Politicians blame banks for making bad loans. Almost no one condemns those who borrowed money they could/would not  repay.

Nicole Gelinas in City Journal.

Senate Democrats have tried for weeks to get Republicans to support the showpiece of their financial-reform package, a consumer financial-protection agency that would shield regular Americans from predatory financiers. But even the nimblest public agency cannot protect consumers from the biggest threat to their financial health: owing too much money. That threat will exist as long as the financial industry faces no ultimate market penalty—the consistent threat of failure—for lending too much too freely.

The proposed agency has a worthy goal. As Connecticut Senator Chris Dodd, who is leading the legislative effort with the White House’s support, sees it, the protection bureau would govern consumer financial products. Proponents, including economist Paul Krugman, say that such an agency could have helped America avoid the current crisis by prohibiting the most toxic mortgages.

But focusing on exotic products and fees misses the real problem: unfathomable debt levels. In the past quarter-century, the amount that families owe has risen more than sevenfold, from less than $2 trillion in 1984 to nearly $14 trillion, according to the Federal Reserve. Debt outran the cost of goods and services by nearly fourfold.

Many Americans can’t afford their debt unless their lenders use complex finance to suspend all disbelief. Exotic mortgage structures, then, were a symptom of the disease, not the disease itself.

How did it come to this? The financial industry has encouraged Americans to borrow so much because Washington has allowed the financial industry itself to borrow so much without consistent market consequences.

Since 1984, when the Reagan administration bailed out lenders to the nation’s eighth-largest bank, Continental Illinois, investors have understood that if a big commercial bank or complex Wall Street firm runs into trouble, Washington will ensure that the bondholders and other creditors to that firm don’t take losses. By creating this expectation of bailouts, Washington has subsidized lending to the financial industry. When government subsidizes something, it gets more of it. Over a quarter of a century, the amount of money that the financial industry has borrowed multiplied by more than 15 times. It should be no shock that banks and other institutions turned around and lent much of that money right back to consumers.

A financial-protection bureau could write thousands of rules. But it will never be able to overcome the signal that Washington continues to send. The message: lenders to financial firms will never lose money if the financial firms to which they lend, in turn, lend those borrowed funds irresponsibly to consumers.

The men’s Olympic hockey final was a thriller. Although I rooted for the Americans, I was happy for the Canadians. Winning gold meant so much more to the Canadian nation that it would have us in the USA.

My neighbor is Canadian. On Saturday she happened to mention that Canada has not had the mortgage problems like we have. Indeed, Canada is the only nation to have survived the past two years without a bank failure.

So this article in The American is especially timely.

What about the Canadian banking system allowed it to survive the recent worldwide slowdown, and even the Great Depression, without a single bank failure, and what can the United States learn from Canada about sound banking? Below is a summary of some of the distinctly different features of Canada’s banks and mortgage markets discussed at the AEI seminar, which help explain the greater financial stress resiliency of Canadian banks compared to American banks.

WSJ:

Health and Human Services Secretary Kathleen Sebelius quickly piled on by ordering a federal inquiry, claiming a company that made “$2.7 billion in the last quarter of 2009″ could not “justify massive increases.” Senate Majority Leader Harry Reid ripped WellPoint and other “greedy insurance companies that care more about profits than people.” And right on cue, House baron Henry Waxman scheduled a hearing, where he will not blow kisses.

Democrats demagogue about profits by citing gross profits. Net profits are what matter, and health insurers do not enjoy high profit margins.

Next time a Democrat throws around a profit number, remember that the US Treasury took in$2.1 trillion in 2009.

He ought to subpoena California’s political class because Wellpoint’s rate hikes are the direct result of the Golden State’s insurance regulations—the kind that Democrats want to impose on all 50 states. Under federal Cobra rules, the unemployed are allowed to keep their job-related health benefits for 18 to 36 months. California then goes further and bars Anthem from dropping these customers even after they have exhausted Cobra. California also caps what Anthem can charge these post-Cobra customers.

Most other states direct these customers to high-risk pools that are partly subsidized, but California requires the individual market to absorb the customers and their costs. Even as California insurers have had to keep insuring these typically older and sicker patients, the recession has driven many younger, healthier policy holders to drop their insurance—leaving fewer customers to fund a more expensive insurance pool.

This explains why Anthem lost $58 million in California on its post-Cobra customers in 2009. If WellPoint didn’t raise premiums amid these losses, it would soon be under assault from its shareholders, if not out of business.

This episode is a preview of the adverse selection that would happen nationwide if ObamaCare passes. The Democratic bills would control what insurers could charge and force them to take all comers, regardless of health status. These burdens were supposed to be made tolerable by requiring all Americans to buy insurance or face a penalty. Yet when this “individual mandate” proved to be unpopular, Congress watered it down so that younger customers would be able to pay the penalty knowing they can wait until they’re sick to pay the more expensive premiums. The only way an insurer can make up for these higher costs is to raise premiums.

This is precisely what WellPoint predicted would happen when it released a detailed actuarial study in October showing that insurance costs would soar for millions of Americans under ObamaCare. The White House hasn’t forgotten that study, or forgiven WellPoint for releasing it, which may explain the force of its current attacks.

As for WellPoint’s profits, $2.2 billion of WellPoint’s $2.7 billion fourth-quarter earnings came from the one-time sale of a subsidiary. After one-time items, WellPoint earned $2.92 billion last year, compared with $2.86 billion a year earlier. Anthem’s profit margins are in line with its two largest nonprofit competitors in the state; its net income on a per-member-per-month basis in 2008 was $12.62, compared to Blue Shield’s $13.22 and Kaiser’s $18.45.

Anthem last year hired an independent actuarial firm that found its rates sound and necessary. The company presented its findings to California insurance commissioner Steve Poizner last November, who had a month to review the proposed increases and never objected. But recently amid the White House campaign, Mr. Poizner has joined the chorus claiming to be “skeptical” of the increases and demanding that Anthem postpone them while he conducts a review. Anthem has done so.

Mr. Poizner is a Republican running for governor, which proves that health-care political opportunism can be bipartisan.

Theodore Dalrymple in City Journal

…There remains, however, an astonishingly gaping absence in Galbraith’s worldview. While he is perfectly able to see the defects of businessmen—their inclination to megalomania, greed, hypocrisy, and special pleading—he is quite unable to see the same traits in government bureaucrats. It is as if he has read, and taken to heart, the work of Sinclair Lewis, but never even skimmed the work of Kafka.

