2.07.2009

A Cure That Prolongs the Pain

Experts are divided on what exactly got us into this economic mess, but I'm pretty sure it's safe to say that if you wanted to formulate a recipe for prolonging the pain, you'd include compensation caps, protectionist provisions, and loose lending subsidies.

And, lo and behold, that's exactly what our Democratic Congress has come up with. Drawing on familiar themes of vilifying the rich, "protecting" the American worker, and "helping" people where it hurts, they're laying the groundwork for an epically long recession by crippling the mechanisms that allow the economy to recover.

On the subject of compensation caps, I'm going to link to two recent posts by my friend, the Suburban Family Guy: "Government Control of Spending" and "Bluster or Dangerous Path?".

As for protectionist provisions, check out this recent article by the Center for Trade Policy Studies: "'Shipping Jobs Overseas' or Reaching New Customers? Why Congress Should Not Tax Reinvested Earnings Abroad." Here are some nuggets if you don't have time to read the full article:

* More than half of the products made by US companies in Mexico and China are sold in Mexico and China, versus barely a sixth sold back to the US. (So much for accusing US manufacturers of offshoring jobs to save a buck on goods sold here.)

* US manufacturers invested $2 billion in Mexico and $2 billion in China, which seems like a lot until you realize they invested $22 billion in Europe and $165 billion in America, while non-US manufacturers invested $59 billion in America. (Obama, you may recall, spoke often of workers in Ohio who saw their plants shipped wholesale to China.)

* US factories in the US shed 3 million jobs from 2000 to 2006, but US factories overseas gained only 128,000 jobs, including plus 172,000 in China and minus 100,00 in Mexico. (In other words, those manufacturing job losses weren't "offshored," they were largely rendered unnecessary due to automation.)

Lastly, the Cato Institute, a libertarian think-tank, answers the question, "How Did We Get into This Financial Mess?" Their answers: amped up regulation of mortgage markets, artificially low mortgage rates, and an increased federal role in Fannie and Freddie. And the solution to a problem with these causes is to encourage more of these same causes? (Note: I do disagree with the article's claim that pressure to lend to risky borrowers in low-income neighborhoods is also part of the cause; the data do not appear to bear this out.)

As New York Times columnist David Brooks points out, President Obama is transformative in his style but conventional in his substance. So far, the stimulus bill is a patently Democrat-laden work; here's hoping that style trumps substance and we get a more reasoned approach to the mess we're in.
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