Author Topic: John Lott: The Democrats' Recession  (Read 2884 times)

Silver Bullet

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John Lott: The Democrats' Recession
« on: November 18, 2008, 10:04:06 PM »
http://www.foxnews.com/story/0,2933,453086,00.html

I love to read John Lott.  Of course, that's partly because I agree with most of what he says.   :laugh:  Still, I wish this had been more widely promulgated before the election. 

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The market has fallen in six of eight days since Barack Obama won the election. The Dow Jones Industrial average has fallen from 9,625 to 8,497, a 12 percent decline. The NASDAQ and S&P 500 have experienced similar declines.
The Wall Street Journal and others have labeled the drop the “Barack Market,” reflecting the higher taxes on everything from capital gains and dividends to income and increased regulations. They are right, but they are thinking much too narrowly. Much, if not all, of any recession and economic problems is due to Democratic policies.
The media focuses on the drop in housing prices, consumer purchases or stock prices as the cause of economic problems, problems that they view as unrelated to Democratic policies.
The financial problems seem obvious. Democrats have been the ones pushing for federal regulations that forced financial institutions to make risky loans either though the threat of penalties from the Federal Reserve or through subsidies from Fannie Mae and Freddie Mac. They protected Fannie Mae and Freddie Mac from regulations
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While Barack Obama claims that he fought for more financial market regulation, the regulations that he wanted would not have stabilized the markets -- quite the contrary. He supported regulations that went after so-called predatory lenders who were charging “too high” an interest rate to poor, risky borrowers. Forcing banks to charge even lower interest rates to these risky borrowers would have meant even more problems, not fewer ones.
The regulations that mandated little or no down payments to risky borrowers posed little problem as long as housing prices rose, but when house prices started to fall, it meant that many people just walked away from mortgages that were worth more than their houses.
Obama himself played a role in creating these problems, and not just because he supported these Democratic policies. Take his policy where judges will be able to step in and rewrite home mortgage contracts -- unilaterally reducing the amount that homeowners owe and reducing their interest rates.
How would such a policy affect the willingness of banks to lend money for new mortgages? It likely even affected the market before the election. If you thought that Obama could win, would you want to loan money for people to buy homes if a judge could lop off a $100,000 from what is owed and cut interest rates? Lenders don’t even know how much the government would possibly reduce what would be owed. Many lenders this year simply didn’t want to take such incredible risks.
What does that do to the price of houses? Obviously, when people have a hard time borrowing money, there are fewer buyers and prices go down.
What about Obama’s campaign promises earlier this year to double the capital gains tax? Surely that hits stock prices hard. If you were planning to sell stocks next year, it means that the Federal government would take an extra 15 percent of what you earned. So shareholders started selling their stocks months ago just because they thought that there was a chance Obama could win and impose this policy. (How much he has promised to increase this tax has changed over time.)
Despite some tax protections for capital gains on houses, many would still get hit by Obama’s increased capital gains tax rates, driving down the price of houses.
Even the higher unemployment rates and the small drop in GDP during the third quarter are squarely laid at the Democrats' door, though the Republicans can be blamed for not having had more nerve to fight against the policies.
New unemployment claims were flat or falling during the year until early July. The overall unemployment rate had also leveled off at 5.5 percent in June.
What changed during the summer? Those who filed for unemployment insurance after July 6 got 50 percent more unemployment insurance benefits. Economists, even Democratic economists who worked in the Clinton Administration, know that if you subsidize unemployment, you get more of it. Indeed, the typical estimate indicates that a 50 percent increase in benefits will increase the unemployment rate by a little over 1 percentage point.
Not surprisingly, the unemployment rate has gone up from 5.5 percent in June to 6.5 percent today.
But higher unemployment also means that fewer people are working, and that what the economy produces will decline. A one-percentage point increase in unemployment is claimed to be associated with about 2 percent drop in GDP.
The GDP in the third quarter of this year fell at an annual rate of 0.3 percent – the drop is more than explained by the increased unemployment rate produced by the larger unemployment insurance benefits and indicates that the economy would have otherwise grown.
The ultimate irony is that despite these Democratic proposals and policies, the Republicans are blamed for the economic problems, as a Republican president has been in power. Of course, Democrats also share power now, as they have controlled both houses of Congress. Bush even appointed a Democrat, Henry Paulson, to be Secretary of the Treasury, in an attempted olive branch to the Democrats. Paulson filled important slots at Treasury with other liberal Democrats.
Paulson’s hysteria about the economy a month ago has undoubtedly caused consumers to cut back some on spending -- a hysteria that most economist questioned at the time. But Paulson’s wild spending spree, nationalizing banks and other companies, fits his and his aides' Democratic views.
President Bush might give talks saying, “History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market.” It invokes Reagan’s statement that "Government is not the solution to our problem; government is the problem." But Reagan wouldn’t have let Democrats have unfettered control of the U.S. Treasury Department.
Bush bears significant blame for letting Democrats control the debate. He bears significant blame for letting Paulson push and run the bailout. But that takes nothing away from the current economic problems being something that has Obama’s and the Democrats’ names all over it.