For example, the chapter entitled “The Bureaucratic Syndrome” in his book The Culture of Contentment refers only to bureaucracy in corporations (and in the one government department he despises, the military). Galbraith appears to believe in the absurd idea that bureaucrats administer tax revenues to produce socially desirable ends without friction, waste, or mistake. It is clearly beyond the range of his thought that government action can, even with the best intentions, produce harmful effects. For Galbraith, a dollar spent on, say, public education results in a dollar’s worth of educated person, virtually without deduction. Troubling evidence to the contrary—for example, the fact that Britain spends nearly $100,000 per child on public education, and yet a fifth of the population is unable to read with facility or do simple arithmetic—does not figure in his work; he always writes as if all would be well if only $200,000 were spent.

He should have known better. In his 1981 autobiography, A Life in Our Times, he recalls the way academics flocked to Washington at the beginning of the New Deal. “Word had . . . reached the university that a nearly unlimited number of jobs were open for economists at unbelievably high pay in the federal government,” he writes. “All the new agencies needed this talent. Students who had been resisting for years the completion of theses and the resulting unemployment now finished them up in weeks. Some did not even stop to do that. So a new gold rush began.” One might think that this would have opened his eyes to the vested interests of bureaucracy—to the possibility that large government programs might operate more for the interest of the apparatchiks than for that of the alleged beneficiaries. But it never did.

Nor did it change his ideas about the politics of taxation. Over and again in his work, Galbraith alludes with disdain to the resistance that the affluent mount to tax increases, insisting that they do so only out of self-interest and indifference to the fate of the poor. In The Good Society, for example, he writes that “the comfortably affluent resist public action for the poor because of the threat of increased taxes.” It is true, of course, that the well-to-do resist tax increases in large part because they do not want to give up what they have; practically no one likes to be deprived of what he has. But in light of the “gold rush” described above by Galbraith, is it not at least equally likely that those who propose tax increases do so in order to increase their own power and emoluments?

Thomas Sowell:

…So long as most people do not look beyond superficial appearances, politicians can get away with playing Santa Claus on all sorts of issues, while leaving havoc in their wake— such as growing unemployment, despite all the jobs being “created.”

Whatever position people take on health care reform, there seems to be a bipartisan consensus— usually a sign of mushy thinking— that it is a good idea for the government to force insurance companies to insure people whom politicians want them to insure, and to insure them for things that politicians think should be insured.

Contrary to what politicians expect us to do, let’s stop and think.

Why aren’t insurance companies already insuring the people and the conditions that they are now going to be forced to cover? Because that means additional costs— and because the insurance companies don’t think their customers are willing to pay those particular costs for those particular coverages.

It costs politicians nothing to mandate more insurance coverage for more people. But that doesn’t mean that the costs vanish into thin air. It simply means that both buyers and sellers of insurance are forced to pay costs that neither of them wants to pay. But, because soaring political rhetoric leaves out such grubby things as costs, it sounds like a great deal.

It is not just costs that are left out. It is consequences in general.

IBD:

Federal Reserve Board Chairman Ben Bernanke is on the hot seat in Congress as he faces an upcoming Senate vote to confirm a second term. The principal reason for slow-roasting Bernanke: anger over the chairman’s alleged inattention to the problems building up in the U.S. finance industry.

In some respects, though, Bernanke did raise alarms. As we have detailed in our seventh annual report to Congress, Bernanke, teaching in 2005 at Princeton, was among a group of prescient economists who recognized that the trade and financing imbalance between the U.S. and China was an aberrant development and signaled potential trouble.

Bernanke warned of a “global savings glut” in which developing Asian countries, led by China, were lending vast sums to the developed world — principally the U.S. — thereby reversing a historic trend.

That trend continues today, despite the global financial meltdown and despite repeated official promises by Beijing to shift its economy away from a dangerous dependence on running huge trade surpluses with the U.S. It’s as if the squirrels in China, having stocked up on enough nuts for the next decade, decided to keep gathering regardless of the consequences to the forest or the other animals.

How does China manage to keep amassing its record-setting foreign currency reserves — now at $2.3 trillion, enough to allow China’s central bank to buy all the technology, media and telecommunications companies listed on the New York and Euronext exchanges, or about 16% of all the New York Stock Exchange-listed companies? (more…)

David Brooks:

Jews are a famously accomplished group. They make up 0.2 percent of the world population, but 54 percent of the world chess champions, 27 percent of the Nobel physics laureates and 31 percent of the medicine laureates.

Jews make up 2 percent of the U.S. population, but 21 percent of the Ivy League student bodies, 26 percent of the Kennedy Center honorees, 37 percent of the Academy Award-winning directors, 38 percent of those on a recent Business Week list of leading philanthropists, 51 percent of the Pulitzer Prize winners for nonfiction.

In his book, “The Golden Age of Jewish Achievement,” Steven L. Pease lists some of the explanations people have given for this record of achievement. The Jewish faith encourages a belief in progress and personal accountability. It is learning-based, not rite-based.

Most Jews gave up or were forced to give up farming in the Middle Ages; their descendants have been living off of their wits ever since. They have often migrated, with a migrant’s ambition and drive. They have congregated around global crossroads and have benefited from the creative tension endemic in such places.

No single explanation can account for the record of Jewish achievement. The odd thing is that Israel has not traditionally been strongest where the Jews in the Diaspora were strongest. Instead of research and commerce, Israelis were forced to devote their energies to fighting and politics.

Milton Friedman used to joke that Israel disproved every Jewish stereotype. People used to think Jews were good cooks, good economic managers and bad soldiers; Israel proved them wrong.

But that has changed. Benjamin Netanyahu’s economic reforms, the arrival of a million Russian immigrants and the stagnation of the peace process have produced a historic shift. The most resourceful Israelis are going into technology and commerce, not politics. This has had a desultory effect on the nation’s public life, but an invigorating one on its economy.

Tel Aviv has become one of the world’s foremost entrepreneurial hot spots. Israel has more high-tech start-ups per capita than any other nation on earth, by far. It leads the world in civilian research-and-development spending per capita. It ranks second behind the U.S. in the number of companies listed on the Nasdaq. Israel, with seven million people, attracts as much venture capital as France and Germany combined.

