Thursday, March 5, 2009

Is Obama Killing Capitalism?

Most of Obama's recent moves have been heavily opposed by Republicans, but is he single handedly killing Capitalism — and Wall Street — as some are claiming? Economics professor Mark Thoma thinks that the claim is absolutely absurd, and in fact agrees with Robert Reich that Republicans are more responsible for the falling markets than Obama is. Thoma looks at a couple articles, and gives his input on the subject in his blog post below.

Republicans made the bed, now they want someone else to sleep in it:

Is Obama Responsible for Wall Street's Meltdown? Where Populist Rage is Heading, by Robert Reich: Is Obama responsible for the meltdown of the Dow? The consistently wrong-headed Wall Street Journal's editorial page says so, as does Republican Fox News, CNN's reliably demagogic Lou Dobbs, and now CNBC... CNBC's Jim Cramer, who bloviates nightly about stock picks, says Obama is pushing a "radical agenda" that's destroying investor's wealth. My friend Larry Kudlow, who rants nightly about nearly everything, says Obama is destroying capitalism. CNBC reporter Rick Santelli's ballistic nonsense about Obama's mortgage plan made him a pop-populist icon for a week or so.

The argument that Obama is somehow responsible for the collapse of Wall Street is absurd. First, every major policy that led to this collapse occurred under George W's watch (or, more accurately, his failure to watch). The housing and financial bubbles were created under Bush and exploded under Bush. The stock market began to collapse under Bush.

Second, it's inevitable that stocks, led by the bloated financial sector, would lose their remaining hot air as the new administration begins "stress-testing" the big banks, many of which are technically insolvent. After all, their share prices were built on a tissue of lies and dreams. Other sectors whose values were similarly distorted and distended by years of financial deception and regulatory disregard, such as housing and insurance, will also have to return to the real world before they can recover. Which could mean more stock losses.

Finally, none of the financial wizards who are now charging Obama with leading America into the abyss has offered an alternative plan for getting us out of the mess that, not incidentally, many of these same wizards happily led us into. For years, the Wall Street Journal editorial page and the financial gurus of cable news cheered as Wall Street leveraged its way into oblivion.

This bizarre charge wouldn't be worth mentioning were it not a market test for a more intense attack from Wall Street and Republican media outlets next year as the nation moves into ... range of the 2010 midterm elections. Republicans have made no secret of their wish to blame Obama for the bad economy, and to stir up as much populist rage against his so-called "socialist" tendencies as politically possible. History shows how effective demagogic ravings can be when a public is stressed economically. Make no mistake: Angry right-wing populism lurks just below the surface..., ready to be launched not only at Obama but also at liberals, intellectuals, gays, blacks, Jews, the mainstream media, coastal elites, crypto socialists, and any other potential target of paranoid opportunity.

To complicate matters for Republicans, however, grass-roots populist rage is also building against Wall Street itself, and with some justification. Top Wall Streeters who raked in tens of millions of dollars a year for more than a decade have now effectively eviscerated the pension fund savings of millions of middle-class American workers and destroyed millions of Main Street jobs. The public is understandably appalled that its tax dollars are being used to pay and prop up the very people and institutions responsible for this debacle. And there seems to be no end in sight... Yet no one seems to know exactly where these dollars are going, or why. ...

The Wall Street and Republican media attack machine doesn't know exactly what to make of this. The Wall Street Journal's editorial page, along with CNBC, alternates between attacking Obama for bailing out Wall Street and excusing Wall Street's excesses. But then again, Obama doesn't seem to know exactly what to make of it either. He seems to vacillate as well -- one moment scorning Wall Street, the next moment justifying further bailouts. I do hope he takes a firmer hand, drawing a clearer distinction and making a clearer connection between clearing up these financial balance sheets and helping average people. Otherwise, the next populist uprising will be born in this moneyed quagmire. It is here -- within the muck that was created by AIG, Citigroup, Fannie and Freddie, other giant financial institutions, now in combination with the U.S. Treasury and Fed -- that the public is most confused, bears its most serious scars, and is potentially most burdened in future years...

