Reading articles like that and this make me think that Stiglitz has been swilling the Central Planning Kool-Aid.  He makes some accurate points, but intersperses them with tendentious talking points from leftist conventional wisdom, not to mention his assumption that we (or, more accurately, Congress) won’t regain our senses and rein in spending.  With the disparate political and economic philosophies that dominate in different parts of the global economy, there’s no way for this dream of his to be realized except by brute force or political subterfuge.  Nations that benefit from economic freedom aren’t likely to fall for the notion that dirigisme along the lines of the European model is an improvement.

OVER EIGHT short years, former-President George W. Bush doubled the U.S. national debt (with little to show for it, except a wrecked economy). With the debt expected to double again in the next decade

Who’s going to do that? Is George W. Bush going to do it again?

With this kind of obvious bias, it makes it harder to take the article as seriously as I would like.

A sobering article on this the 80th anniversary of the great stock market crash of 1929.

FWIW I think conservatives need to take off the blinders and stop making excuses for or ignoring Bush’s culpability.  I voted for the man in 2000.  Never have I regretted a vote cast more than that one.  His administration bears the lion’s share of responsibility for the current depression.

That said it is perfectly fair to point out that Obama seems to be following Bush’s lead.  Having inherited a depression founded on unprecedented debt and frivolous spending he appears determined to borrow and spend his way out of it.  As I noted to some of my liberal friends a while back “you warned me that if I voted for McCain we would end up with Bush’s third term.  And it looks like you were right.  I did and we did.”

I despair for the republic.

If what Bush did was so bad, why is what Obama is doing so good?  Is is simply the difference in political parties?

3, agreed.  So how has Obama cut back on Bush’s spending?  Or is spending now good?

[Bush’s] administration bears the lion’s share of responsibility for the current depression.

I really don’t think the data support that claim (see this discussion), which isn’t to argue that Bush was always a good steward of the fisc.  And, certainly, his actions in response to the beginning of the financial crisis did not inspire confidence.

But there’s a larger confluence of events that seem rooted in the notion that “we can get away with this for a while and it won’t hurt anything.”  Things like the weak dollar strategy, the Medicare Prescription Drug Benefit, ignoring the Social Security debt, the general public’s approach toward our own deficit spending, the wretched excess of this year’s stimulus bill, etc., all exhibit a short-term thinking born of pragmatism with weak ethical boundaries.  I’d argue that most of these are the result of a craven and self-interested political class, while some are symptoms of broader cultural problems.  One thing Stiglitz is right about is that having the dollar as the world’s reserve currency has enabled some of this behavior, particularly at the level of national politics.

On the bright side, the public seems to be acting more responsibly.  Unfortunately, the Obama administration and the current Congress seem to think the economy will bounce back no matter how much debt we take on.

#3 - I agree completely with what you said.

Others - it is possible to be opposed to Obama’s recklessness while recognizing the completely irresponsible financial and economic disaster that was the Bush administration’s two terms. I also voted for him, and have come to regret it. That does not switch me to the Democrats or make me a support of their candidates. I don’t know why in discussions about the economics of the past 8 years, people from the right can’t resist trying to change the subject to Obama; I suppose it’s the same impulse that strikes lefties when criticizing Obama’s bad economic policies they immediately try to switch the topic to the Bush Administration.

To those who oppose the deficit spending proposed by the Obama administration and the Democratic Congress, I ask precisely what do you propose to deal with the current economic situation?

It is fine to decry deficits and government spending. But if the government were to do that at this time, the result would be, in point of fact, disasterous—even more than the current disaster. If you think that unemployment, bankruptcies, failing banks, real estate foreclosures and the like are bad now, what would the economy look like today without the bailouts and stimulus (read increase spending and deficits)?

And what, exactly is your alternative?

What “better mousetrap” have you invented?

And no, I’m not asking what “could have been”. (As Aslan told the children, that’s something we cannot know—and, for that matter, the past is something that we cannot change, what was written was written, time moves on.) The question is what alternative, today, do you propose? And there are two sub-questions. (1) What price are you willing to pay for those alternatives and (2) what price are you imposing on others for your alternative?

Certainly Bush was responsible for a huge shift of power from the people to the federal government and ran up very serious spending and debt - the same thing Obama is doing now except Obama is trying to do in 1 year what it took Bush 8 years to do. And sadly, I too voted for Bush. The lesson here may be that conservatives should only support and vote for truly conservative candidates from whatever party.

Certainly Bush was responsible for a huge shift of power from the people to the federal government and ran up very serious spending and debt - the same thing Obama is doing now except Obama is trying to do in 1 year what it took Bush 8 years to do.

Actually, Bush was able to double the national debt in 8 years; Obama’s proposals would take 10 years (not one) to accomplish the same thing.

But the question still is, what alternative do you propose, given the economic realities of 29 October 2009 and what price are you willing to pay for that alternative?

What was written, was written and cannot be unwritten; time moves on.