As Dan Senor and Saul Singer write in “Start-Up Nation: The Story of Israel’s Economic Miracle,” Israel now has a classic innovation cluster, a place where tech obsessives work in close proximity and feed off each other’s ideas.

No doubt some Leftist will decide the new wealth created by this mix of good government policy, education and entrepreneurial spirit was somehow stolen from the less fortunate.

Daron Acemoglu in Esquire:

Say you’re a world leader and you want your country’s economy to prosper. According to this Clark Medal winner from MIT, there’s a simple solution: start with free elections.

We are the rich, the haves, the developed. And most of the rest — in Africa, South Asia, and South America, the Somalias and Bolivias and Bangladeshes of the world — are the nots. It’s always been this way, a globe divided by wealth and poverty, health and sickness, food and famine, though the extent of inequality across nations today is unprecedented: The average citizen of the United States is ten times as prosperous as the average Guatemalan, more than twenty times as prosperous as the average North Korean, and more than forty times as prosperous as those living in Mali, Ethiopia, Congo, or Sierra Leone.

The question social scientists have unsuccessfully wrestled with for centuries is, Why? But the question they should have been asking is, How? Because inequality is not predetermined. Nations are not like children — they are not born rich or poor. Their governments make them that way.

You can chart the search for a theory of inequality to the French political philosopher Montesquieu, who in the mid-eighteenth century came up with a very simple explanation: People in hot places are inherently lazy. Other no less sweeping explanations soon followed: Could it be that Max Weber’s Protestant work ethic is the true driver of economic success? Or perhaps the richest countries are those that were former British colonies? Or maybe it’s as simple as tracing which nations have the largest populations of European descent? The problem with all of these theories is that while they superficially fit some specific cases, others radically disprove them.

It’s the same with the theories put forth today. Economist Jeffrey Sachs, director of Columbia University’s Earth Institute, attributes the relative success of nations to geography and weather: In the poorest parts of the world, he argues, nutrient-starved tropical soil makes agriculture a challenge, and tropical climates foment disease, particularly malaria. Perhaps if we were to fix these problems, teach the citizens of these nations better farming techniques, eliminate malaria, or at the very least equip them with artemisinin to fight this deadly disease, we could eliminate poverty. Or better yet, perhaps we just move these people and abandon their inhospitable land altogether.

Jared Diamond, the famous ecologist and best-selling author, has a different theory: The origin of world inequality stems from the historical endowment of plant and animal species and the advancement of technology. In Diamond’s telling, the cultures that first learned to plant crops were the first to learn how to use a plow, and thus were first to adopt other technologies, the engine of every successful economy. Perhaps then the solution to world inequality rests in technology — wiring the developing world with Internet and cell phones.

And yet while Sachs and Diamond offer good insight into certain aspects of poverty, they share something in common with Montesquieu and others who followed: They ignore incentives. People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That’s what determines the haves from the have-nots — not geography or weather or technology or disease or ethnicity.

Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments.

How do we know that institutions are so central to the wealth and poverty of nations? Start in Nogales, a city cut in half by the Mexican-American border fence. There is no difference in geography between the two halves of Nogales. The weather is the same. The winds are the same, as are the soils. The types of diseases prevalent in the area given its geography and climate are the same, as is the ethnic, cultural, and linguistic background of the residents. By logic, both sides of the city should be identical economically.

And yet they are far from the same.

On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it’s $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college. Those in Arizona enjoy relatively good health and Medicare for those over sixty-five, not to mention an efficient road network, electricity, telephone service, and a dependable sewage and public-health system. None of those things are a given across the border. There, the roads are bad, the infant-mortality rate high, electricity and phone service expensive and spotty.

The key difference is that those on the north side of the border enjoy law and order and dependable government services — they can go about their daily activities and jobs without fear for their life or safety or property rights. On the other side, the inhabitants have institutions that perpetuate crime, graft, and insecurity.

Nogales may be the most obvious example, but it’s far from the only one. Take Singapore, a once-impoverished tropical island that became the richest nation in Asia after British colonialists enshrined property rights and encouraged trade. Or China, where decades of stagnation and famine were reversed only after Deng Xiaoping began introducing private-property rights in agriculture, and later in industry. Or Botswana, whose economy has flourished over the past forty years while the rest of Africa has withered, thanks to strong tribal institutions and farsighted nation building by its early elected leaders.

Now look at the economic and political failures. You can begin in Sierra Leone, where a lack of functioning institutions and an overabundance of diamonds have fueled decades of civil war and strife and corruption that continue unchecked today. Or take communist North Korea, a geographical, ethnic, and cultural mirror of its capitalist neighbor to the south, yet ten times poorer. Or Egypt, cradle of one of the world’s great civilizations yet stagnant economically ever since its colonization by the Ottomans and then the Europeans, only made worse by its post-independence governments, which have restricted all economic activities and markets. In fact, the theory can be used to shed light on the patterns of inequality for much of the world.

Read it all.

Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.

“The situation is they are losing gobs of money, up to $400 billion in mortgages,” Wallison said in a Bloomberg Television interview. The Treasury Department recognized last week that losses will be more than $400 billion when it raised its limit on federal support for the two government-sponsored enterprises, he said.

Thomas Sowell:

…What does it take to create a job? It takes wealth to pay someone who is hired, not to mention additional wealth to buy the material that person will use.

But government creates no wealth. Ignoring that plain and simple fact enables politicians to claim to be able to do all sorts of miraculous things that they cannot do in fact. Without creating wealth, how can they create jobs? By taking wealth from others, whether by taxation, selling bonds or imposing mandates.

However it is done, transferring wealth is not creating wealth. When government uses transferred wealth to hire people, it is essentially transferring jobs from the private sector, not adding to the net number of jobs in the economy.

If that was all that was involved, it would be a simple verbal fraud, with no gain of jobs and no net loss. In reality, many other things that politicians do reduce the number of jobs.

Politicians who mandate various benefits that employers must provide for workers gain politically by seeming to give people something for nothing. But making workers more expensive means that fewer are likely to be hired.

During an economic recovery, employers can respond to an increased demand for their companies’ products by hiring more workers — creating more jobs — or they can work their existing employees overtime. Since workers have to be paid time-and-a-half for overtime, it might seem as if it would always be cheaper to hire more workers. But that was before politicians began mandating more benefits per worker.

