News Did the 2008 Financial Crisis Mark the End of Free-Market Economics?

[Astronuc]

For the roughly 40% of families who do not pay federal income taxes, no TAX CUTS are possible. But you can count on these 40% to vote Democrat, particularly after hearing the supremely "intelligent" Democrats (is there any other kind, really) repeat "Tax cuts for the rich" ad nauseum.

I'd like to see the data that supports the 40% number which I've seen bandied about without any supporting evidence.


According to the IRS - http://www.irs.gov/newsroom/article/0,,id=178071,00.html

More than 22.4 million taxpayers received more than $43.7 billion in EITC on their 2006 federal income tax returns (an average of $1950). The IRS estimates that approximately one in four eligible taxpayers fails to claim EITC. Eligibility requirements for the credit can be complex. Also, people who have earned income but may not have a filing requirement, non-English speakers, non-traditional families, the homeless, childless workers and rural residents are among those who may not realize they qualify.

Non-farm employment is about 137 million. - http://www.nemw.org/employ.htm
The civilian labor force is about 154 million - http://www.bls.gov/news.release/empsit.nr0.htm

So the fraction of those receiving EITC = 16.5% of non-farm employment and 14.5% of total civilian labor.

For the 2007 tax year, the maximum credit is $4,716 for a family with two or more children; $2,853 for a family with one child and $428 if the taxpayer does not reside with children.

The maximum amount of earned income allowed is higher for tax year 2007 than it was for 2006. Please see Fact Sheet 2008-11 for all eligibility requirements.

Generally, a taxpayer may be able to take the credit for tax year 2007 if the taxpayer:

• has more than one qualifying child and earns less than $37,783 ($39,783 if married filing jointly),
• has one qualifying child and earns less than $33,241 ($35,241 if married filing jointly), or
• does not have a qualifying child and earns less than $12,590 ($14,590 if married filing jointly).

This population also includes many people in the armed forces (e.g. privates, corporals).

Now many in this population are elligible for Medicaid. I'm trying to figure out where to find the data on this. Here's part of the picture - Work-Support Spending Varies Widely Across Nation
http://www.urban.org/publications/901096.html

$43.7 billion in EITC on their 2006 is less than 10% of the $481 billion of Defense (FY2008, which excludes supplemental spending of ~$100 billion for the war on terror), and is also ~10% of the interest paid ($431 billion - http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm ) paid on the national debt, or about 1.6% of the FY2008 federal budget of about $2.65 trillion (not including a deficit of $400 billion).
http://www.whitehouse.gov/omb/budget/fy2008/pdf/08msr.pdf

Now compare that to $200 billion to support Fannie Mae and Freddie Mac, or $80 billion for AIG, or $700 billion for the proposed intervention for the financial industry, or ~$100 billion/yr for the war in Iraq and Afghanistan. These amounts go mainly to middle and upper classes - not to those earning EITC.

 

[Ivan Seeking]

The Clinton days.

[Feb, 1999] An examination of the budget and of federal spending trends tells a different story. Government spending as a share of the economy is now at its lowest level in recent decades and would continue to decline under the Clinton budget.

...The principal fiscal policy issue this year is not whether big government is returning. Nor is it the fate of the various, mostly modest Clinton initiatives. To the contrary, the principal fiscal issue is the overarching question of what use to make of the emerging budget surpluses.

http://www.cbpp.org/2-1-99bud.htm

 

[Astronuc]

Politicians of both parties - democrats and republicans - have contributed to the excessive spending of the federal government. Cutting taxes has not stimulated the growth necessary to achieve a balanced budget, and too many people are dependent on Social Security for retirement. The growth in federal spending has been about 10% per year - and the GDP has not been growing similarly.

 

[Ivan Seeking]

The important thing to remember is that the Republicans have ruled with unprecedented power. And they have held the reigns since Clinton was impeached in 1998.

This is all in their laps. No excuses!

No rationalizations; no analysis needed. The exams are over and it is report card time. The Republican's policies get a big fat F in every way that matters.

Whether we consider the economy, foreign policy, our military, our Constitutional protections, or divisiveness, they had their chance and crippled the country.

 

[CRGreathouse]

The important thing to remember is that the Republicans have ruled with unprecedented power.

Surely not. Many other parties have ruled with greater power in the past; PRI in Mexico (before Fox) and the UK under Labour would be examples. And it's not unprecedented within the US: the 73rd Congress under Roosevelt had nearly a two-thirds majority. It's not even unprecedented within the party: the long string of (mostly bad) Republican presidents and congresses in aftermath of the Civil War were far stronger than the recent Republican administration with the previous Congress.

