In response to this column by Loren Steffy in the Houston Chronicle's business section, I sent the following letter:

Re:  "Maestro's Music Plays On and On"

In "Maestro's Music Plays On and On", Mr. Steffy criticizes the government for not taking a more activist, interventionist, micromanagement role of the banking industry in return for the bailout cash.  He bemoans that the government is doling out billions of dollars while only "hoping" that the banks will do the "right thing" with the money, implying that the government is more likely to know better than the private sector what the "right thing" is.  I would like to remind him that it was the government's opinion over the past 10-15 years that the "right thing" was to create a huge tax incentive for home speculation, to encourage banks to make more subprime loans, and to lower downpayment requirements -- the very steps that led us into this crisis to begin with.  I'm curious to know the source of Mr. Steffy's faith that the government has suddenly grown wiser and more forward-looking in terms of what is best for the financial sector.

Sincerely,
Dave Smith

In response to this story in the Houston Chronicle, I sent the following response:

Re:  "Nation's Most Famous Plumber Endorses McCain"

In the Campaign Notebook item about the endorsement of Joe "The Plumber" Wurzelbacher's endorsement of John McCain for President, the reporter claims that Wurzelbacher "likely would fare better under Sen. Obama's plan".  This takes only the narrowest view of Mr. Wurzelbacher's self-interest, however; while he may make less than $250,000, and therefore would ostensibly be out of reach of Sen. Obama's planned income tax increases, his employer likely is not, and an increased tax burden on Joe's employer would leave less money for an increase in salary or benefits for Joe and his colleagues; it could perhaps even result in the loss of Joe's job.  The analysis also doesn't take into account Joe's retirement or pension investments, as Obama's plan is to raise taxes on capital gains, interest, and dividends as well as income.  And, of course, while he may currently make less than $250,000 annually, Mr. Wurzelbacher may have plans to move up in income levels during his working life, as millions of people do.  Looking only at Mr. Wurzelbacher's current income situation does not provide the total picture of what tax plan is more beneficial for him and other middle class workers.

Sincerely,
Dave Smith

In response to this column in Sunday's Knoxville News-Sentinel, I sent the following letter:

Re:  "When Wealth Flows One Way"

In his column, Professor Campos suggests an equivalence between two entirely different situations.  When people criticize Senator Obama's desire to "spread the wealth around", they are denigrating an activist government that seeks to forcibly remove money and resources from one group in order to give this bounty to another; this "redistribution of income" is effectively the government deciding who deserves what.  Prof. Campos cites economic statistics to claim that if the income of one group changes over time at a different rate than another group, that this must likewise be "redistribution of income"; if the income of the "top 1 percent" is higher relative to the "middle class" than it was at another time, he draws an equivalence.

Prof. Campos ignores several important facts.  First of all, he seems to confuse economic statistics with people; the people comprising the "top 1%" are not the same people over 30 years:  people move in and out of various economic percentiles all the time.  Secondly, simply because a particular income group increases in relative wealth over time does not necessarily mean that it has come at the cost of any other group; any look at the consumption rates and the quality of life of various income groups over the past 30 years demonstrates enormous growth in each group.  Finally, in the case of the "redistribution" favored by Obama, the government directly takes from one group (via taxes) to give to another group; in the case Prof. Campos describes, no direct government intervention is involved.

Sincerely,
Dave Smith

In response to this story in the Houston Chronicle, I sent the following letter:

Re:  "Republicans Take Heat for Palins' New Wardrobe"

I find it interesting that the Republican National Committee's $150,000 shopping spree for Sarah Palin's wardrobe is front page news.  While seemingly excessive to me, the money was donated voluntarily by contributors who trusted the RNC to spend the money wisely.  If any of these donors disagree with the RNC's spending habits, they can choose not to make donations in the future.  I find more newsworthy the billions of dollars each day wasted by the government on projects no less dubious in nature than a candidate's wardrobe.  Unfortunately, we as taxpayers are afforded no similar option of witholding future payment.