When you get more hours of work from the existing employees, you don’t need to pay for additional mandates, as you would have to when you get more hours of work by hiring new people. For many employers, that makes it cheaper to pay for overtime. The data show that overtime hours have been increasing in the economy while more people have been laid off.

There is another way of reducing the cost of government-imposed mandates. That is by hiring temporary workers, to whom the mandates do not apply.

Elect a president who’s never run a business nor held an executive position and what do you get? Big ideas from people who know nothing.

John Stossel writes about Obama’s recent “jobs summit.”

“We want to make sure it is not just the public sector doing this in a vacuum,” said Valerie Jarrett, a senior adviser to Obama. “It’s important we engage the private sector as well.”  Administration officials, however, have excluded major trade associations from the summit… .

Some of those groups privately complain that their job creation ideas, including enactment of stalled free trade deals that they say would boost exports, are opposed by labor unions, which will be heavily represented at the forum.

The White House, which has clashed with some of the business groups over their opposition to health-care reform and other initiatives, says it has met repeatedly with those organizations and wants to hear fresh ideas.

Yes. I am sure those “fresh ideas” will come from the trade unions whom the White House just hasn’t heard from much over the past year. At the summit they will also hear from environmental groups “Green for All” and “Coalition for the Green Bank.” I’m sure they’ll have great ideas for job creation.

Will at least some free-market economists get to speak?  No.  The White House will hear from Paul Krugman, Joe Stiglitz, and Jeffrey Sachs. “Fresh ideas” won’t be heard from these folks.

They and the political class can’t imagine a decentralized world where good things happen…without them.  But in the real world, that’s exactly how good things happen, and how jobs are created.

When government sets simple rules that everyone understands and then gets out of the way, free people create jobs.

Hong Kong demonstrates this.  Last century, Hong Kong was third world poor.  50 years ago, its citizens’ average income was under $700 (in today’s dollars) per year.  Today, it’s $43,800.  Hong Kong got rich because Hong Kong’s rulers,  stuffy British bureaucrats, practiced what I’ll call “benign neglect”: they enforced rule of law—kept  people from stealing from each other, or killing each other— but then sat around and drank tea.  They left people alone, and free people, left alone, created prosperity.

America’s founders did the same thing.  The Constitution announced that American would be a country of limited government.  That provided the simple and understandable rules that allowed America to grow into the richest country ever.

Today’s political class thinks that they can improve on that, but they can’t.  Their micromanagement kills jobs.  When Washington threatens to drastically change the rules of the game with health care mandates, cap and trade, financial regulation, a second stimulus, and (of course) a “jobs bill”, the private sector can’t make investments with any confidence.  At least the Post quoted one businessman who said Washington should stop fiddling:

Peter Y. Solmssen, interim U.S. chief executive of Siemens Corp., a German conglomerate, said fixed policies would help businesses, large and small. “We both need a certain amount of certainty, which gives us the opportunity and capability to plan.”

James Surowiecki in the New Yorker says the guvmint tempts us to borrow.

Of course, as the previous post shows, you don’t have to say yes.

John Kenneth Galbraith wrote that all financial crises are the result of “debt that, in one fashion or another, has become dangerously out of scale.” The recent financial crisis was no exception, with everyone—homeowners, private-equity investors, our biggest banks—taking on enormous amounts of debt. If it’s frustrating that the government is footing the bill to clean up the mess, it’s even worse that the government helped pay for the debt binge that created the mess in the first place, thanks to a tax system that actually subsidizes borrowing. Debt didn’t get dangerously out of scale because the system was broken. It got out of scale, in part, because the system worked.

The government doesn’t make people go into debt, of course. It just nudges them in that direction. Individuals are able to write off all their mortgage interest, up to a million dollars, and companies can write off all the interest on their debt, but not things like dividend payments. This gives the system what economists call a “debt bias.” It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments.

Likewise, the system skews the decisions that companies make about how to fund themselves. Companies can raise money by reinvesting profits, raising equity (selling shares), or borrowing. But only when they borrow do they get the benefit of a “tax shield.” Jason Furman, of the National Economic Council, has estimated that tax breaks make corporate debt as much as forty-two per cent cheaper than corporate equity. So it’s not surprising that many companies prefer to pile on the leverage.

Megan McArdle tried out Dave Ramsey’s personal finance plan, The Total Money Makeover, and likes it.

Ramsey offers some investment advice (much of which would have struck horror in my business-school professors), but for most of his followers, the main attraction is a simple program: give 10 percent of your income to charity, save 15 percent for retirement, build up a sizable emergency stash and a college fund for your kids, and above all, stop borrowing money.

Ramsey devotees pay cash for everything they can. They are allowed only one exception to the no-more-debt rule: a 15-year fixed-rate mortgage. He is so serious about shunning debt that his Web site takes only debit cards; try to pay with a Capital One Visa, and the system rejects the card, then tut-tuts at you. These simple, austere, unbreakable rules are, as Ramsey likes to say, “the advice that God and Grandma gave you.”

Living beneath your means can be liberating.

At the beginning of August, I had dutifully sat down with Peter, my fiancé, to draft a budget. Once we’d given every dollar a name (as the book puts it), I drove to the bank and withdrew 1,800 of them. Huddled over the wheel to hide this stupendous wad of cash from prying eyes, I doled out the money among various envelopes for groceries, parking, entertainment, clothing, and so on, as recommended by Ramsey—and, funnily enough, by my grandmother, who invented a nearly identical system to manage my grandfather’s meager earnings from delivering groceries during the Great Depression.

When you pay for something with a credit card, or even a debit card, you can easily spend a few extra dollars here and there. But as Ramsey explained—while waving a handful of hundred-dollar bills to illustrate the point—if you have to actually hand over some of your dwindling cash supply, you tend to ponder every purchase. That impulsive latte buy becomes a little less enjoyable when every time you haul out your wallet, a quavering voice inside your head asks, “You want to send Uncle Abe away?” And sure enough, though we thought we’d budgeted conservatively for just the necessities, we nonetheless finished the month with extra money in every envelope.

Ramsey mixes a bit of Jesus into his program, not McArdle’s thing.

