Economics

Economists and Christmas Carols!

Published Friday, December 7, 2012 A.D. | By Donald R. McClarey

Hattip to Instapundit. Anything that helps drive a stake through the idiotic notion that spending money we don’t have is good for the economy gets an enthusiastic thumbs up from me. This from the brilliant, albeit a little twisted, mind of John Papola who performed the miracle of creating a rap video that I enjoyed: Continue reading →

Will Money Make Everyone Virtuous?

Published Friday, September 21, 2012 A.D. | By DarwinCatholic

One of the many divides among modern Catholics is between what we might call the “moralizers” and the “justice seekers”. “Moralizers” are those who emphasize the importance of teaching people moral laws and urging them to abide by them. “Justice seekers” seek to mitigate various social evils (poverty, lack of access to health care, joblessness, etc.) and believe that if only these social evils are reduced, this will encourage people to behave better.

Moralizers tend to criticize the justice seekers by pointing out that following moral laws is apt to alleviate a lot of the social evils that worry the justice seekers, arguing, for example, that if one finishes high school, holds a job and gets married before having children, one is far less likely to be poor than if one violates these norms.

Justice seekers reply that the moralizers are not taking into account all the pressures there work upon the poor and disadvantaged, and argue that it’s much more effective to better people’s condition than to moralize at them (or try to pass laws to restrict their actions) because if only social forces weren’t forcing people to make bad choices, they of course wouldn’t do so.

(I’m more of a moralizer myself, but I think that we moralizers still need to take the justice seeker critique into account in understanding where people are coming from and what they’re capable of.)

One area in which the justice seeker approach seems to come into particular prominence is the discussion of abortion. We often hear politically progressive Catholics argue that the best way to reduce abortions is not to attempt to ban or restrict them, but rather to reduce poverty and make sure that everyone has access to health care. There’s an oft quoted sound bite from Cardinal Basil Hume (Archbishop of Westminster) to this effect:

“If that frightened, unemployed 19-year-old knows that she and her child will have access to medical care whenever it’s needed, she’s more likely to carry the baby to term. Isn’t it obvious?”

You’d think that it was obvious, but I’m suspicious of the idea that having more money or resources makes us better or less selfish people (an idea which strikes me as smacking of a certain spiritual Rousseauian quality that doesn’t take fallen human nature into account) so I thought it would be interesting to see if there’s any data on this.

I was not able to find data on the relationship of abortion to health insurance, but I was able to find data on the relation of abortion to poverty, and it turns out that the Cardinal, and conventional wisdom, are wrong.
Continue reading →

Paul Ryan and Ayn Rand: An Assertion With Evidence

Published Monday, August 13, 2012 A.D. | By Lisa Graas

My compatriot Paul Zummo posts: Assertion Without Evidence.

Here find my reply.

Mr. Zummo writes:

“Show, don’t tell” is an admonition often given to writers. Usually it applies to fiction, but it works with non-fiction as well. If you make an assertion about someone’s beliefs, it is generally good form to provide evidence supporting your argument, at least if you want to be taken seriously. It is true that the blogopshere doesn’t necessarily allow for extended treatises, yet it’s still possible within the confines of a few hundred words or more to demonstrate credible evidence of your assertions.

When it comes to Paul Ryan and his evil Randian ways, however, such worries are cast aside.

The claim is that there is no evidence to support the assertion that Paul Ryan is “Randian.” That is, that he ascribes to the philosophy of Ayn Rand.

First, it is very clear that, in recent years, Paul Ryan was an avid supporter of what he called the “morality of capitalism” as defined specifically by Ayn Rand. (Video here.)

Secondly, when political blowback was clear, Ryan stated that the claims that he supports Ayn Rand are “urban legend.” The term “urban legend” is commonly understood to describe a myth. In other words, his reply was that the claims are “not true,” but we have the video, don’t we? Robert Costa added undue credibility to Ryan’s assertion:

These Rand-related slams, Ryan says, are inaccurate and part of an effort on the left to paint him as a cold-hearted Objectivist.

