George:

We may be pretty close to “the same page.” It might be best to just do a numbered list.

1. I didn’t say “no regulation.” But regulation generally was lightened, especially under Reagan himself, and anti-trust was virtually abandoned. “Too big to fail” is part of the result.
2. Subprime: you flesh it out more, but I noted it at 8.1.
3. I’m unfamiliar with Waxman-Markey, but a vignette from my son’s wedding weekend in 2005 tell a bit about Sarbanes-Oxley. I introduced my ELCA Lutheran brother to my wife’s ELCA best friend from high school, and they sat on my back porch lamenting: she, a chemist in an industrial setting, was charged with responsibility to track raw material inventories so as not to violate S-O (I think it may mandate FIFO for reporting purposes); he, a CFO, was pondering “going dark” – getting his company off listed exchanges – to avoid S-O compliance costs that were hugely increased from what they’d ever spent for attorneys (except, perhaps, when first going public).

I’ve been toying with a notion that I’ll now run up to flag pole for possible salutes: is it possible that the best a God-fearing person – a person seeking rootedness and sobriety – can do in our economy and culture is to drop out? Rod Dreher calls this “The Benedict Option,” named after the first Benedict (the monastic), most recently here.

But I’d hate to think that’s true because I think the souls of my neighbors are more important than their pocketbooks, and our mobile, giddy society tends to starve souls.

Roger, excellent points. Right now I only want to address one of them in particular, the point that in fact has caused the present mess: the housing bubble. This bubble was created by demagogues who demanded that people who otherwise could not afford to own houses, be given every opportunity to do so, in violation of all prudential safeguards. Barney Frank of course will be consigned to Dante’s eight circle of hell for his role in this as will the Congressional Black Caucus, his partners in crime. But that is a story for another day. Prudent people, for whatever reason, were not using their houses as piggy banks.

To say however that there were “no” regulations during this period is overstating the case. Indeed, there were terribly onerous regulations of an evil sort. Things like Sarbanes-Oxley or Waxman-Markey and others of their ilk which distorted the marketplace, often forcing banks to make improvident loans. Was there criminality on the back end? Yes, because banks were forced to make these insanely stupid loans, they sold mortgage paper on the secondary markets, etc. etc. etc. So now here we are.

Please let me explain myself a little further when I judge an era to be a “golden age.” I look at things relative to one another. In that light, the previous quarter-century as a “golden age of explosive economic growth,” the numbers speak for themselves –GDP growth, stock market, unemployment, debt:GDP ratio, etc. (The worst annual deficit under Bush was $400 billion, and that was because of Katrina on top of two wars.) I say the same thing about czarism, which absent the First World War, was an economic boomtime for the Russian Empire. It certainly beat anything that came afterwards, no matter how “noble” its intentions. As with Lenin, so with Obama, who also seeks to overturn the republican order to “help distribute the wealth around,” as he told Joe the Plumber. No one in their right mind looks back on the Soviet experiment as anything but an analloyed error.

Please understand however that within that same time period, I am fully aware that this was not a spiritual or even cultural, golden age. The reason I’m not a libertarian is because I treasure tradition and culture, of which we’ve had very little beginning sometime in the 1960s. Perhaps this downturn is from God in that He will allow us to attain a measure of sobriety and appreciation. In that sense, I completely agree with you.

“1984-2008 will be viewed as an economic golden age.”

That sounds like “history will vindicate my position.” Maybe. Maybe not.

I’m afraid we’re talking past each other, though; I’m not defending social democracy (except maybe when I was explicitly playing devil’s advocate earlier in this discussion – trying to dash a little cold water in the face of Chicken Littleism). I’m in favor of something sustainable, though it’s likely to be less spectacular than 1984-2008. See my response to Scott’s remarks at 8.1.1.

It’s hardly astonishing that a cut in top marginal income tax rates that were punishingly high, coupled with a virtual abandonment of anti-trust enforcement, would produce explosive growth for a while. But the propensity for that approach to produce “bubbles” that collapse is becoming pretty standard economic doctrine. And those collapses, in our present bipartisan state capitalist mindset, elicit growth of faux regulation to make us rubes feel safe until the next collapse.

What sane person, in retrospect, could have expected housing prices in some regions to continue rising at 15-25% per year when wages were rising 3%? Who could have thought that an average family – let’s say $80,000 household income – could buy a $600,000 house because “it’s an investment” to be sold next year at a profit so you can buy a $750,000 house? But people made “buy the pig, put lipstick on the pig, sell the pig at a profit, repeat” a way of life in places like California, and now they find themselves upside down on a $750,000 mortgage while earning that $80,000 per year.