Though I did take the audio CD of Ramsey’s personal witness being handed out free at the exit, I’m afraid that Jesus and I aren’t really any better acquainted than we were before. Nonetheless, Ramsey has made a convert out of a secular journalist with one of the pricey M.B.A.s he likes to poke fun at.

I have never felt as serenely in control of my finances as I have during these months of knowing that every single dollar is where it is supposed to be: either in the bank, or on a well-chaperoned date with our envelope organizer. The process has been surprisingly painless but, even more surprisingly, pleasant.

Kill investment, kill initiative and, yes, kill people.

IDB has a nine part series based on Thomas Sowell’s Applied Economics

While past costs are irrelevant to present decision-making — they are history but they are not economics — those past costs do matter when pharmaceutical companies decide whether, or to what extent, to invest in developing more new drugs. If those past costs have not been covered, future costs may not be as readily incurred to create future drugs to cure or prevent such scourges as Alzheimer’s, AIDS or cancer.

Despite such weighty economic considerations — for the society, as well as for the company — in political terms the pharmaceutical drug industry is virtually ideal for imposing price controls.

Price controls can be very popular in the short run, with their bad effects usually coming some time after the next election. Since pharmaceutical drugs can easily take a decade or more to be created, even if price controls caused all research and development of new drugs to come to a halt immediately, it would be long after the next election before people began to notice that no new medications were being created to deal with the ravages of still-deadly diseases.

These are virtually ideal political conditions for killing the goose that lays the golden egg. The short-run result would be visibly lower drug prices, making millions of voters happier, and the long-run consequences would be postponed until several elections later, by which time even those suffering needlessly from illnesses that new medications could have cured or prevented may see no connection between their own suffering and political decisions made years earlier.

The effects of such political incentives can be seen in many countries around the world. The United States is the only major industrial nation without price controls on pharmaceutical drugs. In other words, politicians in other countries have already sacrificed the long-run medical benefits of pharmaceutical drug research and reaped the immediate political benefits, leaving their countries to depend on the American pharmaceutical industry to supply a wholly disproportionate share of the new medications in the world.

Read it all.

The stock market crashed, ushering in the Great Depression.

In current news…

An early progress report on President Barack Obama’s economic recovery plan overstates by thousands the number of jobs created or saved through the stimulus program, a mistake that White House officials promise will be corrected in future reports.

The government’s first accounting of jobs tied to the $787 billion stimulus program claimed more than 30,000 positions paid for with recovery money. But that figure is overstated by least 5,000 jobs, according to an Associated Press review of a sample of stimulus contracts.

The AP review found some counts were more than 10 times as high as the actual number of jobs; some jobs credited to the stimulus program were counted two and sometimes more than four times; and other jobs were credited to stimulus spending when none was produced.

For example:

_ A company working with the Federal Communications Commission reported that stimulus money paid for 4,231 jobs, when about 1,000 were produced.

_ A Georgia community college reported creating 280 jobs with recovery money, but none was created from stimulus spending.

_ A Florida child care center said its stimulus money saved 129 jobs but used the money on raises for existing employees.

There’s no evidence the White House sought to inflate job numbers in the report. But administration officials seized on the 30,000 figure as evidence that the stimulus program was on its way toward fulfilling the president’s promise of creating or saving 3.5 million jobs by the end of next year.

The reporting problem could be magnified Friday when a much larger round of reports is expected to show hundreds of thousands of jobs repairing public housing, building schools, repaving highways and keeping teachers on local payrolls.

Taxpayers bailed out certain companies to the tune of billions of dollars.

Now that we have a financial interest in these corporations, we have the legal right to address how much executives get paid.

Thus the Obama administration is busy cutting pay — a popular exercise, indeed.  Of course, some of those companies are conglomerates where many divisions were highly profitable and had nothing to do with the meltdown.

Does it make sense for us to chase off executive talent? Or is it cutting off our nose to spite our face?

Suppose one division of AIG was the Los Angeles Lakers. Would it be smart business to cap salaries at $1 million (hey, anybody can live on that!)?

No, it would be the quickest way to turn the Lakers into the Clippers.

Thomas Sowell:

Back in the days of the Soviet Union… Nikolai Shmelev and Vladimir Popov said: “Everything is interconnected in the world of prices, so that the smallest change in one element is passed along the chain to millions of others.”

What does that mean? It means that a huge increase in the demand for ice cream can mean higher prices for catchers’ mitts, among other things.

When more cows are needed to produce more milk to make ice cream, then fewer cows will be slaughtered and that means less cowhide available to make baseball gloves. Supply and demand mean that catchers’ mitts are going to cost more.

While this may be easy enough to understand, its implications are completely lost on many people in politics and in the media. If everything is connected to everything else in a market economy, then it makes no sense to have laws and policies that declare some given goal to be a “good thing,” without regard to the repercussions, which spread out in all directions, like waves that spread across a pond when you drop a rock in the water.

For example, when the government starts subsidizing “green” jobs (see the post below).

Our current economic meltdown results from the federal government, under both Democrats and Republicans, declaring home ownership to be a “good thing” and treating the percentage of families who own their own home as if it was some sort of magic number that had to be kept growing — without regard to the repercussions on other things.

We are now living with those repercussions, which include the worst unemployment in decades. That is the price we are paying for increasing home ownership from 64 percent to 69 percent.

How did we get from home ownership to 15 million unemployed Americans? By ignoring the fact that there was a reason why only 64 percent of families owned their own home. More people would have liked to be home owners but did not qualify under mortgage lending standards that had been in place for decades.

Yesterday, Obama warned that health-care insurance costs could rise to $18,000 per person over the next decade if something ain’t done.

Common sense says that won’t happen because not enough people could pay that. Farmers could demand$80 for a gallon of milk, but they won’t sell much.

Curiously, this logic is being applied to the Democrat bill likely to pass.

Megan McArdle writes:

“We Will Control Healthcare Costs, Because We Have To”

This is a disturbingly common argument heard when one points out that the costs of the domestic programs we have are so far impervious to cost control.  Apparently, it is safe to enact a program that is going to blow a 10-gauge hole in the Federal budget, because the mere fact that we can’t currently afford to pay for it will force us to, um, do something.