Septuagenarian,
You seem to be under the impression that failing banks and businesses are a bad thing.  They are not.  It is part of the ebb and flow of free markets.  When you have the government aggressively intervening to prop up businesses whose management made reckless decisions, and that should be going under as a result, you create distortions in the market which can have severe consequences.

The current crisis is at least in part a consequence of George Bush and Alan Greenspan’s decision not to allow the United States to go through a normal corrective recession in the first years of the decade now ending.  After the boom years of the late 90’s with its excesses and the great bull market on Wall Street we were due for a normal economic correction.  The decision by the government to prevent that correction by artificially depressing interest rates and poring money into the economy through massive spending coupled with deep tax cuts (which disproportionately benefited the wealthy) provided the alcohol with which the nation and particularly the real estate and credit sectors got drunk.

By intervening again we are in affect attempting to reinflate the bubble.  Worse however, we are creating a grave moral hazard by nationalizing the risks of the free market.  We now live in a severely distorted economic system of massive private profit with even more massive public risk.  When Wall Street billionaires make reckless gambles they no longer have anything to worry about since the know that the tax payer will cover their losses and prevent their businesses from going under.  In effect the government is turning capitalism into a system where no one looses (except the tax payer of course).  And that’s not how it works.

When GM (now Government Motors) was clearly going under after decades of bad business decisions, in a true capitalist system and free market the Ford Motor Company (which made some bad decisions but not fatal ones and was able to survive on its own) should have benefited from the demise of their arch-rival GM.  They should have gotten a larger piece of the car market and been able to scoop up some of GM’s assets from bankruptcy proceedings and then gone on to make productive use of them.  Instead Ford which played by the rules and should have won the game, now finds that the rules have been changed to keep the other player from loosing.  In short, Ford (and their stock holders) have been royally screwed (pardon my frankness) because they now find themselves in competition not with a private company but with the U.S. Government.

The solution to all of this (much more painful now than it wold have been 8 years ago) is to let the markets work.  Let business which make bad decisions go under.  Yes there will be pain.  But it’s going to be much worse if we keep trying to halt the oceans tides from coming in.  All we are doing is supporting failure and preventing the better run companies from succeeding.  And we are bankrupting our country in the course of this futile endeavor.

The debts we are running are not sustainable.  We can not print money indefinitely.  We will reduce our currency to the point where it is effectively worthless and create a severe inflation (hyper-inflation if we are not careful).  Just because we are the United States does not mean we are immune to the laws of economics.

The only rational course of action open to us is to endure the hangover from our economic bender and get back on track.  It will be very painful.  But it’s going to be worse the longer we put it off.  The government needs to butt out of the economy and let the chips fall where they will.

In ICXC
John

So Bush was not that bad.  I fail to understand how you can criticize Bush for doing what Obama is now doing.

10, I guess the answer is spend, spend & spend forever.

In matters of fiscal policy and economics there is no substantive difference between Bush and Obama.  They are two sides of the same coin.

11. Ad Orientem wrote:

You seem to be under the impression that failing banks and businesses are a bad thing.

It isn’t a particularly good thing for investors, employees (and those businesses with whom they do business), depositors, vendors who sell to the failing banks and businesses (and those businesses with whom they do business). The failures have a way of snowballing and negatively affecting well run businesses, from your local merchants to multi-national corporations.

I’m going to skip your spin on recent history. As I have pointed out, what was written, was written; it cannot be unwritten. Time moves on.

The solution to all of this (much more painful now than it wold have been 8 years ago) is to let the markets work.  Let business which make bad decisions go under.  Yes there will be pain.

And what, exactly would be your pain if your “solution” (essentially another Great Depression or worse) were implemented? Even more failing banks, businesses, unemployment, foreclosures, and bankruptcies in the midst of a severe recession isn’t a particularly promising approach.

And, I suppose the other question is this. When we begin to see “the great bull market on Wall Street” again, are you prepared for the correct monetary policy (tight money and high interest rates) and fiscal policy (increased taxes and reduced government spending) required to pay down the debt run up in the previous years?

Yes, we probably do need to consider at some point the whole problem of “too big to fail”. But I suspect that you won’t like what it would take to break up those banks and businesses that are already too big to fail and to prevent future consolidations, mergers and buy outs resulting in new banks and businesses that are “too big to fail”. But then, that perhaps will be part of your pain.

13. Br. Michael wrote:

I guess the answer is spend, spend & spend forever.

This is your solution?

Septuagenarian,

It isn’t a particularly good thing for investors, employees (and those businesses with whom they do business), depositors, vendors who sell to the failing banks and businesses (and those businesses with whom they do business). The failures have a way of snowballing and negatively affecting well run businesses, from your local merchants to multi-national corporations.

The systemic threats of the current crisis have been amplified, not reduced, by the government’s intervention.

I’m going to skip your spin on recent history. As I have pointed out, what was written, was written; it cannot be unwritten. Time moves on.

Ignoring the lessons of history is not a good plan in my experience.  Nor is repeating the mistakes of your predecessors.

And what, exactly would be your pain if your “solution” (essentially another Great Depression or worse) were implemented?