 

[CRGreathouse]

6. As to "right wing economics" being a "total failure," please address this august body on the "left wing economics" being a "total success."

Start with Cuba, and proceed to North Korea and then the former USSR.

Cuba: It's an economic basketcase, but it's hard to divorce the effect of communism from the effect of the US embargo.
USSR: Total system failure due to inability to match US productivity in the Cold War. This did effectively show that communism was less productive than capitalism, but was it not for the Cold War it seems likely that the USSR would still be around.
DPRK: Abject failure in every metric. Perfect example of what *not* to do with a state. No freedoms, no technology, no consumer goods, barely any food.

China actually presents a compelling case that communism is an ineffective economic system: after the PRC's move toward a market economy, its GDP skyrocketed and has continued to grow rapidly since. It also shows that a liberal democracy* is not required; totalitarianism is compatible with a healthy economy.

So much for the far left. But it would be a logical fallacy to assume that 'leftist'** policies have the same end as these far-left socialist/communist states.


* The "Liberal" in "Liberal democracy" is, of course, not the same as the US political term liberal.
** I prefer my politics nonlinear, thanks.

 

[russ_watters]

False, ridiculously so. The trajectory was into a recession.

I was going to correct you and say it had already started well before he left office, but for some reason the judgement of the private organization that apparently decides such things says it started in March, despite growth being negative in Q3 2000. So you're right.

The U.S. economy shrank in three non-consecutive quarters in the early 2000s (the third quarter of 2000, the first quarter of 2001, and the third quarter of 2001). According to the National Bureau of Economic Research (NBER), which is the private, nonprofit, nonpartisan organization charged with determining economic recessions, the U.S. economy was in recession from March 2001 to November 2001, a period of eight months.

http://en.wikipedia.org/wiki/Early_2000s_recession

 

[Gokul43201]

The point being that McCain attempted to restrict the GSEs, spoke against the GSE system on the floor, while Sen. Obama embraced them.

Waiting for the Obama quote from 2006, where he embraces GSEs.

McCain deserves credit for signing onto S190, even if it was a year and a half later and even if his campaign is run by people that have or are still, essentially lobbyists for these GSEs.

 

[OrbitalPower]

How come some people have crosses through their SNs?

And actually, the community investment programs had a high pay back rate, higher than most. The free-market economics come in because the banks kept reinvesting money to make more capital, and then they would reinvest it again.

As to this nonsense that violating UN resolutions is a cause for war - the poster has no understand of international law.

The US, and Israel, have also violated resultions - and the US is the only country condemned by the International Criminal Court for overt state terrorism in Nicaragua. Should they be invaded.

This guys posts are about as sourced as WheelsRCool.

 

[Evo]

How come some people have crosses through their SNs?

Either banned or on a "time out".

As to this nonsense that violating UN resolutions is a cause for war - the poster has no understand of international law.

The US, and Israel, have also violated resultions - and the US is the only country condemned by the International Criminal Court for overt state terrorism in Nicaragua. Should they be invaded.

This guys posts are about as sourced as WheelsRCool.

Could you quote the post you are referring to, it's hard to try to figure out where the post is. Thanks.

 

[Ivan Seeking]

Surely not. Many other parties have ruled with greater power in the past; PRI in Mexico (before Fox) and the UK under Labour would be examples.

I was talking about the US, of course.

And it's not unprecedented within the US: the 73rd Congress under Roosevelt had nearly a two-thirds majority. It's not even unprecedented within the party: the long string of (mostly bad) Republican presidents and congresses in aftermath of the Civil War were far stronger than the recent Republican administration with the previous Congress.

Fair enough, unprecedented in modern times if we limit this to seats held, but when one considers the Unitary Executive powers claimed by Bush, it is still unprecedented in US history.

The key point is that the Republicans have done whatever they damned well pleased. They cannot escape responsiblity.

 

[Ivan Seeking]

I was going to correct you and say it had already started well before he left office, but for some reason the judgement of the private organization that apparently decides such things says it started in March, despite growth being negative in Q3 2000. So you're right.

http://en.wikipedia.org/wiki/Early_2000s_recession

[Feb, 1999] An examination of the budget and of federal spending trends tells a different story. Government spending as a share of the economy is now at its lowest level in recent decades and would continue to decline under the Clinton budget.

...The principal fiscal policy issue this year is not whether big government is returning. Nor is it the fate of the various, mostly modest Clinton initiatives. To the contrary, the principal fiscal issue is the overarching question of what use to make of the emerging budget surpluses.

http://www.cbpp.org/2-1-99bud.htm

 

[Ivan Seeking]

So the Republican defense is what: This ain't our fault because we were ineffectual, not flawed?