This is a terrible, horrible, no good, very bad argument in favor of more healthcare spending.  It is true that as the immortal Herb Stein once said, “If something can’t go on forever, it will stop.”  But, to belabor the obvious, there is more than one way to stop.  This is sort of like saying, “I know I’m going eighty-five now, but it’s perfectly okay for me to press the accelerator here down to the floor, because after all, my current speed is already unsustainable.”  One wants to know that one can stop with the brakes, rather than the trees decorating the sharp turn seven miles down the road.

People who aren’t worried about setting up a big new entitlement, because after all, we’re going to have to fix it eventually, are encouraged to read Paul Blustein’s excellent book on the Argentinian crisis, And the Money Kept Rolling In (And Out).  Unsustainable fiscal policies can end when the government tightens its belt and raises taxes and cuts spending–or it can end when the whole thing melts down spectacularly.

Now, we borrow in our own currency, so I’m not suggesting an actual replay of the Argentinian debacle–only that even when everyone knows that the thing is unsustainable, it can go on for a long time, and then implode in a virtual instant.  With an independent central bank, the US options for dealing with unsustainable debts aren’t actually particularly attractive.  At best, when we do start cutting back, we will make various people who planned their lives around current government policy substantially worse off.  That’s something that we should be thinking carefully about, not blithely endorsing.

Macroblog on why small businesses won’t be hiring soon.

In a speech yesterday, William Dudley, the president of the Federal Reserve Bank of New York, identified financial constraints for small businesses as a restraint on the pace of economic recovery. Specifically, he said:

“For small business borrowers, there are three problems. First, the fundamentals of their businesses have often deteriorated because of the length and severity of the recession—making many less creditworthy. Second, some sources of funding for small businesses—credit card borrowing and home equity loans—have dried up as banks have responded to rising credit losses in these areas by tightening credit standards. Third, small businesses have few alternative sources of funds. They are too small to borrow in the capital markets and the Small Business Administration programs are not large enough to accommodate more than a small fraction of the demand from this sector.”

President Dudley’s comments are even more relevant in the current recession if one considers the disproportionate effect the recession has had on very small businesses. In general, the Small Business Administration defines a small business as a firm with less than 500 employees. However, for my analysis here I focus on the very small firms (those with less than 50 employees) as the data indicate these firms have been the most affected by the current recession. (Look here for another take on how to define a small business).

Seems like we have no shortage of idiots. Powerline:

One would think that at least two lessons would have been learned from the financial crisis: stop pushing loans to people who cannot or will not pay them back and stop offering loans with “flexible underwriting criteria.” Not so. The Obama administration and Democrats in Congress are pushing their most audacious plan yet expanding the Community Reinvestment Act (CRA) which helped spark the crisis in the first place.

As our old Hoover Institution friend Peter Schweizer points out in his Forbes column “Expanding the CRA,” in the nine years running up to the economic crisis, banks operating under the constraints of the CRA to offer more than $4.2 trillion in loans to people they would ordinarily not lend money to. Now they want to expand the CRA to cover credit unions, other mortgage lenders and insurance companies. This would mean trillions more in what Peter refers to as affirmative action lending.

Peter’s new book on the origins of the financial crisis is Architects of Ruin: How Big Government Liberals Wrecked the Global Economy–and How They Will Do It Again if No One Stops Them. He argues that the CRA not only helped spark the crisis, but also that Fannie Mae and Freddie Mac made possible the rise of subprime lenders such as Countrywide and Ameriquest.

As for the speculative action on Wall Street that contributed to the crisis, Peter points out that Washington had a hand in that too. (more…)

WSJ:

A few months ago, Obama administration officials were sounding the alarm about another 1929. These days, it’s 1937 that has them in a sweat.

The Great Depression was W-shaped. The stock-market collapse led to a steep economic decline. But by 1933, the economy had rebounded. Then a series of monetary and fiscal blunders drove the country back into a deep recession at the end of 1937.

That episode is at the heart of the debate over how quickly the government and the U.S. Federal Reserve should unwind the emergency measures they have taken to fend off a Depression-like contraction.

For the administration, the answer is clear: Err on the side of continued expansionary policies. “What you learned from that episode in 1937 is that it’s not enough to be recovering,” says Christina Romer, chairman of the president’s Council of Economic Advisers and an expert on the Great Depression. “You don’t want to do anything when you start recovering that nips it off too soon.”

Or…

For fiscal conservatives, the answer is equally clear: Start cutting the federal deficit and slowing the growth in the money supply now, before the binge generates a burst of inflation.

Ms. Romer is “sending the absolutely wrong message — that we can’t do anything to worry about inflation until the recovery is locked in because of concern for unemployment,” says Allan H. Meltzer, a political economist at Carnegie Mellon University. “The reason economists and central bankers have two eyes is so they can do two things at once.”

The economy was recovering briskly during Franklin D. Roosevelt’s first term in the White House. The jobless rate, which had peaked at 25% in 1933, fell to 14% in 1937 — not exactly cause for celebration but a relief nonetheless.

The comeback stalled in 1937. Banks, nervous about the fragile recovery, were holding huge amounts of cash in reserve at the Fed. Fearing an inflationary surge should the banks decide to lend that money out to businesses and individuals, the Fed — which had made the mistake of tightening monetary policy soon after the 1929 stock-market crash — miscalculated again. The Fed ratcheted up banks’ reserve requirements three times, starting in 1936. The banks reacted by cutting lending even further.

“There’s no doubt that [Fed Chairman Ben] Bernanke is heavily influenced by these two mistakes of the Fed during the Depression and is absolutely intent on not repeating them,” says Alex J. Pollock of the American Enterprise Institute, a free-market think tank in Washington.

The Democratic agenda in Washington has gone off the rails just as markets are enjoying their best run of the Obama presidency, and there’s a school of thought on Wall Street that it’s no coincidence.

While a string of better-than-expected earnings reports from U.S. companies has been credited for the upswing, analysts such as Axel Merk, the portfolio manger of Merk Investments, said the stalled agenda in Congress has also helped the Dow Jones Industrial Average spike above 9,000.

“In general, I do think it’s positive it’s slowing down in Washington,” Merk said.

Brian Gardner, an analyst with Keefe, Bruyette & Woods, explains that when markets cratered in March, investors worried the Obama administration would nationalize the country’s banks, impose punitive rules on credit card issuers and allow judges to lower the principal and interest payments on mortgages. They saw ever-widening deficits and buckets of debt set to increase with massive healthcare legislation.