Sincerely,
Dave Smith

In an example of the lowest of lowbrow political discourse, Lewis Diuguid, a columnist for Midwest Voices, a website sponsored by the Kansas City Star, has accused John McCain and Sarah Palin of using "an old code" word.  Apparently the "socialist" description that both have used of Obama's economic agenda isn't really about economics:  it's a racist "code word for black".  As "evidence" of his claim, Mr. Diuguid cites examples of former FBI Director J. Edgar Hoover using the term to describe African-American activists such as Paul Robeson and W.E.B. Dubois -- both of whom were members of the American Communist Party.  Of course, Mr. Diuguid ignores that his examples actually were socialists, self-avowed ones at that, instead claiming that the term was applied to his examples because they worked for equal rights for African-Americans.  His ignorance is appalling.  He cites no evidence, of course (because none is available) that black activists were termed "socialist" on the basis of civil rights struggles rather than political ideology, and he also cites no evidence (again, none being available) that the term was only used in reference to African-Americans.

Perhaps Mr. Diuguid isn't particularly adept at using a dictionary.  A quick check online finds the following definition of socialism:  "Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy."  The dictionary gives no "code word" definition of socialist.  Is Senator Obama's proposed agenda of a national health care plan, "windfall profits tax" on oil companies (the proceeds to be sent to citizens as "rebate" checks), higher personal and business income taxes, higher taxes on dividends, interest, and capital gains, and increased regulation of the economy not consistent with the formal, non-"code" definition?  Apparently facts and definitions aren't important in Mr. Diuguid's world -- only race is.

Diuguid is not the only one proposing that opposition to Obama's candidacy is based on race.  Pennsylvania Congressman Jack Murtha recently opined that "[t]here is no question that western Pennsylvania is a racist area."  He later referred to the people living there as "rednecks".  Interesting assessment.  Perhaps that explains why Democratic Ed Rendell, who is white, did so well in Pennsylvania's westernmost counties in the 2006 gubernatorial election against Republican Lynn Swann, who is black.  Is Rep. Murtha then saying that Pennsylvania Democrats are racist?  What about his own endorsement of Hillary Clinton in the primaries over Barack Obama -- since Murtha is himself from western PA, are we to infer that his endorsement was based on racism?

There will no doubt be people who vote against Obama simply on account of his race, just as there will certainly be votes in his favor because of race.  It is insulting to the political process, and even to Senator Obama, to suggest that any opposition to his policies or his candidacy is based in racial bias.  We deserve better political discourse than that provided by Messrs. Diuguid and Murtha.

"After eight years of Bush-McCain economics, the pie is shrinking, it's not growing" -- Barack Obama, on the state of the economy.

The analogy of pie is a common one when discussing economics.  Whether someone is wanting a "piece of the pie", or talking about "growing the pie", the pie analogy seems as American as, well, apple pie, and political campaigns, especially presidential campaigns, typically center around the economy and what a prospective candidate will do to improve the economy.  In making his own case on the economy, Sen. Obama has sought to tie John McCain with President Bush, frequently referring negatively to the "Bush-McCain economy" and the past 8 years -- effectively treating Sen. McCain as the incumbent President.

With the recent financial problems caused by the credit crunch, the subprime mortgage mess, and the various "bailout" packages, it would seem that Obama could easily find the high ground in discussing the state of the economy.  But is his claim true?  What has "the pie" -- the American economy -- actually done over the past 8 years?  All economic statistics referenced below are from the Bureau of Economic Analysis, the official economics statistics wing of the United States Department of Commerce, and from the Bureau of Labor Statistics, located within the US Department of Labor.

One test of the economy is to look at the measure of the economic output.  The commonly accepted measuring stick is Gross Domestic Product (GDP).  During the 7+ years of the Bush Presidency, the GDP has increased by nearly 20% when corrected for inflation.  There has been a decrease in the size of GDP in only three quarters out of thirty, including the first quarter of 2001 (when Bush was inaugurated) and the 3rd quarter of 2001 (which would include the 9/11 attacks and some of the aftermath).  So using economic output as a gauge, the "pie" has certainly not been "shrinking" as Obama contends.

Another measure of the economy is income.  If the pie has been "shrinking" over the past 8 years, then surely income has decreased.  Not so:  total personal income has increased from $8.7 trillion in 2001 to $12.2 trillion in the 2nd quarter of 2008; per capita income has increased from $25,620 to $29,274.  That's an increase of nearly 40% in overall compensation, and an increase of 14% in constant-dollar per capita income.  Again, no shrinkage is apparent.