It is ironic that Ryan will not acknowledge that the poor are “due” assistance, even as he is given undue credibility by Costa and National Review. More troubling indeed is Costa’s assertion that the source of this “lie” is political opponents on the Left. This gives the impression that Ryan is a person of privilege who will be defended by National Review, which is heavily-staffed with Catholic columnists, even against true claims against him. In this way, the credibility of Catholic conservatives is eroded. That is something I certainly do not want to see.

Let it be noted that I have never claimed that Ryan is an Objectivist, per Costa’s article, but only that he is opposed to the preferential option for the poor. I would love to see any quote from Ryan claiming that the poor are “due” economic assistance from those who have more. Certainly, Rick Santorum would tell you that the poor are “due” assistance by virtue of the fact that they are poor. He would say it a thousand times without flinching, though he may disagree with some on the structures it takes to make that happen effectively. Ryan appears to have no belief that the poor are “due” assistance.

Finally, on the main point about whether Ryan is “Randian,” if we assume that he’s had a “conversion” from Rand, then a couple of things would be required to make it an actual conversion. First, you would have to convert “to” something else. Secondly, you would have to demonstrate somehow that you actually believe that philosophy that you’ve converted to.

Ryan claims that he follows St. Thomas Aquinas, not Ayn Rand.

“I reject her philosophy,” Ryan says firmly. “It’s an atheist philosophy. It reduces human interactions down to mere contracts and it is antithetical to my worldview. If somebody is going to try to paste a person’s view on epistemology to me, then give me Thomas Aquinas,” who believed that man needs divine help in the pursuit of knowledge. “Don’t give me Ayn Rand,” he says.

If he follows Aquinas, as claimed, this would make him a proponent of Distributism. Try quoting Aquinas’ remarks on Distributism to any conservatives who have not read them before and ask them what it sounds like to them. I’ll be shocked if they don’t call it “socialism.”

As stated above (Article 1), in distributive justice something is given to a private individual, in so far as what belongs to the whole is due to the part, and in a quantity that is proportionate to the importance of the position of that part in respect of the whole. Consequently in distributive justice a person receives all the more of the common goods, according as he holds a more prominent position in the community. This prominence in an aristocratic community is gauged according to virtue, in an oligarchy according to wealth, in a democracy according to liberty, and in various ways according to various forms of community. Hence in distributive justice the mean is observed, not according to equality between thing and thing, but according to proportion between things and persons: in such a way that even as one person surpasses another, so that which is given to one person surpasses that which is allotted to another.

Aquinas goes on to say that it is the poor, as Jesus said, who are to be considered to have the more prominent position in the community. G.K. Chesterton was a proponent of Distributism. No heretic, he.

Several times today alone, I have shared the above quote from Aquinas with conservatives and have been told it is “redistribution of wealth,” the term frequently employed by conservatives to describe socialism. I would argue that most people would say the quote above describes Obama policy better than it describes Ryan policy. Herein lies the conundrum of ignorance which plagues us and foments division in the Church through political confusion. Not one among us who call ourselves conservative would let Barack Obama get away with saying that he follows Aquinas, but if Paul Ryan says it, no one bats an eyelash? Well, not me. Not me. And so, here I am before you asking you not to let any man get away with claiming he follows Aquinas when he does not, least of all a candidate for high office, and especially so when it is a candidate for high office who identifies as Catholic on the national stage.

Certainly, Ryan’s philosophy continues to more closely resemble the philosophy of Ayn Rand than of Aquinas. CLICK HERE to see why that is so dangerous to the Church in America, and yes, even to Western Civilization itself.

