Tuesday, September 30, 2008

Balanced analysis of the economic crisis

There is a vote McCain video (<-- click) in circulation that offers careful research to show that the current economic crisis is caused by Democrats and the history of finance and legislation designed to "provide housing for the poor." My friend and colleague Gordon L. Anderson, Ph.D., author of Philosophy of the United States: Life, Liberty, and the Pursuit of Happiness, responded to the person who sent him the pro-McCain-the-Democrats-are-the-problem video with this following response.

I found Gordon's response balanced and insightful:


This is a pretty good description of why many of the most tragic mortgage foreclosures on poor people in the inner city occurred. However, there was a larger aspect. The two states with the highest foreclosure rates were Florida and California. In Miami, much of this was based on a "flipping" craze, where development raged and many middle and upper middle class speculators took advantage of the low interest rates to buy condos without ever expecting to personally live in them. In California, homes began to average $850,000. This was not your lower class democrat buying these homes; it was yuppies who wanted to buy a house in California. Many others around the country bought these loans on executive houses of $500,000 or more and they simply walked away from them when the credit bubble burst. Fannie Mae and Freddie Mac did these bad things-and I am afraid FDIC is no better prepared. But at the core is a credit bubble designed by the Federal Reserve Banks, Oil Companies, and large companies like Hewlett Packard and auto manufactures who wanted easy credit for consumers to buy their products, as much as the sleight of hand tried by liberal politicians like Obama.

This is a long-time problem brewing. Part of it related to changes in laws by banking and financial lobbyists. They supported supply-side economics under Reagan, but under Clinton the Glass-Stegal Act, designed in the 1930s to prevent some of this was repealed in 1999 making way for the Citibank-Travelers merger. During the last twenty years a number of conflict of interest laws were repealed that reduced oversight on fraud and corruption. There is plenty of responsibility on the part of both Republicans and Democrats.

This video showed how the inner city democrats pushed for loans for poor people and destroyed lives of their constituents rather than helping them. The flip side is that wealthy industries were lobbying Republicans for easy credit for their constituents. In the end both parties and many Americans, raised in a period of economic prosperity, failed to understand financial discipline and accepted credit like an opiate of the masses. The root cause is thus lack of understanding natural laws and basic economic principles-an educational and moral weakness. Our political leaders represent the same lack of self discipline as the culture at large.

The last twenty years our economy has been rooted in the philosophy of earning money from someone else's work. When everyone is trying to get more than they personally produce you have economic decline. Couple that with the national trade deficit, of which dependence on foreign oil plays a major role, and you have a prescription for economic collapse. Republicans and Democrats are both responsible.

The only sound government stands upon citizens who produce more than they consume and have both the freedom and ability to take care of themselves. The layers of government which sit on this foundation need to each become smaller, like a pyramid, with each level of government supporting the one on top of it. It defies the laws of society to have the upper levels of a pyramid support the lower, but that is exactly what our society wants to do. It is a fiction. Family, Society, Nation, World-each is a level that needs to support the level on top of it, not the other way around.

There is another issue related to regulation which we must learn about. Total deregulation of an economy is like having a Superbowl game with no referees. You will hear big business lobby for this type of "free market" because on an unlevel playing field they will win. Just like the biggest guys will be standing at the end of a football game. This is anarchy, plain and simple. The genuine free market is what our founding fathers promoted; it included checks and balances on accumulations of power and sanctions when the actions of one person caused harm to another. This way everyone can play on the field without disadvantage.

The other side is what you see the democrats doing-trying to turn government into business. To socialize or even to create government businesses that compete with the free market by giving the government subsidized business the upper hand on the playing field. The only truly free market is one in which the government plays the role of a referee in which neither the government abdicates its role as referee-with fair laws-nor tries to become a player on the economic field itself. You won't find either party advocating this proper role of government in the economy because, simply put, lobbying is too lucrative. It is more profitable to twist the laws in favor of lobbyists than to make them consistent with the objectives of the U.S. Constitution and the Philosophy of the United States founders like Franklin and Jefferson. (Who both argued that consolidation of credit at the federal level should be avoided at all costs.)

One could get into further discussion of taxation policies that also cause unlevel playing fields, and how big players colluded with the government in ways that shifted tax policies to forms that are both unconstitutional and cause a form of serfdom (they undermine the principles of property rights and the right to the fruits of your labor. But that gets beyond the immediate crisis at hand.

But the main conclusion it this: Don't expect either McCain or Obama, or the Republican or Democratic Party to solve these problems. These are two sides the big guys give us to occupy our time. It is more like rooting for Hulk Hogan or Sting in a wrestling match than doing anything that will affect Vince McMahon's control over the entire process. Both conventions were choreographed presentations for the media. There was not one iota of a chance they would contain any real discussions or dialogue. Those who differed were thrown out by the secret service and the police.