A third measure of economic vitality is job creation.  A shrinking American economic pie would imply job losses along the way.  The unemployment rate has increased, from 4.2% when Bush took office in January of 2001 to 6.1% in September of 2008 -- an increase of 45%.  And 2008 has certainly been a bad year for jobs:  since January, approximately 760,000 jobs have been lost.  But for the total 7+ years of the Bush Administration, there is still a net gain of 4.8 million jobs.  Once more:  no "shrinking pie", even with the aftermath of 9/11 and an increase in the minimum wage.

Perhaps, in making his claim of a shrinking economy, Obama was referring to some other measure of economic performance than GDP, income, or job creation.  Certainly, the current state of the economy is not strong, and the short-term outlook is more job losses and either slow or even negative GDP growth; however, Sen. Obama's claims of a shrinking pie don't seem to match with the facts.

In response to the "credit crunch", the end of the "housing bubble", and the "financial meltdown", the government has facilitated Wall Street takeovers, bailed out owners of bad debt and insurance giants, cut interest rates, invested in commercial paper, and injected large amounts of cash into the economic system.  Still, we read in headlines each day, it is difficult for companies to get the operating funds they need to meet payrolls, invest in new jobs and capital equipment, and expand.

Now, take this into account:  one of the key aspects of Barack Obama's economic platform is to raise taxes on businesses and capital investment.  Is the current economic climate the right time to be taking more money from businesses -- money that could be used to hire workers (or, perhaps, simply not let workers go), invest in new equipment, purchase inventory, etc. -- to send to the government?

Or, put more succinctly:  how are workers made better off by making their employers pay more money to the government?

It seems obvious, but every dollar a business pays in taxes is money not available to expand the business or provide for its employees.  This can have a severe ripple effect through the economy, no different than the ripple effect we saw with higher fuel prices -- money is fungible, and expenses are expenses.  Many of the same people who decried high gasoline prices, blaming the "Big Oil" companies for an overall rise in inflation and increase in unemployment, are in favor of increasing the expense side of the ledger with higher taxes.  What's the difference?

Consider a consumer products company like Circuit City.  I heard a news report on the radio that because Circuit City's credit rating had been lowered, it was having problems getting access to credit.  This credit problem meant that the company is having problems buying inventory for its stores.  Less inventory means fewer choices for consumers and less business for Circuit City.  Less business means, of course, fewer workers and less chance for wage increases, etc.  But buying less inventory also ripples through the economy:  fewer workers required manufacturing TV sets, stereos, DVD players, computers, etc.  Fewer inventory items means less freight cost, so less need for drivers and for trucks.  And of course, a company not doing well has little incentive for expansion; building a new store employs construction workers and provides business for suppliers of construction materials.  Yet Sen. Obama's economic plan is to increase the cost burden of Circuit City by raising their tax rate, causing the same problems as the credit crunch.

Recently, Sen. Obama did state that he would consider postponing at least part of his tax increase plan if he were to take office in January amidst an economy still hurting.  Yet this seems to undermine the basic premise of his economic plan:  if his tax increases on businesses, income, and capital investment are good for the economy, then why postpone them?  Conversely, if his tax increases on businesses, income, and capital investment are bad for the economy, why pursue them at all?

In response to this opinion piece, I sent the following letter to Thomas Friedman:

Mr. Friedman,

In your article "Palin's Kind of Patriotism", I believe you completely misrepresent Sarah Palin's statement about taxes and patriotism in the Vice Presidential candidate debate last week.  While perhaps clumsily worded, it was fairly obvious that Gov. Palin was referring to a quote from Sen. Biden, where he suggested that paying higher taxes was patriotic; or, as the Associated Press headline put it:  "Biden calls paying higher taxes a patriotic act".  It seemed fairly obvious that she was not suggesting that people should unlawfully avoid paying taxes as you imply.

I also disagree with your assertion that taking to market oil resources that we already possess is unpatriotic or even counter to our interests.  As we look to the future and alternative sources of energy, it seems foolish to ignore valuable resources we can use now.  The eventual successor to oil is unknown, as is the timetable for discovering it; meanwhile, we have known reserves of it in Alaska, and to willingly refuse to pursue them seems foolish and shortsighted.

I would further remind you that raising taxes on businesses, capital, income, and prosperity does nothing to "empower[] more Americans to work in productive and innovative jobs".

