Economic Crisis – Page 21 – artdiamondblog.com

Medoff Swimming Naked

Bernie Medoff, and friends, swimming naked. Source of caricature: online version of the NYT article quoted and cited below.

The article quoted and cited below, is most notable for the wonderful illustration of the famous Warren Buffett quote on how hard times reveal who has been prudent and who has not been prudent.

(p. 19) Though we may be caring less, we’re hearing a lot more about Ponzi schemes lately, perhaps because the scams tend to fall apart when markets drop. As Warren Buffett so memorably put it, “You only find out who is swimming naked when the tide goes out.”

For the full commentary, see:
JOHN SCHWARTZ. “Lost in Bernie Madoff’s Shadow.” The New York Times, SundayBusiness Section (Sun., April 11, 2009): 19 & 24.

The Middle Ages Were Poor Ages (and, Yes, Dark Ages Too)

Source of book image: http://images.barnesandnoble.com/images/11610000/11613340.jpg

(p. A19) . . . some excellent books for general readers in the past few years, notably Brian Ward- Perkins’s “The Fall of Rome and the End of Civilization” (2005), have shown how devastating was the economic and human cost paid between 450 and 900. It is still unfashionable to speak of the Dark Ages (there was continuing cultural life), but these were certainly the Poor Ages, in which protection for the weak and vulnerable, from roaming killers and even from the weather, was much more precarious than it had been under Roman rule.

For the full review, see:
SCOTT PATTERSON. “Bookshelf; The Emperor Left Town.” Wall Street Journal (Tues., APRIL 21, 2009): A19.
(Note: ellipsis added.)
(Note: the book mainly under review by Patterson, is NOT the book featured in this blog entry.)

The reference for the Ward-Perkins book, is:
Ward-Perkins, Bryan. The Fall of Rome: And the End of Civilization. Oxford, UK: Oxford University Press, 2005.

“Don’t Kill the Goose”

(p. A11) I think there are two major but not fully formed or fully articulated fears among thinking Americans right now, and the deliberate obscurity of official language only intensifies those fears.

The first is that Mr. Obama’s government, in all its flurry of activism, may kill the goose that laid the golden egg. This is as dreadful and obvious a cliché as they come, but too bad, it’s what people fear. They see the spending plans and tax plans, the regulation and reform hunger, the energy proposals and health-care ambitions, and they–we–wonder if the men and women doing all this, working in their separate and discrete areas, are being overseen by anyone saying, “By the way, don’t kill the goose.”
The goose of course is the big, messy, spirited, inspiring, and sometimes in some respects damaging but on the whole brilliant and productive wealth-generator known as the free-market capitalist system. People do want things cleaned up and needed regulations instituted, and they don’t mind at all if the very wealthy are more heavily taxed, but they greatly fear a goose killing. Economic freedom in all its chaos and disorder has kept us rich for 200 years, and allowed us as a nation to be generous and strong at home and in the world. But the goose can be killed–by carelessness, hostility, incrementalism, paralysis, and by no one saying, “Don’t kill the goose.”

For the full commentary, see:
PEGGY NOONAN. “What’s Elevated, Health-Care Provider? Economy of language would be good for the economy.” Wall Street Journal (Sat., MAY 15, 2009): A11.

There’s Still Space in Diamond’s Fall Seminar on the Economics of Entrepreneurship at the University of Nebraska at Omaha

“Whoever Was Prudent, Is Always the One Who Has to Pick Up the Pieces”

(p. A3) “We like a nice, gentle, upward slope,” said Donald E. Goetz, the president of DeMotte State Bank, an 11-branch operation in the northwest part of Indiana.

“This kind of growth, like you see in the stock market” — Mr. Goetz ran his hand through the air, tracing the shape of a mountain range — “that doesn’t interest us.”
. . .
Mr. Goetz, who was wearing a tie and a short-sleeve shirt, started as a teller at DeMotte right after he graduated from college in 1976, and he’s been president since 1988. He is a stolid guy who, when asked what he does for fun, offered two words: “Yard work.”
He sounds somewhat aggrieved. His bank, which opened in 1917, didn’t make any subprime loans, nor did it take any bailout money. Even when bank stocks were soaring, not one of his 246 shareholders needled him to earn more than the 3 to 4 percent dividend that DeMotte has generated for years.
. . .
“We had three or four people panic,” he said. “A couple of them said, ‘It’s not the bank. We just don’t trust the government.’ And I told them, ‘If the government fails, the money you’re taking out of this bank won’t be worth anything.’ ”
Mr. Goetz, like a lot of his competitors, is livid about the mortgage shenanigans born of the securitization craze. But he thinks his public relations problem had many authors.
“The media, Congress, the president, everyone just keeps saying ‘the banks, the banks, the banks,’ like we’re all the same thing,” he said. “Well, we’re not all the same thing.”
. . .
At DeMotte, Mr. Goetz is bracing for a steep increase in a crucial overhead cost: the bill from the Federal Deposit Insurance Corporation, which is basically an insurance fund underwritten by banks.
Last year, DeMotte paid $42,000 into the fund. This year, because of failures in other parts of the country and particularly among national banks, that sum will rise to $500,000 or more.
“Isn’t that the American way?” he says, folding his arms. “Whoever is left standing, whoever was prudent, is always the one who has to pick up the pieces.”

