As you can probably tell from these selections, I'm not too keen on how the bailout is being handled. I'm hoping the Democrats will not be dragged down by the mistakes already made, and can turn massive government intervention into something good. I'm not yet sure how I would define "good" intervention, but I know it doesn't include bailing out specific industries and encouraging the same kind of economic decision-making that led to the crisis in the first place.
I'm also not a fan of the current two party monopoly. On our way through the vast expanse of North Dakota, I talked the ears off of Paul and his mother about how our system is too focused on the individual candidate and not enough on the party platform. In our system, parties exist mostly to elect individual candidates who generally identify with a subset of their party principles, rather than to produce coherent, differentiated policy platforms and be the machinery that runs government efficiently once elected. In parlimentary systems, people typically elect the party (platform), so there is typically more policy differentiation and a party can ditch dud candidates more easily without losing power (bet the Republicans would love some of that right about now). Plus the whole party coalition-building thing is cool. So, I really like the discussion of "fusion" below, and the explanation of how it differs from IRV. If we're stuck with the individualistic/candidate focus then I'm all for IRV. But it would be nice to move the other direction.
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To profit in this market, go long
And short the market economy, especially with Democrats consolidating their power.
By CHARLES KRAUTHAMMER,
Today's extreme stock market volatility is not just a symptom of fear -- fear cannot account for days of wild market swings upward -- but a reaction to meta-economic events: political decisions that have vast economic effects.
As economist Irwin Stelzer argues, we have gone from a market economy to a political economy. Consider seven days in November. On Tuesday, Nov. 18, Paulson broadly implies he's only using half the $700 billion bailout money. Having already spent most of his $350 billion, he's going to leave the rest to his successor. The message received on Wall Street: I'm done, I'm gone.
Facing the prospect of two months of political limbo, the market craters. Led by the banks (whose balance sheets did not change between Tuesday and Wednesday), the market sees the largest two-day drop in the S&P since 1933, not a very good year.
The next day (Friday) at 3 p.m., word leaks of Timothy Geithner's impending nomination as Treasury secretary. The mere suggestion of continuity -- and continued authoritative intervention during the interregnum by the guy who'd been working hand in glove with Paulson all along -- sends the Dow up 500 points in one hour. Monday sees another 400-point increase, the biggest two-day (percentage) rise since 1987. Why? Three political events: Paulson's weekend Citigroup bailout; the official rollout of Obama's economic team, Geithner and Larry Summers, and Paulson quietly walking back from his earlier de facto resignation by indicating he would be ready to use the remaining $350 billion (with Team Obama input) over the next two months.
That undid the market swoon -- and dramatically demonstrated how politically driven the economy has become.
We may one day go back to a market economy. Meanwhile, we need to face the two most important implications of our newly politicized economy: the vastly increased importance of lobbying and the massive market inefficiencies that political directives will introduce.
Lobbying used to be about advantages at the margin -- a regulatory break here, a subsidy there. Now lobbying is about life and death. Your lending institution or industry gets a bailout -- or it dies.
You used to go to
That will introduce one kind of economic distortion. The other kind will come from the political directives issued by newly empowered politicians.
First, bank presidents are gravely warned by one senator after another about "hoarding" their bailout money. But hoarding is another word for recapitalizing to shore up your balance sheet to ensure solvency. Is that not the fiduciary responsibility of bank directors? And isn't pushing money out the window with too little capital precisely the lending laxity that produced this crisis in the first place? Never mind. The banks will knuckle under to the commissars of Capitol Hill. They control the purse. Prudence will yield to politics.
Even more egregious will be the directives to a nationalized
The Chevy Volt, for example? It has huge remaining technological hurdles, gets 40 miles on a charge and will sell for about $40,000, necessitating a $7,500 outright government subsidy. Who but the rich and politically correct will choose that over a $12,000 gas-powered Hyundai? The new
The ruling Democrats have a choice: Rescue this economy to return it to market control. Or use this crisis to seize the commanding heights of the economy for the greater social good. Note: The latter has already been tried. The results are filed under "History, ash heap of."
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Just say no deal to a new New Deal
FDR's program may have actually prolonged the Great Depression.
The assumption is that the New Deal vanquished the Depression.
Intelligent, informed people differ about why the Depression lasted so long. But people whose recipe for recovery today is another New Deal should remember that America's biggest industrial collapse occurred in 1937, eight years after the 1929 stock market crash and nearly five years into the New Deal. In 1939, after a decade of frantic federal spending -- President Herbert Hoover increased it more than 50 percent between 1929 and the inauguration of Franklin Roosevelt -- unemployment was 17.2 percent.
"I say after eight years of this administration we have just as much unemployment as when we started," lamented Henry Morgenthau, FDR's Treasury secretary. Unemployment declined when
In "The Forgotten Man: A New History of the Great Depression," Amity Shlaes of the Council on Foreign Relations and Bloomberg News argues that government policies, beyond the Federal Reserve's tight money, deepened and prolonged the Depression. The policies included encouraging strong unions and wages higher than lagging productivity justified, on the theory that workers' spending would be stimulative. Instead, corporate profits -- prerequisites for job-creating investments -- were excessively drained into labor expenses that left many workers priced out of the market.
