Poor Krugman

Your heart has to bleed for this guy. Krugman is a marvelous writer whose ideas are bizarre, to say the least. In some ways, Krugman is the economist version of Obama. Everything sounds good, until you look at the substance.

The lastest Krugman piece in the NY Times is an effort to explain the plight of Greece (and much of the Euro zone). He dismisses cavalierly that the problem is mainly one of irresponsible fiscal spending. No, that can't be the real problem. It never is, in Krugman's view. Spending is always a magic elixir that will make everything right -- government spending that is. Private spending, on the other hand, is always the evil that mucks everything up. If we could just dispense with private spending altogether and have the government have the exclusive right to spend, all would be well -- so implies Krugman.

So, guess who is to blame for Greece's problems? The bad guys who put the Euro in place. Yes, they are the bad guys in this case. The Euro itself is to blame, robbing the Greeks of the opportunity to simply devalue their currency (that should be good for bondholders) and thereby escape from the mess that they are in. The obviously painful and tortured argument that Krugman presents shows how truly artful he really is. The economics is ridiculous, but the prose flows gently along the page as if there was something really going. Unfortunately, for poor Krugman, there is nothing going on but another failed experiment in too much government.

Curbing Evil Insurance Companies

Insurance companies are pilloried daily by the politicians. The charge is that they make too much money and they don't provide good insurance policies. Imagine you heard of a company doing that in some other industry? Take the computer industry. Suppose you saw a computer company that charged too much for their computers, made way too much money, and provided badly designed computers. What would the solution to this problem be? Government?

Hardly. Instead, the forces of competition would drive the computer company with an expensive, but poorly conceived product, out of business. In fact, that is precisely what has happened as prices of computers have come down consistently over the past twenty years as their quality has dramatically improved. Competition does the trick. The same is true of the insurance industry. If you want better health insurance products, then get government out of the way. Eliminate cumbersome state regulations and rules that prohibit interstate purchase of insurance. Get rid of all federal rules pertaining to insurance contracts. Let the market provide the product, subject only to truth in advertising.

The idea that government can provide anything efficiently is so absurd that it suggests an unfamiliarity with government's present activities. From medicare to public education, the record is clear -- the government is the most inefficient provider that one can imagine. Get government out of the way and let the free market provide products with minimal government role.

The US Economy Has Run Aground

After losing seven to eight million jobs in the last two years, the US economy is floating somewhere near the bottom. But, improvement is very weak. The ongoing dialogue between Barrack Obama and the business community is not helpful. The biggest victims are the unemployed. The Administration remains unconcerned and largely uninterested in the plight of unemployed Americans and the distress that most businesses face. The Congress and the White House have piled bad legislation upon bad legislation and crippling regulatory activity that ensures that the economy will remain in the doldrums for a generation.

If health care makes it through Congress via reconciliation, then the economy could easily take a new leg down. The destruction of the private health care industry that the Obama plan envisions, will mean signficantly higher health care costs imposed on an economy in the midst of the worst economic collapse since the 1930s. There will be more layoffs, more business failures, and unemployment could easily move into the 20s. Not a pretty picture, but a likely consequence of the policies of an Administration bound and determined to destroy the private sector of the economy wherever and whenever it can.

The country took a great risk when it elected a young man with little or no experience and a great gift for rhetoric. The rhetorical powers are still there but the lack of experience (and knowledge) threatens the economic survival of the country.

Merkel is Right

There is absolutely no reason for Germany to lift a finger to save Greece or any of the other profligate countries in the Euro community. Greece created its own nightmare. What a country! George Papandreou and his father Andreas (an economist I am dishearteded to note) were probably the two people most responsible for Greece's current situation. Both George and Andreas were noted socialists and helped take Greece down the path to massive entitlements and a nearly 50 percent share of the economy for the government. What little is left over for the private sector is so heavily regulated that businesses have no real hope. So, Greece is doomed. Yes, there is no hope for Greece -- bailout or no bailout -- unless Greece backs off from absurd entitlements and ridiculous deals for government employees. No hope at all. Any temporary help from Germany just postpones the inevitable. (The same, by the way, is true of California and New York as we shall all soon see).

So what is Papandreou saying. He is blaming the European Commission for "failing to crack down on [Greece's] previous government record in falsifying statistics. Oh, really! Where was George when this was going.