For the full story, see:

DAVID SEGAL. “We’re Dull, Small Banks Say, and Have Profit to Show for It.” The New York Times (Tues., May 12, 2009): A1 & A3.
(Note: ellipses added.)

Taiwan Government’s Industrial Policy Ruins Economy

Source of graphic: online version of the NYT article quoted and cited below.

(p. A8) Taiwan, where for years the government encouraged information technology companies with tax breaks, cheap land, loans and more, is probably the most endangered of the small Asian economies. The result of that government largess is an economy extremely dependent on a single industrial sector that has been devastated by plunging worldwide sales of electronics. “Half of the industries just got a bad cold, they probably can recover quickly — the other 50 percent, they’ve got, not cancer, but close,” said Preston W. Chen, a chemicals tycoon who is also the chairman of Taiwan’s Chinese National Federation of Industries.

For the full article, see:
KEITH BRADSHER. “Memo From Singapore – East Asia’s Small Edens of Trade Wilt as Need for Exports Dries Up.” The New York Times (Thurs., March 5, 2009): A8.

High State Taxes “Repel Jobs and Businesses”

Source of cartoon: online version of the WSJ commentary quoted and cited below.

(p. A17) . . . the evidence that we discovered in our new study for the American Legislative Exchange Council, “Rich States, Poor States,” published in March, shows that Americans are more sensitive to high taxes than ever before. The tax differential between low-tax and high-tax states is widening, meaning that a relocation from high-tax California or Ohio, to no-income tax Texas or Tennessee, is all the more financially profitable both in terms of lower tax bills and more job opportunities.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.
Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies — old and new — have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.
. . .
. . . , Barry W. Poulson of the University of Colorado last year examined many factors that explain why some states grew richer than others from 1964 to 2004 and found “a significant negative impact of higher marginal tax rates on state economic growth.” In other words, soaking the rich doesn’t work. To the contrary, middle-class workers end up taking the hit.

For the full commentary, see:
ARTHUR LAFFER and STEPHEN MOORE. “Soak the Rich, Lose the Rich Americans know how to use the moving van to escape high taxes.” Wall Street Journal (Mon., MAY 18, 2009): A17.
(Note: ellipses added.)

“Dynamism Has Been Leached From Our System,” But Not from Our Brains or Our Hearts

Sometimes one of Peggy Noonan’s columns reminds us that she was once one of Ronald Reagan’s best speech writers:

(p. A11) I heard a man named Nathan Myhrvold speak of a thing called Microsoft. I saw a young man named Steve Jobs prowl a New York stage and unveil a computer that then we thought tiny and today we’d call huge. A man named Steve Wozniak became a household god as my son reported his visionary ways. It was a time so full of genius and dynamism that it went beyond words like “breakthrough” and summoned words like “revolution.” If you were paying attention, if you understood you were witnessing something great, the invention of a new age, the computer age, it caught at your throat. It was like hearing great music. People literally said what had been said in the age of Thomas Edison: “What will they think of next?” What a buoyant era.
. . .
And for a moment, as I sent and received my first airborne Wi-Fi emails, I was back there. And I was moved because I realized how much I missed it, how much we all do, that “There are no walls” feeling. “Think different.” “On January 24th, Apple Computer will introduce Macintosh. And you’ll see why 1984 won’t be like ‘1984.’ ” That was 25 years ago. The world was on fire.
It has cooled. And the essential problem with the crash we’re in is no one can imagine quite feeling that way again. People can remember it, but they can’t quite resummon it.
. . .
I end with a hunch that is not an unhappy one. Dynamism has been leached from our system for now, but not from the human brain or heart. Just as our political regeneration will happen locally, in counties and states that learn how to control themselves and demonstrate how to govern effectively in a time of limits, so will our economic regeneration. That will begin in someone’s garage, somebody’s kitchen, as it did in the case of Messrs. Jobs and Wozniak. The comeback will be from the ground up and will start with innovation. No one trusts big anymore. In the future everything will be local. That’s where the magic will be. And no amount of pessimism will stop it once it starts.