As for Mr. Zummo’s attempt to compare Paul Ryan to Rick Santorum, there is no comparison. They are vastly different, as stated above, but also considering the fact that Paul Ryan endorsed Mitt Romney, who is running on a solely economic platform, over his fellow Catholic Rick Santorum in Wisconsin. This action effectively knocked Rick Santorum out of the GOP presidential primary for good and certainly indicates strongly that the two are not at all on the same page economically. At the very least, it’s clear that Paul Ryan prefers Romney economics to Santorum economics. Mitt Romney believes those who work are “due” what they work for. Fine, fine, but Rick Santorum believes, in addition to that, that the poor are “due” assistance in some form. It’s a philosophy that is consistent with our Catholic Faith, whereas Ryan’s philosophy is not.

There was no “assertion without evidence.” To the contrary, there is a great deal of evidence, and we ignore it at our peril.

Great Depression II

Published Thursday, August 2, 2012 A.D. | By Donald R. McClarey

Al Lewis at MarketWatch uses the D word to describe the perpetual lousy economy we have been living through the past four years:

There is nothing more depressing than hearing about a new recession when you haven’t fully recovered from the last one. I take heart in suspecting that in a still-distant future, historians will look back with clarity and call this whole rotten period a depression.

The precise definition of a depression, of course, remains as debatable as anything else in the field of economics. By some definitions, it is a long-term slump in economic activity, often characterized by unusually high unemployment, a banking crisis, a sovereign-debt crisis, surprising bankruptcies and other horrible symptoms we can find in the headlines almost every day.

It is easy to avoid seeing all of these events as constituting a depression if you somehow have kept your livelihood intact all this time. But it’s important to remember that not everyone has to stand in a bread line during a depression.

Nearly one out of seven Americans receives food stamps, according to the U.S. Department of Agriculture. That’s more than 44 million people. If they all stood in a line and someone photographed them using black-and-white film, they easily could be mistaken for people from the 1930s. Instead, they go to a grocery store and spend their credits like money. There isn’t even a social stigma to make them stand out as any more glum or destitute than anybody else.

Last week, the Associated Press reported that America’s poverty rate likely has hit levels not seen since the 1960s. Surveying several economists and academicians, the wire service predicted the official poverty rate would come in as high as 15.7% when the Census Bureau releases it in September. That would wipe out all the gains of President Lyndon Johnson’s War on Poverty.

Poverty is another word for joblessness, and our economy hasn’t been generating enough decent-paying jobs for many years. Globalization, technology, outsourcing, immigration and the schemes of financiers have taken their toll. No one is certain when jobs will come back, and many of the jobs that remain don’t pay anywhere near what, say, your average failing CEO gets paid. Continue reading →

Question: If they trust women, why don’t they trust mothers?

Published Wednesday, May 30, 2012 A.D. | By Stacy Trasancos

SHOCKER: Teens need their mothers. Mothers can help their daughters. Even in crisis.

There’s an article forthcoming in the journal Economic Inquiry by Professors of Economics, Joseph Sabia and Daniel Rees, that shows parental notification or consent laws are associated with a 15 to 25 percent reduction in suicides committed by 15- through 17-year-old women. The researchers analyzed National Longitudinal Study of Adolescent Health data collected from 1987 to 2003 and found results that are consistent with the hypothesis that laws requiring parental involvement increase the “expected cost of having unprotected sex,” and, consequently, protect the well-being of young females. (Hey, they’re economists.)

Here’s the reasoning, taken from this paper by the same authors.

Researchers have already found, using state-level data from 1981 through 1998, that parental involvement laws reduced teen gonorrhea rates 12 to 20 percent among teen females. (Klick and Strattman, 2008)
Other recent studies provide evidence that female adolescents who become sexually active at an early age are more likely to suffer from the symptoms of depression. (Hallfors et al. 2004; Sabia and Rees 2008)
Research has shown that multiple sex partners increased the likelihood of substance abuse. (Howard et al. 2004)
It is also been found that adolescent females who had multiple sex partners were 10 times more likely to develop the symptoms of major depression than those who remained abstinent. (Hallfors et al. 2005)
There was no evidence of a similar relationship between male multiple partners and adolescent depression. (Hallfors et al. 2005)

So the hypothesis is: If parental involvement laws discourage minors from risky lifestyles that affect their physical health, then they would promote emotional health of teenage females as well. Analyzing suicide rates will give an indication since there have been many studies that link depression and suicide. The national suicide data was analyzed and that’s exactly what they found – a supporting correlation. Parental involvement laws correlate with fewer suicides. Further in support, there was no evidence of a similar relationship among male adolescents, and no correlation between parental involvement laws and suicide for older women because, well, neither group would be affected by those laws.