Wanna try to regulate that hangover away, or shall we try systemic sobriety instead?

More important to me are the cultural issues, which you acknowledge are (quite?) a separate matter. It’s not just economically dubious, but spiritually dubious, when people start thinking they can get rich off of something analogous to a chain letter (see the prior 2 paragraphs), which is part of what the giddy 1984-2008 economic bubble produced.

The Saints and monastics commend rootedness and sobriety. Our nation celebrates mobility and giddiness. Here ends my current effort to inject a little Orthodox sobriety into this economic “he said, she said” thread.

Blessed Pascha to all!

The point George is that people always tend to be ungrateful and demanding when they have nothing at stake. It tends to make us that way.

Roger, capitalism with all its faults is vastly more preferable than socialism or the social-democratic schemes of Western Europe. The time period from 1984-2008 will be viewed as an economic golden age. Even the first seven years of W saw an explosive growth in GDP for the US.

Now of course, I’m speaking here economically only. I’m not talking about the quality of our spiritual lives or the wonderfulness of our culture. And of course, the real golden age of the American family was the 1950s (and quite probably America itself). Still, in comparison to Japan and Europe, each of which experienced lost decades in the 1990s-2000s, America was a booming place.

Were there increases in disparities in wealth? You bet. The number one culprit was the massive infusion of women into the workforce, something Progressives have wanted for over a century. Why? Because women work for less money. (The GOP in 1922 placed the Equal Rights Amendment in its party platform; the National Association of Manufacturers also wanted women in the workforce back in 1912.) Number two: untrammelled illegal immigration (Cesar Chavez may have been a Communist but he was a border restrictionist. His union strictly policed the southern border and reported breaches). Three: the continued destruction of the black family/rise of a permanent white and Hispanic “underclass.” Anyway, the growth of the entitlement state which is unsustainable in all scenarios can be traced to these three phenomena (certainly there are others: loss of manufacturing base, the devolution of public education, etc.).

Still, all things being equal, the growth of the American economy –even with these millstones around our collective necks–was a sight to behold during this time period. Can we get it back? Doubtful, I believe that under Obama we are going to experience a new Caesarism with a downward slide to banana-republicanism.

Michael, tell your client to “suggest” to his employee that his wife shut up. I’m sure that there are other people in your area who would love this guy’s job. Whiny, ungrateful people deserve no sympathy.

Scott, there’s a third option in the offing: a national sales tax, or more accurately a VAT (value added tax). Philosophically, a sles tax is far preferable morally to an income tax but a VAT (which is a sales tax on steroids) is far more insidious as it capable of stealth increases. Of course, with our luck, we’ll have the worst of both worlds: a VAT and an income tax.

Roger,

I’m not a purist when it comes to “free markets”. The “third way” that might be able to save some reduced welfare system is partial privatization.

I tend to see the current downturn as being due to two main things: 1) government mandates regarding foreclosure lending to (un)qualified borrowers and 2) lack of transparency in banking and business in general.

The downturn really got started with the wave of defaults and foreclosures in the last years of the Bush presidency. Both Bush and McCain warned everyone about the unsustainability of the governments lending practices (counting welfare as stable income, etc.). Alas, Bush had a Democratic Congress to deal with in his last two years. When it was Bush and a Republican Congress, the economy was not doing too shabby.

Nonetheless, Bush made some mistakes like exacerbating the entitlement and spending problem and leaving Rumsfeld’s minimum footprint strategy in place in Iraq even when it was obviously failing, etc.

This, together with constant cheerleading from the mainstream media, led to the election of our socialist president.

I’m not using the term “socialist” as hyperbole. I’m completely serious. Obama believes in, and will continue to pursue insofar as he thinks it is practically possible, the acquisition of the means of production by the government. You can count on it.

“The Supreme Court never ventured into the issues of redistribution of wealth and sort of more basic issues of political and economic justice in this society. And to that extent as radical as I think people tried to characterize the Warren Court, it wasn’t that radical. It didn’t break free from the essential constraints that were placed by the founding fathers in the Constitution . . . ”

Bear in mind that the government was engaging in a great deal of redistribution of wealth back in 2001 when this quote was made. And this is Obama’s consistent philosophy. He said the same thing in more stark terms for his college thesis at Columbia:

“The so-called Founders did not allow for economic freedom. While political freedom is supposedly a cornerstone of the document, the distribution of wealth is not even mentioned.”

