“There’s Only One Way Out of This Mess”

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And it’s called “stuff.”
(Warning – It’s a lengthy one, so pull up a chair, pour yourself a martini and settle in. But it does explain how to get out of this economic mess simply and clearly).

12 Replies to ““There’s Only One Way Out of This Mess””

  2. Bungled Bank Bailout Leaves Behind Righteous Anger
    By Neil M. Barofsky Jul 22, 2012 3:30 PM PT
    ….
    It is clear that the criminal-justice system has proved ill-equipped to address the financial crisis. For that, we needed effective regulatory reform. Instead, we got the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
    My fear about the inadequacy of Dodd-Frank has only gotten worse over the past year. The top banks are 23 percent larger than they were before the crisis. They now hold more than $8.5 trillion in assets, the equivalent of 56 percent of gross domestic product, up from 43 percent just five years ago. The risk in our banking system is remarkably concentrated in these banks, which now control 52 percent of all industry assets, up from 17 percent four decades ago. There is broad recognition that Dodd-Frank hasn’t solved the problem it was meant to address — the power and influence of banks deemed too big to fail.
    ….
    For example, one of the best protections against future bailouts is to ensure that banks have thick capital cushions that can absorb potential losses. Although Dodd-Frank called for higher capital levels to be set by the regulators for the largest banks, they still haven’t formally done so. Worse, the Federal Reserve authorized 15 of the 19 largest bank holding companies to drain their capital through cash payouts in the form of dividends to their shareholders and share repurchases. These actions benefit the banks’ senior executives, who own large amounts of stock, and increase the risk to the taxpayer that the banks will once again have to be bailed out.
    The missteps by Treasury have produced a valuable byproduct: the widespread anger that may contain the only hope for meaningful reform. Americans should lose faith in their government. They should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable. The American people should be revolted by a financial system that rewards failure and protects those who drove it to the point of collapse and will undoubtedly do so again.
    ….
    Only with this appropriate and justified rage can we hope for the type of reform that will one day break our system free from the corrupting grasp of the megabanks.
    (Neil M. Barofsky served as the special inspector general in charge of oversight of the Troubled Asset Relief Program and is currently a senior fellow at New York University’s School of Law. This is an excerpt from his book, “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street,” which will be published July 24 by Free Press, an imprint of Simon & Schuster.)
    Cheers
    Hans Rupprecht, Commander in Chief
    1st Saint Nicolaas Army
    Army Group “True North”

  4. Interesting presentation. One minor point is that economics is ultimately about behaviour of individuals and firms, around stuff of course.
    I believe it was FDR who said the larger the government, the smaller the citizen. IOW large states have to be coercive to force people away from their independent natures, to cooperate with each other.
    There is, however, a kind of Laffer curve around size of government, obviously related to taxation, the price of government. When government goes beyond facilitating private enterprise, it becomes its own means to its own ends, it exists to sustain itself, and freedom is inevitably diminished – and it becomes absurd, like inspectors running around checking home barbecues to ensure they’re safe, or idiotic creations like “Capital Region District” which is another layer of government that exists solely, IMO to facilitate goverment itself. At some point both freedom and prosperity become diminished.
    The citizen becomes more ignorant than before, they let government do things for them, charity for example. We thus create dependency where it didn’t exist before and entitlement mentalities take over. William Gairdner, in his book “The Trouble with Canada,” put it this way:
    Wants become needs, needs become rights, and rights become claims against the state. Then absurd developments occur, such as transfers to individuals go to above average income earners, as happens in Canada, and elsewhere to be sure.
    The idea of a value added tax system (VAT)is not new, but it is the simplest and most responsive form of taxation. The more you make the more you spend and the more sales tax you pay. Savings and investment are not taxed and the system becomes progressive (I don’t mean the envious so-called progressive system where rates are higher).
    It is not difficult to help those who are hurt by this transition; we already have layers and layers of bureaucracy that pay transfers, but under a VAT system it would be much simpler and involve much less costly government.
    The Mulroney government toyed with this idea and even developed value added GDP measurement systems to help with implementation, but economic rent seekers, eager to maintain their privilege and entitlement, railed against it and the Tories got spooked and dropped the idea.
    Too bad – a pure VAT system (no other taxes or fees) collects more taxation in boom times and less in bust times. As long as government doesn’t spend all its surpluses it can facilitate economic activity when needed. Keynes never argued government should run permanent deficits, he argued responsible government can help smooth the business cycles – socialist perverted this idea so bigger government became the ideal.
    The idea of a VAT was the strongest part of this presentation IMO.

  6. Shamrock: Vats like all taxes have a laffer curve – make them too high and revenues fall – not just because it slows the economy but because a high rate triggers high evasion rates. High VAT has driven much if the economy of Greece and Italy and Newfoundland underground.
    A Moderate VAT – under ten percent better yet five percent or under is not likely to experience much evasion.

  8. Heh, Ezra has my book, still waiting for him to get back to me! 😉
    But absolutely, though I think I’m a bit of a firebrand though for major cable networks’ tastes. But many thanks for the plug!
    Cpt.

  10. A minor nit to the economics: The wealth of a nation is based on how much stuff it can consume, not how much stuff it produces. Now, the amount it can consume is directly related to the value of what it produces, so it’s a small point (you still need to produce stuff to get stuff, and the state is still a parasite) but an important distinction.

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