Market Correction

29 September 2008

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

Fareed Zakaria is correct: Sarah Palin's recent answer to a question about the economy "is nonsense - a vapid emptying out of every catchphrase about economics that came into her head" ("Bow Out, Governor," Sept. 29). He's right also that she's unfit to be entrusted with the power of the modern presidency.

But Mr. Zakaria is wrong to suppose that these traits separate Gov. Palin from other candidates for high political office. Calls by Senators McCain and Obama for cracking down on "speculators" are classic instances of wrongheaded catchphrases, as is Sen. Obama's vocal skepticism about free trade. Gov. Palin is merely less skilled in passing off inanities and claptrap as profundities.

More importantly, NO one is or ever can be "ready" or "qualified" to exercise power of the sort that is concentrated today in Washington. A country of 300 million people, each with his or her own unique desires, talents, and knowledge, cannot be wisely regulated in the detail and intrusiveness demanded by the modern state.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

29 September 2008

Editor, The Baltimore Sun

Dear Editor:

Rena Steinzor blames today's financial unrest on "knee-jerk opposition to federal regulation" ("Reviving regulation," Sept. 28”). Her solution, of course, is greater government involvement in the economy.

But on the very same op-ed page, Cynthia Tucker put part of the blame (rightly so) on George W. Bush: "The White House bragged on programs to make borrowing easy, including an initiative to allow the Federal Housing Administration to insure mortgages for first-time homebuyers without a down payment" ("Minorities a convenient scapegoat for U.S. financial woes").

Clearly, the only knees jerking of late are not those of conservative politicians opposing government intrusion into markets but, rather, of persons such as Prof. Steinzor who lazily assume that laissez faire has been the order of the day.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

28 September 2008

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

Robert McElvaine doesn't want to kill geese that lay golden eggs ("Their Party Crashed. Ours May Too." Sept. 28). Nevertheless, he asserts that "when profits become too high and taxes on the very rich too low, the geese get obese, eventually stop laying eggs and develop coronary problems." He claims that today's problems are caused in part by insufficiently high taxes on the rich and failure to cut taxes sufficiently for persons at "lower income levels."

This claim is based on a poor diagnosis. Were Mr. McElvaine to take a gander at the data, he'd see that the share of federal income-tax revenues paid in 2006 by the top one-percent of income earners (40 percent) was more than double the share paid by this group in 1980 (19 percent). And this is a higher share not of a fixed amount of revenues, but of a much larger amount of revenues. In 2006 Uncle Sam's tax revenues were 440 percent the size of their 1980 amount.

Mr. McElvaine would see also that, while the average rate of taxation on the top one-percent of income earners fell 32 percent during this time (from an average rate of 34 percent to a rate of 23 percent), the average rate of taxation for the bottom half of income earners fell fully 50 percent (from an average rate of 6 percent to a rate of 3 percent).* Percentage-wise, lower-income workers received a larger tax cut than did the highest-income earners.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
Enterprise Hall
George Mason University

* Tax data are from The Tax Foundation:
http://www.taxfoundation.org/research/show/23408.html

Federal revenue data are from the Congressional Budget Office:
http://www.cbo.gov/budget/historical.shtml

28 September 2008

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

Robert McElvaine suggests that one cause of today's financial problems is growing income inequality over the past few decades. This inequality allegedly prompts households in the lowest income groups to borrow too much ("Their Party Crashed. Ours May Too." September 28).

A careful look at the data casts doubt on this conclusion. Reckoned in 2003 dollars, the percent of American households annually earning more than $75,000 TRIPLED between 1967 and 2003 - from 8.2 percent to 26.1 percent. And during this same time the percent of households annually earning less than $15,000 fell significantly, from 21.7 percent to 15.9 percent.

Data can be sliced and diced to support a wide range of arguments, but it's pretty clear that, as economist Arnold Kling says, over the past few decades "it has become difficult to avoid being squeezed up into a higher [income] category."* Given this fact, Mr. McElvaine's suggestion that growing income inequality is playing a role in today's turmoil is not credible.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
Enterprise Hall
George Mason University

* http://econlog.econlib.org/archives/2004/09/squeezed_up.html

27 September 2008

Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281

To the Editor:

Calling for "A New Deal Deal" (Sept. 27) Katrina Vanden Heuvel and Eric Schlosser offer a potted history of the old one and the problem it allegedly solved. For example, the bank failures that prompted the 1933 Emergency Banking Act were emphatically not the result of laissez faire policies. Rather, they were caused by the Fed's disastrous contraction of the money supply and by government restrictions on branch banking - restrictions that prevented banks from sufficiently diversifying their portfolios.

Ms. Vanden Heuvel and Mr. Schlosser contradict not only history, but also themselves. After asserting that the Great Depression was "preceded by years of laissez-faire economic policies, they write, a mere two paragraphs later, that "direct government intervention has played a central role throughout American economic history."

Such poor history and lousy logic ought not be taken seriously.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University