This fundamental problem our President has with the Constitution is that it protects private property and freedom from government. It envisions economic advancement not as a right but as an opportunity made possible by political freedom. Now, I personally don’t think you need to have the degree of political freedom we have in this country in order to have a strong market based economy. However, Obama’s take is very different from that. He is hostile to the very idea of a market based economy.

The man is a socialist.

Eventually, the entire entitlement system is either going to collapse or be at least partially privatized. The taxes necessary to maintain what we have now would be so high as to throw us into a depression, which would kill the golden goose charged with paying the bills. Alternatively, the amount of borrowing we would have to engage in to fund the entitlement culture we have would cause us to lose our credit status, be seen as a much greater risk of default, and result in much higher interest rates on our debt.

This is why I have some reason for hope. In the next decade or two we are going to hit a solid wall and the consequences will be something quite different than what we have now and I don’t see how anyone in either party can change that eventuality.

I agree completely with your first paragraph. I just think there’s got to be something better than what we’ve been doing economically, pretty much on a bipartisan basis, since Reagan’s apparent success. (Only of late have things become bitterly partisan as Obama wanted signature legislation at any cost and the Democrats swung back far left economically.)

I’m not sure what that “something better” is, but I’m hanging out on the Front Porch a lot lately to see what it might be.

“If you mean return to “free markets,” with the social Darwinist rationing of everything according to who can best afford it, I’m not with you.”

Roger,

My point is that the entitlement culture will bankrupt us, lead to higher inflation, interest rates, unemployment, etc. The social programs we have now, Social Security, etc. are insolvent. Now we have a massive new program which was insolvent, as a practical matter if you discount accounting tricks, the moment it was signed into law.

Whether you’re “with me” or not is not a huge concern to me. The public will move decisively away from the social democratic position as the effects of what they’ve done become more clear. If you recall the Carter years, you might remember how little patience the public has with a pathetic economy. I doubt it makes any difference what either of us say or what either party says at this point. Unless this is repealed, it will make what’s happening to Greece look like a picnic.

I’m not picking on you, Scott; we just both seem to be tracking the same stories. And the story you link to is quite good. But I’m out of “Devil’s advocate” mode now.

I don’t know what you mean by ” decisively reject the creeping socialization of the twentieth century.” If you mean return to “free markets,” with the social Darwinist rationing of everything according to who can best afford it, I’m not with you.

I’m one of the folks who’s had it with our current capitalist system as well as rejecting socialism. What we euphemistically call “free markets” has really been state capitalism (which isn’t socialism if you stop and look critically for a few minutes), which has privileged huge concentrations of capital. I don’t trust economic power any more than I trust government power, although I’ll note preemptively that you technically can opt out of the former (unless participation is mandated by the latter – one of the main constitutional issues about Obamacare).

When there’s a huge concentration of economic power, you can either use the power of government to bust it up or you can try to “regulate” it (i.e., defend and promote it), thus adding more bureaucrats than it takes to bust it up. Reaganomics is essentially deregulation coupled with disbanding the department of trust-busting and promotion of do-good programs through incentivizing the “private sector” (e.g., sub-prime mortgages).

That pretty much became bipartisan policy until the collapse, and now the Dems want to pretend to regulate to prevent a recurrence even though the experts hadn’t a clue about the bust that was coming last time.

I’m in favor of busting up economic power as well as devolving power to more appropriate levels than government, and that will produce loud cries of “Socialism!” if we even come close.

http://weeklystandard.com/articles/repeal

The “why” is actually what stands out to me.

There is a silver lining in all this, although it may not be of too much comfort. This law is so awful in its economic effects that it will either be repealed in 2013 or so, or it will lead to a profound economic crisis which will force the US into choosing – – perhaps by democratic methods, perhaps otherwise – – to either socialize or decisively reject the creeping socialization of the twentieth century.

Leading up to that decision, however, there will likely be a lot of nasty trauma, possibly including widespread violence (depending on how the public reacts to the increasing tax burden, the inflation that will come, the unemployment and higher interest rates, etc.).

The right should be ready to use this. As the Obama-ites said, “Never let a good crisis go to waste”. If conservatives are smart about this, they might be able to manage the decisive defeat of progressive socialism in this country.