In a 2004 paper, Harold L. Cole of UCLA and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages, and then employment and consumer demand. In a forthcoming paper, Ohanian argues that "much of the depth of the Depression" is explained by
Furthermore,
Bear Stearns? Broker a merger. Lehman Brothers? Death sentence. The $700 billion is for cleaning up toxic assets? Maybe not. Writes Russell Roberts of
"By acting without rhyme or reason, politicians have destroyed the rules of the game. There is no reason to invest, no reason to take risk, no reason to be prudent, no reason to look for buyers if your firm is failing. Everything is up in the air and as a result, the only prudent policy is to wait and see what the government will do next. The frenetic efforts of FDR had the same impact: Net investment was negative through much of the 1930s."
Barack Obama says the next stimulus should deliver a "jolt." His adviser Austan Goolsbee says it must be big enough to "startle the thing into submission." Their theory is that the crisis is largely psychological, requiring shock treatment. But shocks from government have been plentiful.
Unfortunately, one thing government can do quickly and efficiently -- distribute checks -- could fail to stimulate because Americans might do with the money what they have been rightly criticized for not doing nearly enough: save it. Because individual consumption is 70 percent of economic activity,
Obama's "rescue plan for the middle class" includes a tax credit for businesses "for each new employee they hire" in
Here we go again? A new New Deal would vindicate pessimists who say that history is not one damn thing after another, it is the same damn thing over and over.
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How to have minor parties that are more than spoilers
Reintroduce the concept of fusion, and add a dash or two of instant-runoff voting.
In the Sixth Congressional District, Michele Bachmann beat Elwyn Tinklenberg by 2 percent. The Independence Party candidate garnered 10 percent of the vote. That much has been widely reported.
Less widely known is that the Independence Party actually endorsed Tinklenberg at its convention. Its members believed that Tinklenberg best represented the party's platform and values. But Minnesota law doesn't permit multiple parties to nominate the same candidate. The Independence Party could be on the ballot only by nominating someone less acceptable than Tinklenberg, a move that effectively defeated its preferred candidate.
A little more than a hundred years ago, Minnesota and the rest of the nation allowed third parties to grow without simply being spoilers. The process is called fusion politics. Third parties can ally (fuse) themselves with major parties (or vice versa). But in the 1880s and 1890s third parties like the People's Party and the Populist Party allied with the Democratic Party and won a number of elections. Which led the minority Republican Party, when it controlled state legislatures, to pass laws that banned fusion. One Republican Minnesota legislator was clear about his party's goal: "We don't propose to allow the Democrats to make allies of the Populists, Prohibitionists, or any other party, and get up combination tickets against us. We can whip them single-handed, but don't intend to fight all creation."
By 1907, fusion had been banned in 18 states. Today, it is legal in only seven states: Connecticut, Delaware, Idaho, Mississippi, New York, South Carolina and Vermont.
In 1994, it returned to the national spotlight when Andy Dawkins ran unopposed for the Minnesota House of Representatives in the Democratic primary but also accepted the endorsement of the fledgling New Party. Minnesota's secretary of state sued. The New Party argued that Minnesota's ban on fusion voting interfered with its members' constitutional right to free speech. The U.S. Supreme Court disagreed. In 1997, the court ruled upheld Minnesota's right to forcibly maintain its two-party monopoly.
The New Party disappeared, but other parties arose and survived in Minnesota. One result is that the winners in statewide and federal elections are elected with fewer than 50 percent of the votes. Since 1994, no gubernatorial candidate has won a majority of the vote. When this year's results are complete, two congressional seats and one Senate seat will have been won by a minority candidate. Except for the unique candidacy of Jesse Ventura, third parties in Minnesota now only play the role of spoilers.
While fusion has fallen out of the spotlight, another voting innovation has gained traction: instant-runoff, or ranked-choice, voting. In this process, voters assign a numerical rank to each candidate. After the election the candidate with the fewest first-place votes is eliminated and his or her second-place votes are redistributed. The process continues until only two candidates remain and one is declared the winner by majority vote. Such voting is now in effect in several cities. In 2006, Minneapolis voters overwhelmingly endorsed the process, but a lawsuit may stall its implementation.
Instant runoff is an important and useful innovation. Based on the country's limited experience, it changes the tone of campaigns for the better because candidates are angling to be not only the first choice of their backers but also the second choice of someone else's. Wider political diversity should result when voters have second and third choices.
Instant runoff and fusion address different ends. Instant runoff focuses on the candidate. Its goal is to ensure that the winner has gained a majority of the votes. Fusion's goal is to build political parties. By allowing minor parties to ally with major parties, it enables them to gain an influence on the major party similar to the influence minor parties exercise in European parliaments where parties that gain more than a certain percentage of the vote earn seats based on the proportion of the vote they win. Political parties are now in disrepute, but they can serve an important and enduring role when they develop a coherent and stable value-based program that offers voters a different framework for policymaking.
Instant runoff should be widely implemented. But we should not ignore the benefits that come from having third parties whose members can nominate the candidate who best represents a party's values and, by doing so, can gain a maturity and influence that will never come if they can only play the role of spoiler.
David Morris is vice president of the Institute for Local Self-Reliance, based in Minneapolis and Washington, D.C.
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