Steven Malanga recalls how the Feds started sticking their noses in the real estate market a long time ago.

As Washington grapples with the current mortgage crisis, advocates from both parties are already warning the feds not to relax their commitment to expanding homeownership—even if that means reviving the very kinds of programs and institutions that got us into trouble. Not even the worst financial crisis since the Great Depression can cure us of our obsessive housing disorder.

We’ve largely forgotten that Herbert Hoover, as secretary of commerce, initiated the first major Washington campaign to boost homeownership. His motivation was the 1920 census, which had revealed a small dip in ownership rates since 1910—from 45.9 percent to 45.6 percent of all households. The downturn was likely the result of a temporary diversion of resources away from housing during World War I. For Hoover, though, the apocalypse seemed nigh. “Nothing is worse than increased tenancy and landlordism,” he warned—though surely many things were worse. With little justification, he predicted that in just a few decades, three-quarters of all Americans would be renters. The press echoed the urgency. “The nation’s stability [is] being undermined,” the New York Times editorialized. “The masses [are] losing their struggle for a better life.”

Without waiting to see if postwar prosperity might solve the problem, in 1922 Hoover launched the Own Your Own Home campaign, hailed at the time as unique in the nation’s history. “The home owner has a constructive aim in life,” Hoover said, exhorting Americans to buy property. “He works harder outside his home, he spends his leisure hours more profitably, and he and his family live a finer life and enjoy more of the comforts and cultivating influences of our modern civilization.” Hoover urged “the great lending institutions, the construction industry, the great real estate men . . . to counteract the growing menace” of tenancy. He pressed builders to turn to residential construction and employers to support the cause. Some, like United States Steel and General Motors, agreed to provide parks and other amenities for the new housing developments that proliferated in response to Hoover’s call.

Hoover also called for new rules that would let nationally chartered banks devote a greater share of lending to residential properties. Congress responded in 1927, and the freed-up banks dived into the market, despite signs that it was overheating. The great national effort seemed to pay off. From mid-1927 to mid-1929, national banks’ mortgage lending increased 45 percent. The New York Times applauded the “wave of homebuilding” that “swept over” America; the country was becoming “a nation of home owners.” The 1930 census would later reveal a significant elevation in ownership rates, to 47.8 percent of all households.

But beneath the surface were disquieting signs. For as homeownership grew, so did the rate of foreclosures. From just 2 percent of commercial bank mortgages in 1922, they rose to 9 percent in 1926 and to 11 percent in 1927. This happened, of course, just as the stock-market bubble of the late twenties was inflating dangerously, making the federal housing initiative all the more hazardous. Soon after the October 1929 Wall Street crash, the housing market began to collapse, just as in today’s crisis, though the reasons were slightly different: panicked depositors withdrew money from their accounts, prompting bank runs; the banks ran out of capital and stopped making loans; and the mortgage market seized up. Homeowners, who in that era typically had short-term mortgages that required several refinancings before being paid off, suddenly couldn’t find new loans. Defaults exploded—by 1933, some 1,000 homes were foreclosing every day.

Professor Don Boudreaux

Globalization is the spread of human cooperation across the globe. If not hindered by government restraints, this cooperation spreads naturally and without much attention to political boundaries. Geographic and cultural differences, along with differences in currencies and other social institutions, sometimes slow the spread of cross-border economic cooperation. But the single largest obstacle to the spread of human cooperation across political borders is politics—in particular, the difficult-to-resist pressure on each government to protect local producers from the competition of external producers.

We typically think of cooperation as something done consciously, face-to-face, by people who know each other. In this sense, describing globalization as the cross-border spread of human cooperation might sound odd. But what else could we call the coordinated actions of millions of persons from around the globe, each of whom contributes a piece of the knowledge and some of the effort required to bring to market an ordinary shirt, for example? Assembled in Malaysia using machines made in Germany, cotton grown in India, collar linings from Brazil, and thread from Portugal, and then retailed in Sydney, Montreal, or any other city, today’s typical shirt is the product of the efforts of many people worldwide. And remarkably, the cost of a typical shirt is equivalent to the wages earned by an ordinary person in the industrialized world for just a few hours of work. Of course, what is true for a shirt is true for countless products available for sale in modern capitalist countries.

How is it that a typical worker today can easily afford a wide variety of goods and services, the production of which requires the coordinated efforts of millions of workers? The answer is that each of these workers is part of a market so vast that it is worthwhile for many entrepreneurs and investors to organize highly specialized production operations that are profitable only because the market for their outputs is large. This specialization of labour and production across different industries around the world is the phenomenon of globalization.

Read it all. The Q&A that follows is worthy of your time, too.

Paul Krugman, another Nobel laureate to scoff at, writes that concerns about Obama’s massive spending/borrowing binge will lead to inflation are nonsense.

All of this raises the question: If inflation isn’t a real risk, why all the claims that it is?

Well, as you may have noticed, economists sometimes disagree. And big disagreements are especially likely in weird times like the present, when many of the normal rules no longer apply.

But it’s hard to escape the sense that the current inflation fear-mongering is partly political, coming largely from economists who had no problem with deficits caused by tax cuts but suddenly became fiscal scolds when the government started spending money to rescue the economy. And their goal seems to be to bully the Obama administration into abandoning those rescue efforts.

Cutting taxes puts money into the hands of individuals. This stimulates the economy as millions decide where that money can be put to best use, funding start-ups or just simply letting consumers vote with their pocketbooks.

“Rescuing the economy” means taking more money from those individuals (reducing their free choice), running it through Washington D.C. where a big chunk gets wasted, where politics determines what gets funded and where know-it-alls get to control things.

What’s worse, there’s not enough money to tax today, so Obama is taxing income that we haven’t even earned yet.

Meanwhile, historian Niall Ferguson takes aim at Krugman’s thinking.

On Wednesday last week, yields on 10-year US Treasuries – generally seen as the benchmark for long-term interest rates – rose above 3.73 per cent. Once upon a time that would have been considered rather low. But the financial crisis has changed all that: at the end of last year, the yield on the 10-year fell to 2.06 per cent. In other words, long-term rates have risen by 167 basis points in the space of five months. In relative terms, that represents an 81 per cent jump.

Most commentators were unnerved by this development, coinciding as it did with warnings about the fiscal health of the US. For me, however, it was good news. For it settled a rather public argument between me and the Princeton economist Paul Krugman.

