News and Politics

The market has just taken out the lows of the 2000-2002 bear market and reached dozen year lows. This is completely understandable in term of a set of risks that are starting to resemble those of the 1970’s. In the short run we have a monetary crisis and a nasty recession that is pretty much worldwide. For the medium term we have a federal government that is operationally hostile to economic growth and the creation of wealth, as its tax, regulation, “fairness”, and “green” policies and proposals already clearly show. And in the long run we have a massive increase in the national debt, due to war and “stimulus”, just at the time when, because of the retirement of the boomers, we can least afford it. The last is particularly dangerous. In the 1970’s the government repudiated a large fraction of its debt through inflation, decimating the citizens’ savings of the post-WWII prosperity in the process. It then confiscated more of people’s savings by creating and taxing high nominal (though low or negative real) interest rates on those savings. There is every incentive for them to do it again now, particularly given that the party in power does not see savers or investors as part of its constituency. It is also important to remember that the inflationary depression of the 1970’s ended only when we got an inflation fighting fed, a pro-growth administration in Washington, and the explosive development of new companies and entire industries, many driven by innovations in technology. None of these things is on the horizon right now.

There is a lot of discussion about a crisis for people who are under water with their mortgages, and I find it puzzling. I understand the problems of those who are delinquent in their payments on mortgages, but I cannot see a crisis for most of those who are under water, but still making their payments. It is certainly unpleasant for a person’s house to be worth less on the market than the amount he owes on it. It makes the household balance sheet look bad, but unless a person sells the property, he does not have to cover any actual cash losses. He has the house he agreed to buy at the monthly payments he agreed to make. Eventually, as he pays down his debt and the real estate market turns, he will be above water again. After all, despite anything politicians or realtors might tell us, there really isn’t any natural or Constitutional right to annual appreciation in real estate.

The government announced last week that it was putting the squeeze on UBS to reveal names of its American depositors to the IRS. The news led to the usual bleating about “tax cheats” and “those not paying their fair share costing the rest of us”. Most of this is unseemly nonsense. A cheat is someone who defrauds another person or who breaks a rule of fairness or conduct to which he has agreed. Running from bandits or hiding from the tax collectors is not cheating. The question of whether to pay taxes is an almost purely pragmatic question, not a moral one. (There is a ethical issue about paying one’s share of the legitimate activities of the government and not being a free rider, but for most taxpayers that issue does not come up, because the government claims enough by withholding and through W-2’s and 1099’s to more than render that concern moot.) To claim otherwise is to assert that a government has an unlimited moral claim over people’s lives and efforts and that whatever it decides to take from them is right, solely because it has decided to take it. The point about “cheaters” increasing costs for the rest of us is no more valid. We need to remember that the problem for members a herd of gazelles being chased by a pack of hyenas is the hyenas, not the faster gazelles. We suffer harm at the hands of the tax collectors, not from our more nimble countrymen who avoid them. Besides, as a practical matter, does anyone believe that, if this government miraculously collected what it wants from all the “cheats”, it would lower taxes on everyone else? There is not much plausibility for that one.

Also last week, one our politicians admonished his fellow citizens for being cowards on the issue of race. He is of course right, though not in the way he meant. Our culture is deeply dishonest about race. Future generations likely will consider our hypocrisy and perversity on the question at least as harshly and ironically as many now view the attitudes of the Victorians on sex. We could take steps to become more honest. We could be sure we really do rate persons by their individual characteristics and not their ancestry. We could realize that one may criticize or even condemn a person’s acts or attitudes without having racial prejudice against him. We could reject undeserved guilt. The crimes of slavery and Jim Crow were egregious. No one alive today had anything to do with slavery. Only a few, in places such as the U. S. Senate, who played a role in Jim Crow are still alive. Those who had nothing to do with it need to refuse to accept guilt for something they did not do. That would make for more honesty, though probably not of the kind the politician wanted.