 

[russ_watters]

The important thing to remember is that the Republicans have ruled with unprecedented power. And they have held the reigns since Clinton was impeached in 1998.

Now that's one I haven't heard before. I suppose not only does Clinton get a pass for things that happened from 1998-2000, he also gets a pass for being unable to wield the power of his office during that time? Slick Willy, indeed!

 

[russ_watters]

http://www.cbpp.org/2-1-99bud.htm

You made no comment on that quote, so I don't see that you have any point. If you meant it to refute my point, I don't see how a quote about 1999 covers what happened in 2000. And besides: didn't you just say that Clinton wasn't responsible for things that happened in 1999 anyway? Or his he responsible for the good things, just not the bad ones?

Of course, you aslo claimed that when he left office, we were on a rising economic trajectory. Untrue, but in any case, later posts of yours would imply that the Republicans are responsible for the rising trajectory you believed happened!

Such sillyness, these posts of yours.

 

[BobG]

He is calling it dead on. We now have a gun to our heads because of the failed Republican economic philosophy, and eight years of abuses and mismanagement. He supports the bailout, just not the failed policies that brought us to this point.

Where did he say he supports the bail out?

From that segment, I only learned that he was outraged at the bailout (the bailout makes male candidates outraged while it makes the weaker sex feel ill).

Obama was clear about one thing in that video: It's about jobs, job creation you know, and about reducing taxes so people can save and retire, and about finding a way to raise home prices and reducing people's debts, and about reducing inflation (by raising home prices?).

Palin's reaction was better. She remembered to say "health care" when responding to the bailout in addition to a bunch of other gibberish. Ironically, I think the nation's energy expert forgot to mention rising gas prices, so maybe it's a draw.

I think it's silly to suggest Pelosi's comments caused the bill to fail on Monday, but what good do Pelosi and Obama hope to accomplish with anti-Republican rants? Is it because there is no real crisis or is it because the crisis is beyond solving - everything is going to fall apart regardless of what Congress do?

 

[Astronuc]

I was going to correct you and say it had already started well before he left office, but for some reason the judgement of the private organization that apparently decides such things says it started in March, despite growth being negative in Q3 2000. So you're right.

Not necessarily.

Plot these data: http://research.stlouisfed.org/fred2/data/GDPC96.txt
http://www.bea.gov/bea/an/nipaguid.pdf

1991-10-01 7154.116
1992-01-01 7228.234
1992-04-01 7297.935
1992-07-01 7369.500
1992-10-01 7450.687
1993-01-01 7459.718
1993-04-01 7497.514
1993-07-01 7535.996
1993-10-01 7637.406
1994-01-01 7715.058
1994-04-01 7815.682
1994-07-01 7859.465
1994-10-01 7951.647
1995-01-01 7973.735
1995-04-01 7987.970
1995-07-01 8053.056
1995-10-01 8111.958
1996-01-01 8169.191
1996-04-01 8303.094
1996-07-01 8372.697
1996-10-01 8470.572
1997-01-01 8536.051
1997-04-01 8665.831
1997-07-01 8773.720
1997-10-01 8838.414
1998-01-01 8936.191
1998-04-01 8995.289
1998-07-01 9098.858
1998-10-01 9237.081
1999-01-01 9315.518
1999-04-01 9392.581
1999-07-01 9502.237
1999-10-01 9671.089
2000-01-01 9695.631
2000-04-01 9847.892
2000-07-01 9836.603
2000-10-01 9887.749
2001-01-01 9875.576
2001-04-01 9905.911
2001-07-01 9871.060
2001-10-01 9910.034
2002-01-01 9977.280
2002-04-01 10031.568
2002-07-01 10090.666
2002-10-01 10095.771
2003-01-01 10126.007
2003-04-01 10212.691
2003-07-01 10398.723
2003-10-01 10466.951
2004-01-01 10543.621
2004-04-01 10634.232
2004-07-01 10728.671
2004-10-01 10796.408
2005-01-01 10875.827
2005-04-01 10946.117
2005-07-01 11049.980
2005-10-01 11086.107
2006-01-01 11217.261
2006-04-01 11291.674
2006-07-01 11314.057
2006-10-01 11356.368
2007-01-01 11357.840
2007-04-01 11491.351
2007-07-01 11625.746
2007-10-01 11620.739
2008-01-01 11645.968
2008-04-01 11727.351

No two consecutive quarters (which is gauge used elsewhere in this forum), and the average growth during the Clinton administration exceeds that during the Bush administration. Now economy benefitted from irrational exhuberance of the dot.com era during the Clinton years, but suffered after 9/11/01 during the early Bush years. But the kicker is the deficits. Correcting for debt accumulation, the economy grew better under Clinton than Bush. If there is a recession at the end of the Clinton term and beginning of Bush, then we're in a worse one now - because the government is having to pump in $100's billion to prevent a collapse - on top the $400 billion deficit (not including $100 billion in supplemental war spending), the real value of property has declined.