It is a brave or foolhardy man who picks a fight with Mr Krugman, the most recent recipient of the Nobel Prize for Economics. Yet a cat may look at a king, and sometimes a historian can challenge an economist.

A month ago Mr Krugman and I sat on a panel convened in New York to discuss the financial crisis. I made the point that “the running of massive fiscal deficits in excess of 12 per cent of gross domestic product this year, and the issuance therefore of vast quantities of freshly-minted bonds” was likely to push long-term interest rates up, at a time when the Federal Reserve aims at keeping them down. I predicted a “painful tug-of-war between our monetary policy and our fiscal policy, as the markets realise just what a vast quantity of bonds are going to have to be absorbed by the financial system this year”.

De haut en bas came the patronising response: I belonged to a “Dark Age” of economics. It was “really sad” that my knowledge of the dismal science had not even got up to 1937 (the year after Keynes’s General Theory was published), much less its zenith in 2005 (the year Mr Krugman’s macro-economics textbook appeared). Did I not grasp that the key to the crisis was “a vast excess of desired savings over willing investment”? “We have a global savings glut,” explained Mr Krugman, “which is why there is, in fact, no upward pressure on interest rates.”

Now, I do not need lessons about the General Theory . But I think perhaps Mr Krugman would benefit from a refresher course about that work’s historical context. Having reissued his book The Return of Depression Economics, he clearly has an interest in representing the current crisis as a repeat of the 1930s. But it is not. US real GDP is forecast by the International Monetary Fund to fall by 2.8 per cent this year and to stagnate next year. This is a far cry from the early 1930s, when real output collapsed by 30 per cent. So far this is a big recession, comparable in scale with 1973-1975. Nor has globalisation collapsed the way it did in the 1930s.

Credit for averting a second Great Depression should principally go to Fed chairman Ben Bernanke, whose knowledge of the early 1930s banking crisis is second to none, and whose double dose of near-zero short-term rates and quantitative easing – a doubling of the Fed’s balance sheet since September – has averted a pandemic of bank failures. No doubt, too, the $787bn stimulus package is also boosting US GDP this quarter.

But the stimulus package only accounts for a part of the massive deficit the US federal government is projected to run this year. Borrowing is forecast to be $1,8400bn – equivalent to around half of all federal outlays and 13 per cent of GDP. A deficit this size has not been seen in the US since the second world war. A further $10,000bn will need to be borrowed in the decade ahead, according to the Congressional Budget Office. Even if the White House’s over-optimistic growth forecasts are correct, that will still take the gross federal debt above 100 per cent of GDP by 2017. And this ignores the vast off-balance-sheet liabilities of the Medicare and Social Security systems.

It is hardly surprising, then, that the bond market is quailing. For only on Planet Econ-101 (the standard macroeconomics course drummed into every US undergraduate) could such a tidal wave of debt issuance exert “no upward pressure on interest rates”.

This nitwit doesn’t acknowledge the part the US government played in starting the subprime loan racket, but that’s just a detail. The principle is what is so appalling.

Megan McArdle linked to a piece in the NYT

This is the bravest thing I’ve read for a long, long time.  For a reporter–an economic reporter–to admit that he’s been in the hell of excess debt and unpaid bills that he reports on is a major statement in middle class America.  There was a time when America tolerated a certain amount of this in its writers–one reads nearly approvingly of the repeated flirtations with bankruptcy undertaken by the likes of Dorothy Parker or F. Scott Fitzgerald.  But these days, their profligacy, like their alcoholism, is no longer admired, or even tolerated, in the editorial world.

Yet writers are, as a class, extraordinarily at risk.  They spend their twenties, and often their thirties, living paycheck to paycheck.  They are extremely well educated, and all that education is not only expensive, but builds expensive habits.  You end up with a lot of friends who make much more money than you–who don’t even realize that a dinner with $10 entrees and a bottle of wine is an expensive treat, not a cheap outing to catch up on old times.  Our business is in crisis, and we lose jobs often.  When we do, it’s catastrophic.

Bunk. The man was pulling down $120,000 a year. He ran up debt because he was reckless. What makes it worse, is he should know better.

Now he’s airing his dirty laundry and being called brave.

Please. The man is writing a book about his descent into irresponsibility, finding suckers to help rescue him. He was on NPR tonight, hawking his book.

I’d bet that somewhere among the thousands of words he’s written for the NYT, he’s blamed Bush for the current financial mess.

His NYT story:

…in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds. We all had our reasons. The brokers and dealmakers were scoring huge commissions. Ordinary homebuyers were stretching to get into first houses, or bigger houses, or better neighborhoods. Some were greedy, some were desperate and some were deceived.

As for me, I had two utterly compelling reasons for taking the plunge: the money was there, and I was in love. It was August 2004, just as the mortgage party was getting really good. I was 48 years old and eager to start a new chapter in my life with Patricia Barreiro, who was then my fiancée.

“We plan to announce the program tomorrow–and–that your nine firms will be the initial participants. … This is a combined program (bank liability guarantee and capital purchase). Your firms need to agree to both. We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed. If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance.”

Thus spake Treasury Secretary Hank Paulson and Fed chief Ben Bernanke to the CEOs of the nation’s nine largest banks on Oct. 13, 2008.

And thus the door was open to even more meddling.

Powerline has the story.

Obama’s righteous (no, I’m not kidding) initiative to reform the credit card industry is moving ahead with broad bipartisan support. For too long, credit card issuers have behaved in ways that would make the mob blush.

For an excellent look at how changes in usury laws 25 years ago opened the door for massive abuse, check out this Frontline episode, The Secret History of the Credit Card.

This April, Frontline returned to the subject with Hey! Should We Blame This Guy?

As credit card reforms take hold, the inevitable consequence will be less credit for millions of people — those 33% interest rates compensate for a lot of bad loans — one has to wonder about the consequences for an economy so reliant on consumer spending. There will be less plastic money sloshing through the system.

One also has to note the irony of Obama’s economic policy: Our current pickle was caused by reckless borrowing (and lending) and his solution is to go on a record-breaking spending binge with borrowed money.

And one last bit: Obama raised millions of campaign dollars in 2008 by removing the identification criteria normally required to make online purchases, thus allowing the potential for foreigners to donate and citizens to violate donation limits.