Makes sense, right? You’re probably thinking, “Did we need to pass those laws, wait and see what happened, and then count suicides?” No, we didn’t, and there’d be at least some justice if the people opposing those laws would take notice.

You’d think someone who really cares about women would be able to take an objective view of this data and consider it as an appeal to our collective conscience. You’d think someone who parrots, “Trust Women!” would be consistent enough to also trust mothers who are raising teens. When the state comes between teens and their parents, it just follows that the adolescents will not be as close to their parents as they ought to be.

This only affirms what we already know. Parents of teen girls can be trusted - should be trusted for the psychological benefit of a daughter in crisis. The abortion advocate community doesn’t seem as concerned about young women, though, as they are about politics and agendas. They instead say that people just want to make it harder for teens to have abortions, and that teens have a “fear of abuse” from unrelenting parents. Oh, and they’ll say something about how correlation doesn’t equal causation, revealing that they either are ignorant of analytical methods or, even worse, knowledgeable of them but dishonest when the results don’t fit their predetermined conclusions. Some will even say that teen women should be trusted to make their own decisions even when the decision for these desperate young women is to end their own lives. Of course, we all know why Planned Parenthood doesn’t want the parents involved. Ac$e$$ to abortion.

So I have a little hypothesis of my own. I predict (but would love to be proven wrong) that not a single abortion advocate will come forward and honestly reassess parental consent laws even though there is no body of data to support their premise. Could they admit that maybe, just maybe, the default condition is not that most parents of teens are abusive. Imagine!

If they trust women, why can’t they trust mothers and fathers? Where does this automatic distrust of parents come from anyway? Perhaps there’s a cost associated with believing that a mother has the right to kill her own child in the womb, and that cost is faith in people to love their children unconditionally at any point in life, even during difficult times.

H/T: Michael J. New at National Review

Image: Microsoft Powerpoint

Paul Ryan and Catholic Social Teaching (Roundup)

Published Sunday, April 29, 2012 A.D. | By Christopher Blosser

In articles, interviews and addresses, U.S. Representative Paul Ryan is defending — not without controversy — his 2013 budget proposal (see “The Path to Prosperity: A Blueprint for American Renewal”) as an application of Catholic social teaching, inspired by his Catholic faith.

In an April 10 interview with CBN News, Ryan responded:

To me, the principle of subsidiarity, which is really federalism, meaning government closest to the people governs best, having a civil society of the principal of solidarity where we, through our civic organizations, through our churches, through our charities, through all of our different groups where we interact with people as a community, that’s how we advance the common good. By not having big government crowd out civic society, but by having enough space in our communities so that we can interact with each other, and take care of people who are down and out in our communities.

Those principles are very very important, and the preferential option for the poor, which is one of the primary tenants of Catholic social teaching, means don’t keep people poor, don’t make people dependent on government so that they stay stuck at their station in life. Help people get out of poverty out onto life of independence.

U.S. Rep. Paul Ryan, R-Wis. , Chairman of the House Budget Committee speaks to a meeting of the Wisconsin Faith & Freedom Coalition. 3/31/12. Source: AP

The U.S. Bishops Conference conveyed their thoughts on the FY2013 Budget and spending bills, which in their words “repeated and reinforced the bishops’ ongoing call to create a “circle of protection” around poor and vulnerable people and programs that meet their basic needs and protect their lives and dignity.”:

Bishops Blaire [chairman of the bishops’ Committee on Domestic Justice and Human Development] and Pates reaffirmed the “moral criteria to guide these difficult budget decisions” outlined in their March 6 budget letter:

1.Every budget decision should be assessed by whether it protects or threatens human life and dignity.