We are already in a depression.  We are simply prolonging it and making it worse.  As for my personal pain, my employer went under last December and I have been unemployed since then. 

And, I suppose the other question is this. When we begin to see “the great bull market on Wall Street” again, are you prepared for the correct monetary policy (tight money and high interest rates) and fiscal policy (increased taxes and reduced government spending) required to pay down the debt run up in the previous years?

We have run up massive bills.  They need to be paid.  Ready or not is neither here nor there.

On a personal level I am as prepared as I can be. I have serious doubts that the government will do what it needs to anytime in the near future.  But my investing strategy remains essentially to prepare for all possible eventualities.  I am by nature very conservative when it comes to money and largely adhere to the late Harry Browne’s Permanent Portfolio approach to investing.  For those with patience and who (like me) disdain the get rich quick approach so common today, it is a good system which provides reasonable returns with limited downside potential in any economic weather over the long term. 

In short, my investments will not be greatly impacted one way or the other by government policy beyond that if they keep prolonging the depression by their insane interventions I may have to dip into my retirement savings to get by.

Yes, we probably do need to consider at some point the whole problem of “too big to fail”. But I suspect that you won’t like what it would take to break up those banks and businesses that are already too big to fail and to prevent future consolidations, mergers and buy outs resulting in new banks and businesses that are “too big to fail”. But then, that perhaps will be part of your pain.

It might surprise you, but I am a strong supporter of anti-trust and monopoly laws.  Monopolies and large trusts are inherently bad for free markets.

16 Septuagenarian, I’m in agreement with pretty much everything Ad Orientem said in 17.  All of the tinkering that’s been done in the name of “stabilization” is part of the problem.

I originally took issue with Stiglitz’s tendentious representation of history, because it’s a part of the basis for his recommendations.  And where I part company with Ad Orientem is in my assessment of Bush.  He was hardly my ideal politician, but as I’ve said before:

While Bush did indeed run up deficits, they were also headed back down. (The debt, of course, heads ever higher in any case.)  In the CBO projections for the plans of the current administration and congress through fiscal year 2017, the deficit never gets down to the level of the highest deficits of the last decade (nice graph here).  And part of those deficits were caused by the fact that the recession that appeared to be ending in 2001 was plunged to new depths by the attacks of September 11.

That’s why I disagree with the statement, “In matters of fiscal policy and economics there is no substantive difference between Bush and Obama.”  Bush has a predisposition toward economic liberty, but was too much of a pragmatist (or not enough of a philosopher) to stick with it when the going got tough.  Obama has a predisposition toward statist solutions for every problem.

Septuagenarian, spending on top of spending is not my solution, but it is what we do.  No politician who advocates a sane fiscal policy with the necessary budget cuts can get elected.  We will keep doing what we are doing until the economy collapses.

17. Ad Orientem wrote:

The systemic threats of the current crisis have been amplified, not reduced, by the government’s intervention.

And your evidence for this is?

I would agree that the “too big to fail” syndrome has been amplified by the banking rescue. It has resulted in fewer, but larger mega-banks, further compounded by the failure of hundreds of smaller banks. But the “free market solution”, “let them fail” approach would have produced even fewer, but larger mega-banks and even more smaller bank failures.

And yes, the deficits have been amplified. But the reality is that, once again, the “free markets”, “let them fail” would also have resulted in increased deficits as millions more are unemployed and thousands more businesses fail. Deficits are the consequence of recessions, regardless of what government does or does not do.

Ignoring the lessons of history is not a good plan in my experience.  Nor is repeating the mistakes of your predecessors.

This turns into one of those “heads I win—tails you lose” sort of thing. Either we talk about how past administrations and congresses brought about the economic crisis of 2008 and get accused of playing the “blame game” or we don’t and get accused of “ignoring the lessons of history.” As a historian of sorts I recognize that we need to learn the lessons of history. One of which is that “free markets” are subject to wild swings which have very serious consequences for people, that “free markets” tend to monopolies and exploitation.

19. Br. Michael wrote:

No politician who advocates a sane fiscal policy with the necessary budget cuts can get elected.  We will keep doing what we are doing until the economy collapses.

In other words, you don’t have a “sane fiscal policy”—which would require, at a minimum, that it had chance of getting implemented.

The reality is that “the necessary budget cuts” is a fantasy. Your “necessary budget cuts” aren’t my “necessary budget cuts”. Furthermore, if one is going to even “balance the budget” (much less reduce the national debt), one is going to have to rely on (a) a robust economy with economic growth and full employment, (b) increases in taxes and (c) rational budget cuts. On single approach will do it—although (a) and (b) without (c) might come close. (See the period of the Clinton administration).

And yes, politicians do what they have to do to get elected. And we, the people, elect them. The Congressman or Senator who does not satisfy those who finance his campaigns and “bring home the bacon” doesn’t get reelected.

Real solutions require that they be politically feasible.

Or they require financial collapse and civil war.

Not that I advocate that of course, but one need only look at Weimar Germany.