Why people should ignore Larry Kudlow:

The Housing Bears Are Wrong Again, by Larry Kudlow, NRO, June 2005: This tax-advantaged sector is writing how-to guide on wealth creation.

Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong... So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.

None of this has happened. ... Meanwhile, the homebuilders index has increased 76 percent over the past year, with particularly well-run companies like Toll Brothers up about twice as much. The bubbleheads missed all this because they haven’t done their homework. If they had put a little elbow grease into their analysis, they would have learned that new-housing starts for private homes and apartments haven’t changed much during the past three and a half decades. ...

Which leads to a final thought: Why not apply the same tax laws that have benefited home owners to stock market investors and home buyers? If this were to come about, even more wealth would be created in America, leading to even more new business and job creation. ...

Yes, too bad we didn't make the bubble even bigger. If capitalism is destroyed, something that's highly unlikely, it won't be Obama's fault. It will be the fault of people like Kudlow who "haven’t done their homework" and who opposed any and all attempts to temper the housing bubble through regulation or any other means - see the ridicule of "bubbleheads" above - and who continue to oppose such measures today. Capitalism may change, in fact it needs to change - the excesses that allowed the housing bubble to develop need to be tempered through regulation and other means - but if Kudlow and company have their way and continue to assert that what's good for the rich is good for America, that regulation was the problem not the solution, and that tax cuts are the answer to every problem, the change that is needed won't happen. It's easy to understand why they are so vocal in their opposition to the kinds of changes that are being proposed. The change that is needed to help stabilize the system will bring about destruction (creatively we hope), and people like Kudlow will likely be the ones who feel the brunt of that change as the advantages unregulated markets brought them disappear. But they shouldn't confuse the destruction of the elements that allowed them to take advantage of the system with the destruction of the system itself.

This post can also be viewed on economistsview.typepad.com.

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2 comments:

March 6, 2009 at 10:28 AM Anonymous said...

Yes! He is just another politician in D.C. that lied his way on the campaign trail because obviously he is mortgaging the future of this nation!...Why not let the companies fall and or go bankrupt instead of bailouts...CONTINUOUSLY!!!!!...Why are we hating those who prosper and helping those who only want to sit around and not further excel this country. Why? are people with degrees from college out of work?...Well my answer is that the Bush administration did not do the best of jobs on regulation but then again Barney Frank and Chris Dodd pushed for the sub prime mortgages, thinking that those who do not have the means should be in homes!....COME ON people Bush was focused on a WAR THAT EVERYONE AGREEDED TO WHICH IS TERRORISM! I cannot blame the man and well to protect the freedom of this nation is priority 1....I wish the country would put stricter laws on immigration but then again DEMOCRATS believe that everyone should have a home!..Where is the fruits of labor, hard work and the ability to prosper in this country anymore?...This is where everyone came to get away from SOCIALISM AND EVENTUALLY COMMUNISM! Plus and can anyone tell me when or where did it work?....If people want change then go somewhere else!..Why should those who worked hard and suffered to achieve some prosperity in this nation have to bailout stupid companies and those who are illegal in this country!????????? OBAMA has to understand that this nation was and hopefully will be for those who have worked hard and done the right things in life to prosper not for those who do not even speak the ENGLISH language correctly and for those who hate AMERICANS!

March 12, 2009 at 7:00 PM Benjamin said...

But idiots like you make hating Americans so easy....oh wait,...I am American. Do you think all the immigrants who came through Ellis Island and helped develop this country spoke English right off the boat. Republicans need to wake up and realize the election is over and YOU LOST!!! Give Obama some time for his policies to work. We gave the last idiot 8 years. Obama deserves a few months. All these Obama bashers will eat their blowhard comments when things come around and that won't be forgotten when the next election rolls around. The problem with letting Capitalism run it's course is that it affects the poor and disadvantaged more than those who may have a little put away for rough times, those who can go back to their gated community and wait for things to come around. Just know if things get bad enough those affected worse highly outnumber those who can "wait it out" and the fences and gates of those private communities only go so high should there be violence in the streets. Lets hope we can avoid that by taking action now.

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