BTW, in recent history - the last two decades, the stock markets are historically over valued - and we're seeing a natural correction.

 

[rootX]

I was reading this today thought it fits here

** US superpower status is shaken **Does the financial crisis mean America's days as the only superpower are numbered? asks the BBC's Paul Reynolds.

< http://news.bbc.co.uk/go/em/fr/-/2/hi/business/7645743.stm >

It's funny to compare today and this to what I am learning in my (western) economics courses.

 

[mheslep]

http://www.cbpp.org/2-1-99bud.htm

This follow up is about my objection to claims of a 'trajectory' and '5 trillion' surplus when Clinton left office. That CBPP article is dated March '99. It confirms the government revenues rode up with the dot com bubble, but does not show the peak in March 2000 and subsequent collapse clearly dragging revenues down with it. US GDP growth and federal revenue growth declined markedly with the dot com collapse and the $5T decline in stock market value. The $236B surplus of 2000 plummeted to $128B in 2001 (Clinton's last budget) and was gone by 2002 with the onset of the dot-com collapse and 911 induced recession. The Bush tax cuts did not fully take hold until 2003. This is thus not a trajectory for surpluses.

Responsibility for the later sharp spending increases, ~2003, and their deficit consequences certainly lie with the Bush administration and Congress.
http://frwebgate5.access.gpo.gov/cg...docID=972942177599+1+1+0&WAISaction=retrieve"

 

[mheslep]

Waiting for the Obama quote from 2006, where he embraces GSEs.

McCain deserves credit for signing onto S190, even if it was a year and a half later and even if his campaign is run by people that have or are still, essentially lobbyists for these GSEs.

1. Congressional caucus swearing in ceremony 2004(5?). Host / speaker is Fannie CEO Daniel Mudd, $11.6 million/year-2007, fired after the seizure. See the video here.
http://www.newsbusters.org/blogs/p-j-gladnick/2008/09/18/fannie-mae-ceo-democrats-you-are-our-family-conscience
Apologies for you-tube annotations/rants, I can't find a clean cut of the meeting.

Good morning members of the Congressional Black Caucus. I am humbled to come here today to reaffirm the friendship and partnership between Fannie Mae and the Congressional Black Caucus. Fannie Mae is determined to keep tearing down the barriers to deliver on the American dream and that means we need to work together with the CBC. So many of you have been good friends to Fannie Mae and our mission. You've been friends through thick and thin. We have indeed come upon a difficult time for Fannie Mae. There is much to be done inside my company and I humbly ask you to help us and to help me. If there are areas where we are missing. If there are areas where we could do better, we'd like to hear it from our friends and I'd be so bold as to say our family first.

I find this meeting and the speech fairly outrageous, not because lawmakers shouldn't meet with industry and constituents, they should. And I hear Mudd was a decent guy. It is the very idea that some highly paid private CEO, who's lively hood depends directly on Congressional favor, would host a swearing in ceremony for 30-40 lawmakers and talk as if he's part of the team, part of the government! This is akin to Enron's Key Lay hosting such a meeting and justifying it by stating his energy business was good for America.

2. Senator Obama is the number two recipient of Fannie Mae money in Congress over a nine year record, and he in Congress for only four of those.
http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html

 

[Ivan Seeking]

...PAUL SOLMAN: Well, you know, market skeptics have always said "market failure." You know, that's a common phrase. Free market fundamentalism does not work.

I talked to Bob Glauber, who ran the Resolution Trust, this morning. And he's a finance professor, a regulator. He characterized himself as deeply depressed.

Deeply depressed why? Because what he believes in -- markets clearing, markets working, markets managing by themselves -- doesn't seem to work. And it's sort of a repudiation -- I used that word with him -- repudiation of what a guy like him and thousands of others like him have been teaching all these years...

http://www.pbs.org/newshour/bb/business/july-dec08/billanalysis_10-03.html

 

[mheslep]

McCain Health plan numbers: family of four-$80k/year comes out $2500 ahead.

McCain’s plan eliminates the exclusion but does nothing to the deduction. Here’s how it works:
Say you’re a family of four making $80,000 per year and your employer provides health insurance valued at $10,000 per year. By eliminating the exclusion, you now owe taxes on $90,000 instead of $80,000 (because your health benefit in now included as income). In the 25% tax bracket, you owe $2500 in additional taxes on the $10,000 in extra income.