2.A central moral measure of any budget proposal is how it affects “the least of these” (Matthew 25). The needs of those who are hungry and homeless, without work or in poverty should come first.

3.Government and other institutions have a shared responsibility to promote the common good of all, especially ordinary workers and families who struggle to live in dignity in difficult economic times…

Just solutions, however, must require shared sacrifice by all, including raising adequate revenues, eliminating unnecessary military and other spending, and fairly addressing the long-term costs of health insurance and retirement programs.

In April 16 and April 17 letters to the House Agriculture Committee and the House Ways and Means Committee addressing cuts required by the budget resolution, Bishop Blaire said “The House-passed budget resolution fails to meet these moral criteria.”

Marc Thiessen defended the congressman from “a bishop’s unjust attack” (Washington Post, 4/23/12) along with (Fr. Robert Sirico (of the Acton Institute) — the latter, however, disagreeting with Ryan’s equasion of subsidiarity with federalism.

This past week, U.S. Representative Paul Ryan further presented his case in a column for the National Catholic Register: Applying Our Enduring Truths to Our Defining Challenge, April 25, 2012):

As a congressman and Catholic layman, I am persuaded that Catholic social truths are in accord with the “self-evident truths” our Founders bequeathed to us in the founding ideas of America: independence, limited government and the dignity and freedom of every human person. As chairman of the House Budget Committee, I am tasked with applying these enduring principles to the urgent social problems of our time: an economy that is not providing enough opportunities for our citizens, a safety net that is failing our most vulnerable populations, and a crushing burden of debt that is threatening our children and grandchildren with a diminished future. … [read more]

On April 26th, Paul Ryan gave a lecture at Georgetown University, entitled “America’s Enduring Promise”, in which he once again addressed the challenge of America’s exploding federal debt, which he characterized as “the overarching threat to our society today”:

The Holy Father, Pope Benedict, has charged that governments, communities, and individuals running up high debt levels are “living at the expense of future generations” and “living in untruth.”

We in this country still have a window of time before a debt-fueled economic crisis becomes inevitable. We can still take control before our own needy suffer the fate of Greece. How we do this is a question for prudential judgment, about which people of good will can differ.

If there was ever a time for serious but respectful discussion, among Catholics as well as those who don’t share our faith, that time is now.

Ryan’s appearance at Georgetown was prefaced by a scathing letter from some 80 members of the faculty irate over his alleged “continuing misuse of Catholic teaching to defend a budget plan that decimates food programs for struggling families, radically weakens protections for the elderly and sick, and gives more tax breaks to the wealthiest few.” An organized protest of Ryan on the actual day of the event was distinguished by a notable lack of participation. Continue reading →

Chart Of The Day: Whose Wages Are Stagnating?

Published Thursday, February 16, 2012 A.D. | By DarwinCatholic

I’d been fooling around with Census data a bit over the last week. Here’s an interesting chart using Census Table P-36. Full-Time, Year-Round All Workers by Median Income and Sex: 1955 to 2010

Median income for full-time working men first hit 50,000 (in inflation adjusted 2010 dollars) in 1973, and it has been essentially flat ever since (breaking 50k for the second time in 2010.) However, the median income of full-time working women has gone up 35% since 1973. The percentage of full time workers who are women has also increased gradually throughout that time, from 30% in 1973 to 43% in 2010. (In absolute numbers, obviously both the number of male and female full time workers has increased significantly during the same period.)

Catholicism and “Neoliberalism”: Strawmen Are Often Contrary to Church Teaching

Published Thursday, January 12, 2012 A.D. | By DarwinCatholic

David Cloutier at the Catholic Moral Theology blog links approvingly to a post at dotCommonweal addressing Romney’s political views which asks whether “neoliberalism” (the which is here used to mean something along the lines of free market capitalism) and Catholicism can ever be compatible. He says:

Superb exchange going on over at dotCommonweal over a post about how certain political conservatives, like Rick Santorum or Michael Gerson, try to reconcile their Catholicism with the neoliberal paradigm. For once, even the comment thread is worth reading!

