sin is not, in my view, a smart blueprint for policymaking.

A more accurate vision of America sees a land of both inequality and opportunity, in which hard work and perseverance are the keys to jumping from the ranks of the have-nots to those of the haves. If we can solve problems of absolute deprivation, such as hunger and homelessness, then rewarding hard work will continue to serve as a positive stimulant to achievement. Redistribution and taxation, beyond what’s necessary to pay for key services, weaken America’s willingness and ability to thrive.

This vision promotes policies focused not on wiping out economic inequality, but rather on enhancing economic mobility. They include improving educational opportunities, aggressively addressing cultural impediments to success, enhancing the fluidity of labor markets, searching for ways to include all citizens in America’s investing revolution, and protecting the climate of American entrepreneurship.

Placidity about income inequality, and opposition to income redistribution, are evidence of a light heart, not a hard one. If happiness is our goal, those who promote opportunity over economic equality have no apologies to make.

Read the whole thing.

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Hat tip to Karen L. Myers.