But McCain’s plan also gives that same family a $5,000 health care tax credit, leaving them with an extra $2500 in their pockets.

http://www.weeklystandard.com/weblogs/TWSFP/2008/10/misrepresenting_mccains_health_1.asp

More importantly this plan should put downward pressures on costs, as people start to have the option to look for there own health care plans.

 

[LowlyPion]

McCain Health plan numbers: family of four-$80k/year comes out $2500 ahead.
http://www.weeklystandard.com/weblogs/TWSFP/2008/10/misrepresenting_mccains_health_1.asp

More importantly this plan should put downward pressures on costs, as people start to have the option to look for there own health care plans.

You conveniently left out the other part of McCain's schemes.

At the same time, Mr. McCain would deregulate insurance, leaving insurance companies free to deny coverage to those with health problems — and his proposal for a “high-risk pool” for hard cases would provide little help.

Undoubtedly this will satisfy his Country Club buddies that will enrich themselves by only choosing to insure the healthy. And like McCain's other pet source of lobby money, banking, there will undoubtedly be another bailout event to deal with yet another crisis caused by this kind of thoughtless deregulation that McCain has romanced his public career.

Privatize the profits into his cronies hands, but socialize all the risks.

 

[Jimmy Snyder]

Here's the view from the People's Democratic Republic of the United States of America. We are a capitalistic country that has no capital. Our government is in the business of buying commercial paper. Ivan Seeking has got his wish, we all live in Scandinavia now. Is it any wonder that the Treasury won't tell us what they are paying for the loan packages? Too high? Too low? Who knows, we no longer have a market to tell us what the price should be. There was never a need for this bailout, and now that we have it the market has spoken. Thumbs down. Can I have my $700 billion and my country back now?

 

[Astronuc]

Here's the view from the People's Democratic Republic of the United States of America. We are a capitalistic country that has no capital. Our government is in the business of buying commercial paper. Ivan Seeking has got his wish, we all live in Scandinavia now. Is it any wonder that the Treasury won't tell us what they are paying for the loan packages? Too high? Too low? Who knows, we no longer have a market to tell us what the price should be. There was never a need for this bailout, and now that we have it the market has spoken. Thumbs down. Can I have my $700 billion and my country back now?

I don't think Ivan Seeking got his wish. This is not Scandanavia.

It's more like Republicanistan.

 

[turbo]

Still hoping for a recession, Jimmy? (instead of a full-blown depression?)

 

[Jimmy Snyder]

Still hoping for a recession, Jimmy? (instead of a full-blown depression?)

No, I'm reporting on the failure of free-market economics. You'll get your bowl of porridge, don't worry. But at what price?

 

[turbo]

No, I'm reporting on the failure of free-market economics. You'll get your bowl of porridge, don't worry. But at what price?

Free-market? We are in a market that is far from free. A free market presupposes that all investors are on an equal footing (as in no insider trading.) Do you honestly believe that executives with stock options don't leverage inside information to enrich themselves at the expense of the common stock-holder? A free market presupposes that all players face risks and challenges more-or-less equally and can rise and fall on their merits. Do you not believe that huge fortunes have been made or lost based on connections bought with money or influence? In one of the largest military contracts, recently, we had Boeing and Airbus competing to replace our aging fleet of tankers. Do you remember any prominent politicians injecting himself in that process? (Hint. He might be running for president.)

This is a failure of a governmental collusion with a financial system that is stripping value from our economy at a frightening rate. Do you really think that being a CEO of an investment bank is such a difficult job that you should be paid a thousand times as much as an average employee? Yeah.

Our government was formed for "We the People", not "We the Well-Connected in Business". or "We the Corporations". The farther we drift into little/no regulatory oversight of businesses while letting businesses funnel millions of dollars into the pockets of our politicians, the more certain our doom.

 

[mheslep]

Tom Wolfe would never have thought this guy believable as a character in "Bonfire..."

Lehman's Fuld: Where was our bailout?
WASHINGTON (Reuters) - Richard Fuld, the disgraced head of Lehman Brothers, said he would wonder "until they put me in the ground" why the U.S. government did not rescue the 158-year-old Wall Street...

http://www.reuters.com/article/newsOne/idUSTRE4954DL20081006
I heard him say it on C-Span, thumping the desk w/ every syllable. He was quite indignant.
He was entitled! Now we are all truly victims.

 

[mheslep]

I don't think Ivan Seeking got his wish. This is not Scandanavia

Yeah? What's the difference? They have lower taxes in some categories.