I think this is an important – if not THE important – debate about Catholicism and politics in the current election. Often, the debate over particular policies dominates, but in fact, what we should be looking at are the basic principles of the economic order. If a candidate fundamentally contradicts the basic principles, Catholics should have reservations about supporting him. In the post referred to above, “neoliberalism” is cast in terms of a pure free-market conception, in which governments take a minimal role in economic activity, providing for enforcement of contracts, a stable currency, etc. – protection against “force and fraud.” Others claim that Gerson forthrightly support subsidiary actors – such as families, community organizations, and churches – and so is not in fact individualist.

The (frequently made) mistake here is one that goes back to Edmund Burke, that “father” of conservatism. Burke seeks to deal with nascent industrial capitalism by (Warning: blogging oversimplification ahead…) distinguishing between a sphere of “culture” (or “civil society”) that can be fostered, and refuses to attribute social problems to the mechanisms of the market itself. He defends the market as good, over against the landed establishment (the “nobles”) of the pre-industrial order, which is who he is opposing. But for him, the market is not all there is. (One sometimes sees a variant of this in defending Adam Smith by noting one must read both The Wealth of Nations and The Theory of Moral Sentiments.)
Continue reading →

Do Greeks Work Harder Than Germans?

Published Wednesday, December 21, 2011 A.D. | By DarwinCatholic

Matt Yglasias has a piece in Slate attempting to counter the “if the Euro is going to work, Greeks are going to have to learn to work hard like Germans” line of thinking.

It’s true that Germans and Greeks work very different amounts, but not in the way you expect. According to the Organization for Economic Co-operation and Development, the average German worker put in 1,429 hours on the job in 2008. The average Greek worker put in 2,120 hours. In Spain, the average worker puts in 1,647 hours. In Italy, 1,802. The Dutch, by contrast, outdo even their Teutonic brethren in laziness, working a staggeringly low 1,389 hours per year.

If you recheck your anecdata after looking up the numbers, you’ll recall that on that last trip to Florence or Barcelona you were struck by the huge number of German (or maybe they were Dutch or Danish) tourists around everywhere.

The truth is that countries aren’t rich because their people work hard. When people are poor, that’s when they work hard. Platitudes aside, it takes considerably more “effort” to be a rice farmer or to move sofas for a living than to be a New York Times columnist. It’s true that all else being equal a person can often raise his income by raising his work rate, but it’s completely backward to suggest that extraordinary feats of effort are the way individuals or countries get to the top of the ladder. On the national level the reverse happens—the richer Germans get, the less they work.
Continue reading →

Notes on the Vatican Statement on Global Financial Reform

Published Wednesday, October 26, 2011 A.D. | By DarwinCatholic

UPDATE:
Thinking this post (written last night) over again in the light of morning, it strikes me that while getting a lot of the real text out there is doubtless is a real service, many people simply won’t read the whole thing, so I’m adding the following summary bullets at the top. The document:

- Blames easy money and easy credit for the origins of the global financial crisis (classic Austrian business cycle explanation)
- Criticizes a “liberalist approach” to avoiding intervention and the failure to bail out Lehman Brothers (notes later that financial institutions should be bailed out on condition of contributing to the real economy through “virtuous behavior”)
- Notes that globalization has been a huge benefit to many, but has left others behind
- Calls for people to remember spiritual and ethical considerations rather than putting their hope in technocracy
- Expresses concern that speculation has hurt global markets and the developing world in particular
- Praises the G7 and G20
- Suggests the need for a global “authority” stronger than the UN or IMF
- Says that such a world authority would have to be voluntary in nature, not use force or compulsion, and would probably start as an association of a smaller number of nations (like the G20 or EU)
- Expresses concern that financial markets have grown faster than “real markets”
- Endorses the idea of a world central bank
- Lists as purposes of a world authority and central bank that it would: 1) encourage free trade and efficient markets, 2) prevent excessive government deficits, 3) pursue sound money, 4) prevent speculation and excessive credit, 5) fund itself via a financial transaction tax

Now on to the detailed post.

