Comment 29841

By A Smith (anonymous) | Posted March 30, 2009 at 12:56:11

Ryan >> Many people who borrowed modestly and responsibly have still run into trouble as the recession leaves them without a job or with reduced pay. Many people who invested prudently have found their retirement savings gutted despite doing everything the way they were 'supposed' to.

Buying homes at historically high prices is risky. Buying stocks at high multiples relative to GDP is also risky. Everybody has heard "buy low sell high", so if people did the opposite, that's their own fault.

>> Yet our economy is still hemorrhaging jobs and our GDP is still shrinking. So much for your moralnomics.

After looking closer at the real GDP numbers as put out by the feds, here is what I have come up with...From I-2006 to IV-2008 (Harper's term...tinyurl.com/c6fjhp), real GDP has averaged 1.18% annualized growth. In that time, direct government consumption has gone from 22.18% of GDP to 23.68%.

In contrast, from 1998 to 2007 (tinyurl.com/cxwvtm), direct government spending by government went from 22.29% of GDP to 22.65% of GDP, relatively flat. However, in this time period, where government spending as a percentage of the economy stayed about pretty constant, real GDP growth averaged 3.24%.

If government can keep their spending to the level of growth in the economy, or less, real GDP does well. When they grow faster than the economy, you get slowdowns, which is what has happening today.

>> The same people who believe economics is a tool of analysis and a policy instrument,

What analysis, you never use numbers to back your claims. Please show me some numbers to back your claim that shrinking the private sector is good for real output.

>> if you don't care about what happens when markets are unregulated, why should anyone care what you think about it?

That assumes that regulating markets actually produces positive results. The financial industry is the most highly regulated industry in the U.S. and what good has it done them. Conversely, the illegal drug trade is completely unregulated and it is flourishing, despite all governments efforts to the contrary.

>> While you wring your hands gleefully at those people's comeuppance, the rest of us are trying to establish a civil, humane society that provides enough stability for real personal freedom, not your hypothetical freedom to freeze in the dark.

If you invest in something overvalued, who's fault is that, yours or society's? Furthermore, is it fair that people who took small mortgages should now bailout those who lived high on the hog for a few years? Life is about making choices, so when you borrow other people's money, you had better make sure you can pay it back, otherwise, your better off renting. Making someone else pay for your home is just wrong.

>> The real economy has been dragged down by the collapse of the unregulated shadow economy

The real economy has been dragged down by a massive growth in government spending. This has stolen limited capital away from the private sector and the result has been less private investment. From I - 2006 to IV - 2008, U.S. government consumption and investments have grown from 2458.4B to 2911.4B, an increase of 18.42%. Meanwhile the economy as a whole has only grown 9.57%. As a result of a surging government sector, private investments have been squeezed out, shrinking 15% in this same time period.

Because the amount of investment capital is limited at any one time, when government takes more of it, it comes at the expense of the private sector. That's what has occurred under Bush II and is the opposite of what happened under Clinton. If you want a strong economy, you need a strong private sector. If you want a strong private sector, you can't let government hog all the investment capital.

>> This crisis is not a failure of personal moral fortitude - it's a policy failure

I agree. If government would stop crowding out the private sector, businesses would not have to reduce the amount of investments they make. Japan did this in the nineties and they call it the lost decade.

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