George Papandreou is a complete hypocrite. German Chancellor Merkel is right to demand that Greece take very specific steps toward putting their own house in order before anyone else contemplates a rescue. Three cheers for Angela Merkel. Hopefully, the IMF (think USA) will stay away as well.

Again, The Unwarranted Assumption

With the Greece bailout on the horizon, it is useful to look back to 2008 and ask what would have happened if the US Treasury and the Federal Reserve had not bailed anyone out...anyone. Starting with Bear Stearns, simply let them go bankrupt and continue with Fannie, Freddie, AIG, Lehman and even mighty Goldman Sachs and Morgan Stanley, if it came to that.

The assumption is usually made that the some cataclysmic disaster would have occurred. Why make that assumption? What is most likely to have occurred is that bondholders would have shared in the losses along with stock holders and that these businesses would have been reorganized in some more reasonable fashion. The bailouts that actually took place did not prevent the worst recession since the 1930s from taking place. Why assume that things would have been worse?

You have to wonder why the burden of proof is not on those who supported the bailouts. These unprecedented, undemocratic, probably unconstitutional actions taken by the US government in 2008 have shattered the faith in the free market and are hastening the bankruptcy of the federal treasury. How can one comfortably assume that simply letting bad actors suffer the fate of their mistakes would have been worse.

Bondholders who willing lent money to Bear Stearns, Fannie, Freddie, AIG should have suffered major losses for being foolish enough to lend to over-levered institutions that would not, in the long run, succeed. Instead taxpayers suffered the losses and bondholders learned nothing from their cupidity. Why is that a better outcome?

Now, the Euro community is facing the same dilemma. Should they bailout Greece. If they bailout Greece, what is the message for other Euro nations living far beyond their means -- Spain, Portugal, Italy? Who will bailout Germany after they bailout these countries? Who will bailout the UK? Who will bailout the US?

Bailouts are "easy think." They make the next five minutes feel good. But, in the long run, bailouts simply put off the day of reckoning for institutions that are run in stupid ways. It rewards non-thinking bondholders. It paralyzes the economy, by turning off the credit spigot to companies that are doing the right thing.

Why assume that the bankruptcy of Greece is the worst thing that could happen? It's not. The worst thing that could happen is that EU nations cobble together some type of bailout and kick the can down the road. Greece will continue to spend like a drunken sailor and, within time, the contagion of bad fiscal behavior will spread.

Bankruptcy is a good thing, not a bad thing. It is the only way that markets can discipline stupid companies and stupid governments. If you don't permit the profligate to go bankrupt, then, eventually, all will be bankrupt.

Meanwhile, Back to Health Care Reform

The President seems to have a one issue agenda in reality -- health care reform. He just cannot let it go. But, it is gone.

The economy is the issue that Americans care about, not health care reform, but the White House is relentless. One wonders after the Republicans take the House and Senate in November, if Obama will continue his quest for health care reform. Will this ever end?

For those who care, the economy has collapsed and shows no real sign of much recovery. Job losses have slowed but job creation is nowhere in sight. The economy is flatter than a pancake. The next shoe to fall is state and local government layoffs (for the pretty much the same reason that Greece, Portugal, and Spain are falling apart). What then?

At some point, there needs to be private sector job creation, but this Adminstration abhors the private economy and villifies business at every opportunity -- insurance, oil, Wall Street -- who's next? Businessmen are the enemy. Sounds good on the stump, doesn't it? But, such rhetoric doesn't warm up the job creation machine.

So, the President wanders back to the centerpiece of his failed agenda -- health care reform. The President makes Don Quixote look like a realist.

Let Greece Go

The market rallied today and the pundits said that the rally was based upon hopes of a Greece bailout. Greece is teetering on bankruptcy because of the usual combination of entitlements and public employment largesse.

How does bailing out Greece help? It just means Greece continues along the same path without any course correction. Let Greece go bankrupt! Greece cannot afford what they are doing and others should not step forward to help continue this nonsense.

Greece is not alone. They are, in fact, the first of many to come. No countries can afford what the western nations are doing to themselves. Bankruptcy is the only way these countries will learn that they cannot afford what they are doing. So, let them go bankrupt.

Bailouts just prolong bad policies and eventually they will go bust anyway.