If my circle of Catholic acquaintance on Facebook is any guide, there’s been a fair amount of buzz going around about the “note” released Monday by the Pontifical Council for Justice and Peace: TOWARDS REFORMING THE INTERNATIONAL FINANCIAL AND MONETARY SYSTEMS IN THE CONTEXT OF GLOBAL PUBLIC AUTHORITY. Those of a more left-leaning description did some preemptive crowing that this would “put the pope to the left of Nancy Pelosi”, but having downloaded a copy of the full document yesterday I figured I’d avoid any commentary, read the document cold, and post thoughts on the text itself.

First, a little context: This document was written by the Vatican’s Pontifical Council for Justice and Peace, an office responsible for providing thought on social justice issues. This is, thus, not something written by the pope, but it does come from people that Benedict XVI has put in charge of thinking on political and economic issues. The document itself is fairly short and less densely written than most encyclicals. Given what it covers, it seems to me that there’s not really any teaching presented here, per se, but rather an attempt to summarize the understandings of certain experts about the current global economic situation, and then to apply well established Catholic moral teachings to the current world situation.

Without getting further into editorializing, I’m going to work through a number of quotes from the text while providing some notes with my own thoughts on it. I’ve preserved the numbered headings of the original document. (The document is in the block-quote indents, my notes are in the out-dents.)

1. Economic Development and Inequalities

In material goods markets, natural factors and productive capacity as well as labour in all of its many forms set quantitative limits by determining relationships of costs and prices which, under certain conditions, permit an efficient allocation of available resources.

This is a fairly standard observation, but as a pricing guy I found it interesting that one of the first things in the document was a note to the efficiency of price as a means of achieving efficient markets.

In monetary and financial markets, however, the dynamics are quite different. In recent decades, it was the banks that extended credit, which generated money, which in turn sought a further expansion of credit. In this way, the economic system was driven towards an inflationary spiral that inevitably encountered a limit in the risk that credit institutions could accept. They faced the ultimate danger of bankruptcy, with negative consequences for the entire economic and financial system.
…
The speculative bubble in real estate and the recent financial crisis have the very same origin in the excessive amount of money and the plethora of financial instruments globally.

This is interesting in that it is an essentially Austrian account of the sources of the financial crisis: blaming it on easy money and easy credit. As Blackadder observed a while back, this wouldn’t be the first time that a Vatican official has taken an explicitly Austrian (and anti-Keynsian) stance on economic issues.) Continue reading →

The Home Mortgage Deduction

Published Tuesday, October 25, 2011 A.D. | By Paul Zummo

There’s some consternation in conservative (and other) circles about tax reform proposals that would eliminate the home mortgage interest deduction. The deduction is eliminated in most flat tax proposals, though it is not eliminated in the plan Governor Perry laid out today.

It seems to me that, at least in the abstract, a tax reform measure that lowered rates and eliminated such deductions would be fair. To me all these credits are just a form of social engineering through the tax code. Believe me, I benefit from these credits and so it would probably be against my self interest to see them go. On the other hand, my overall rate would decline, so it wouldn’t be a catastrophic change for me.

At any rate, opponents of eliminating this deduction categorically state that it would depress home sales and force others into bankruptcy. This seems . . . overstated. The deduction certainly had no influence on my decision to buy a home, and even if I lost the deduction without a concurrent rate decrease it would hardly force me out onto the streets. Believe me, I like getting that extra money back, but it isn’t that much money.

Maybe I’m missing something here and the deduction has a much greater influence on people’s decisions to buy or rent than I know. And maybe I’m just one of those “fat cats” Mitt Romney thinks are the ones who would be the sole beneficiaries under Perry’s plan. But I fail to see how this simple credit or deduction is that much of a factor in home buying decisions.

I would love feedback on this one.