For the full commentary, see:
PEGGY NOONAN. “Remembering the Dawn of the Age of Abundance; Times are hard, but dynamism isn’t dead.” Wall Street Journal (Sat., Feb. 21, 2009): A11.
(Note: ellipses added.)

How Democratic Presidents Save Us

Andrew Jackson was the first in a long line of populist Democratic presidents:

(p. 24) He relished the roles of protector and savior. Just after dusk on a cold March day in 1791, when Jackson was practicing law on the circuit around Jonesborough, Tennessee, he and his friend John Overton were traveling with a small group through dangerous territory. Reaching the banks of the Emory River in the mountains, the lawyers spotted a potentially hostile Indian party. “The light of their fires showed that they were numerous,” Overton recalled to Henry Lee, and “that they were painted and equipped for war.” Under Jackson’s leadership (Overton credited him with a “saving spirit and elastic mind”), the travelers scrambled into the hills on horseback, riding roughly parallel to the river–which they had to cross to make it home. Pursued by the Indians, Jackson, Overton, and two others pressed on through the night, coming to a place where the water looked smooth enough to allow a hastily constructed raft and the horses to make it to the other side. Jackson look charge of the raft piled high with saddles and clothes. Overton would follow with the horses.

There was immediate trouble. The waters were not as smooth as they had appeared; a powerful undercurrent swept the boat–and Jackson– downstream, toward a steep waterfall. “Overton and his companion instantly cried out and implored Jackson to pull back,” Lee wrote. But he either not being so sensible of the danger, or being unwilling to yield to it, (p. 25) continued to push vigorously forward.” Jackson struggled with his oars; disaster was at hand. He and the saddles could he lost, and the Indians were still on their trail. “Finding himself just on the brink of the awful precipice,” Lee recounted, Jackson extended his oar to Overton, who “laid hold of it and pulled the raft ashore, just as it was entering the suck of the torrent.” Catching their breath on the bank of the river, Overton and Jackson looked at each other.

“You were within an ace, Sir, of being dashed to pieces,” Overton told him. Jackson waved him off, replying, “A miss is as good as a mile; it only shows how close I can graze danger. But we have no time to lose–follow me and I’ll save you yet.” They eluded the Indians, arriving home exhausted but safe.

Source:
Meacham, Jon. American Lion: Andrew Jackson in the White House. New York: Random House, 2008.
(Note: the semi-colons in the above passage were hard to distinguish, in the online version, from colons. I judged them to be semi-colons from context, but I could be wrong.)

Philanthro-Capitalism Is Inefficient, and Betrays Shareholders

Source of book image: online version of the WSJ review quoted and cited below.

(p. A13) One of the more interesting ideas found in this somewhat rambling book contends that “philanthropic” business activity is in fact at odds with what is best about capitalism itself and thus counterproductive.

Lawrence Summers, the former Harvard president and former Treasury secretary, states the difficulty succinctly: “It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.” He offers as an example Fannie Mae and Freddie Mac, government-created corporations that were supposed to achieve a social goal — affordable housing — while operating as businesses. They did neither well, eventually leaving their catastrophic debts for taxpayers to pay.

U.S. Circuit Court Judge Richard Posner, along with other contributors, notes that companies often suffer losses when they set out to address a social problem. If they could really make a profit by doing good works, the argument goes, they would no doubt already be hard at it. But if they do good works at the expense of profit, they will become less efficient, making themselves more vulnerable to competitors. Economist Steven Landsburg suggests that companies sacrificing profit to accomplish philanthropic goals end up betraying their shareholders, who rightly expect the best return on investment. Sometimes acting philanthropically will result in an indirect business benefit, such as improving worker skills. In that case, philanthro-capitalism might be in a company’s interest — but Judge Posner and others of like mind suspect that such instances are rare.

Their skepticism echoes Milton Friedman’s objections to “corporate social responsibility,” expressed in a 1970 article that is usefully reprinted in the book’s appendix.

For the full review, see:

LESLIE LENKOWSKY. “Bookshelf; The Do-Good Marketplace; Reducing poverty, improving lives – maybe ‘philanthro-capitalism’ is just another name for capitalism.” Wall Street Journal (Fri., JANUARY 2, 2009): A13.

The book under review is:
Kinsley, Michael, and Conor Clarke, eds. Creative Capitalism. New York: Simon & Schuster, 2008.