Sunday, September 30, 2012

Redistribution, No; Bushonomics, Not!

“I think the trick is figuring out, how do we structure government systems that pool resources and hence facilitate some redistribution, because I actually believe in redistribution, at least at a certain level, to make sure that everybody’s got a shot.”

--Barack Obama (1998)

Here’s the basic difference between the two parties. Republicans believe in individual freedom to make money, in capitalism; that individual pursuit of wealth generates prosperity for the larger community. Democrats justify government’s central economic role on the need to redistribute wealth from the few undeserving to the many deserving. In short, Republicans want to grow the economic pie, while Democrats want to recut the pie.

Thomas Sowell, at Stanford’s Hoover Institution, is upset the president and others would so late in history attempt to sell the virtues of redistribution:
the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. The communist nations were a classic example. . . You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth -- and that future wealth is less likely to be produced when people see that it is going to be confiscated.
[The Bible says] giving a man a fish feeds him only for a day, while teaching him to fish feeds him for a lifetime. Redistributionists give him a fish and leave him dependent on the government for more fish in the future. . . Knowledge . . . can be distributed to people without reducing the amount held by others. That would . . . serve . . . the poor, but it would not serve the. . . politicians who want to exercise power, and to get the votes of people who are dependent on them.

“They want us to go back to the same old policies that got us into this mess in the first place.”

--Barack Obama, Bill Clinton, and others at the Democratic National Convention

What caused the 2008 financial meltdown that led to the Great Recession? Answer: not proprietary trading, and not the Bush tax cuts of 2001 and 2003, which lowered marginal tax rates and those on capital gains, triggering years of job growth. Not “Bushonomics.”

According to Caroline Baum at, our financial meltdown stemmed from bad government-backed housing loans; subprime and substandard mortgages that were bundled, packaged into securities, sliced, diced, squared, and sold to investors as AAA-rated securities. Baum says it began with housing’s taxed-advantaged status:
Mortgage interest and real-estate taxes are deductible. The first $250,000 of capital gains ($500,000 for a married couple) from the sale of a home is exempt from taxation . . . The tax laws on capital gains were relaxed in 1997, when Clinton was in the White House. [emphasis added]
Why is housing tax-advantaged? Because the folks who write the laws . . .decided it should be. The government [encouraged] lending to minorities and low-income households. [emphasis added] It established affordable-housing goals for Fannie Mae and Freddie Mac. And it closed its eyes to financial chicanery at [both institutions,] now wards of the state.
[O]ther actors in this saga [include] lenders, who had no incentive to perform due diligence since they sold the loans as soon as the ink was dry; compliant rating companies that failed to understand that over-collateralized junk is still junk; Wall Street investment banks, which were only too happy to satisfy investor demand by feeding them high-yielding, AAA-rated securities; the Federal Reserve, which kept interest rates too low for too long; regulators, who were asleep at the wheel; and . . . homebuyers, who heard there was a free lunch and wanted a bite.
It’s untrue to say Republicans want a return to any of these policies. In fact, Bush and Republicans tried and failed to rein in Fannie’s and Freddie’s dangerous lending practices in 2001 and 2005, but were foiled by Democrats and some Republicans whose pockets corrupt Fannie and Freddie and their corrupt mortgage lending buddies had already lined.

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