Standing Wolf

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Re: John Lott: The Democrats' Recession
« Reply #1 on: November 18, 2008, 10:16:46 PM »
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Bush even appointed a Democrat, Henry Paulson, to be Secretary of the Treasury, in an attempted olive branch to the Democrats. Paulson filled important slots at Treasury with other liberal Democrats.

[sincerity] How shocking. [/sincerity]
No tyrant should ever be allowed to die of natural causes.

wquay

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Re: John Lott: The Democrats' Recession
« Reply #2 on: November 18, 2008, 11:45:34 PM »
Peter Schiff, Roubini, and others have been predicting this crisis for years. To say that it's a result of policies and events taking place in the past few months is absurd. The incompetence of Wall Street, the unsustainable rates of savings and consumption, and the small growth in the real economy over the past 5 years, have all been well documented.

And just in case anyone missed it the last time I posted it, excerpts from a Bush speech to HUD in 2002:

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The goal is, everybody who wants to own a home has got a shot at doing so. The problem is we have what we call a homeownership gap in America. Three-quarters of Anglos own their homes, and yet less than 50 percent of African Americans and Hispanics own homes. That ownership gap signals that something might be wrong in the land of plenty. And we need to do something about it.

We are here in Washington, D.C. to address problems. So I've set this goal for the country. We want 5.5 million more homeowners by 2010 -- million more minority homeowners by 2010. (Applause.) Five-and-a-half million families by 2010 will own a home. That is our goal. It is a realistic goal. But it's going to mean we're going to have to work hard to achieve the goal, all of us. And by all of us, I mean not only the federal government, but the private sector, as well.

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I'm going to do my part by setting the goal, by reminding people of the goal, by heralding the goal, and by calling people into action, both the federal level, state level, local level, and in the private sector. (Applause.)

And so what are the barriers that we can deal with here in Washington? Well, probably the single barrier to first-time homeownership is high down payments. People take a look at the down payment, they say that's too high, I'm not buying. They may have the desire to buy, but they don't have the wherewithal to handle the down payment. We can deal with that. And so I've asked Congress to fully fund an American Dream down payment fund which will help a low-income family to qualify to buy, to buy. (Applause.)

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Finally, we want to make sure the Section 8 homeownership program is fully implemented. This is a program that provides vouchers for first-time home buyers which they can use for down payments and/or mortgage payments. (Applause.)

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And so, therefore, I've called -- yesterday, I called upon the private sector to help us and help the home buyers. We need more capital in the private markets for first-time, low-income buyers. And I'm proud to report that Fannie Mae has heard the call and, as I understand, it's about $440 billion over a period of time. They've used their influence to create that much capital available for the type of home buyer we're talking about here. It's in their charter; it now needs to be implemented. Freddie Mac is interested in helping. I appreciate both of those agencies providing the underpinnings of good capital.

http://www.hud.gov/news/speeches/presremarks.cfm

Silver Bullet

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Re: John Lott: The Democrats' Recession
« Reply #3 on: November 19, 2008, 09:33:42 AM »
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Peter Schiff, Roubini, and others have been predicting this crisis for years. To say that it's a result of policies and events taking place in the past few months is absurd.

We know it’s been going on for “years”.  Paulson was appointed years ago.


wquay

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Re: John Lott: The Democrats' Recession
« Reply #4 on: November 19, 2008, 12:20:15 PM »
We know it’s been going on for “years”.  Paulson was appointed years ago.

The article doesn't mention a single thing Paulson has been doing for "years." He's talking about TARP, which is a couple months old.

But, if there's a "years" old policy of the Treasury Dep. that you disagree with, I'd be interested.

Silver Bullet

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Re: John Lott: The Democrats' Recession
« Reply #5 on: November 19, 2008, 10:44:40 PM »
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But, if there's a "years" old policy of the Treasury Dep. that you disagree with, I'd be interested.

Here ya go:

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Paulson’s hysteria about the economy a month ago has undoubtedly caused consumers to cut back some on spending -- a hysteria that most economist questioned at the time. But Paulson’s wild spending spree, nationalizing banks and other companies, fits his and his aides' Democratic views.