Sincerely,
Dave Smith
Houston, TX

With every financial crisis, real or imagined, there comes the obligatory references to Herbert Hoover.  As the conventional narrative goes, it was Hoover's laissez faire inaction in response to the 1929 stock market crash that brought about the Great Depression.  With the current economic meltdown on Wall Street and the spate of failed banks, the Great Depression is being invoked again.  As Congress debates a government bailout of the financial markets, those advocating a more free market response are predictably being compared to Hoover.  It's not considered a compliment.

As is often the case, however, the conventional narrative departs from the truth, and while the Hooverian response does resemble the platform of one of the candidates for the Presidency, it might surprise a lot of people which candidate that is.  Hoover, far from the caricature, was not the free market, limited government advocate; rather, he fit in with the progressives of his day, seeing government as a tool for shaping a better world.

When Hoover took office, the top marginal income tax rate was 25%.  The top bracket started at an annual salary of $100,000 -- quite a sum at that time.  Hoover's response to the building economic crisis was to raise taxes.  Only on the "rich" of course.  President Hoover dispatched his Treasury Secretary, Andrew Mellon, to Congress to lobby for an increase in the top tax rate from 25% to 63% on those making over $1,000,000 per year.  He was successful:  Congress granted his request, and the tax increase was enacted.  Taxes were also increased on estates (today known as the "death tax" by opponents) and corporations.  Secretary Mellon, who was reluctant to request the increase and later lamented it, was later chastised as one of the greedy capitalists, "economic royalists" in Roosevelt's vernacular, responsible for the depression.

President Hoover also sought to shore up the economy by protecting American businesses, particularly farmers, from overseas competition.  He pressed Congress to pass the Smoot-Hawley Tariff Act, which raised tariffs on nearly every sector to historically high rates.  As predicted in a letter written to President Hoover by 1,028 economists urging him to veto the act, enactment of the new tariffs spurred reprisals from other countries, resulting in a worldwide slowdown in trade and commerce.

So the Hoover approach to a "credit crunch", bank closures, and a crisis on Wall Street was to raise taxes on corporations and "the rich", and to increase tariffs on imported goods and services.  Sound familiar?  It should:  it's the platform of Senator Barack Obama.  Will the real Herbert Hoover please stand up?

The sun came out again today.  The birds are singing, food tastes the same, and I still have a job.  Why should this be a surprise?  Well, according to President Bush, many members of Congress, Treasury Secretary Paulson, and many pundits, the failure to pass the Wall Street bailout plan by Friday Sunday Monday [insert new date here] was going to precipitate a financial meltdown of historic proportions.  When negotiations fell apart over the weekend and ultimately the plan went down in defeat on Monday, their dire predictions seemed prescient, as the Dow Jones Industrial Average fell 777 points upon news of the 228-205 vote against the bailout bill in the House of Representatives.

But something funny happened on the way to the fallout:  the stock market rose over 500 points the next day, after people had time to digest the information and realize the details of what happened the day before.  Then the next day (today as I write this), the stock market closed about the same -- down less than 20 points out of over 10,800, or about 0.2%.  Two more banks were swallowed up by larger institutions (I suppose no more "woohoo!" is going on at WaMu), and the market is going about its business, which is to say, business.

The problems caused by the housing bubble and the subprime mortgage jam still remain, but the public at large and many economists remain unconvinced that the answer to the current crisis is for the government to inject more cash into the market with the purpose of bailing out entities who, with the encouragement by and incentives from the government,  made the bad decisions that put us into this mess to begin with.  As Harvard economist Jeffrey Miron writes "a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending [and] encourages companies to take large, imprudent risks and count on getting bailed out by government."

Ultimately, I predict that some kind of "reform" bill will pass.  I've been hearing for the past several days an idea that I do think makes sense, and that apparently both Presidential candidates have endorsed:  increasing the FDIC protection from $100,000 to $250,000.  I might even be in favor of a further increase to ensure that more small businesses are protected.  But that's insurance, not a bailout per se; financial institutions (and therefore, ultimately, the depositors themselves, through lower rates of return) pay premiums for that protection.  Since the government has already taken over Freddie Mac and Fannie Mae, I've seen prudent plans put forward for selling off their assets and ending them as government-sponsored enterprises.  And, I'm guessing a final bill, since it will have to be the product of negotiation, will have some bailout terms; too many of the big financial firms pay too much money in campaign contributions to get nothing out of the final bill.

The rush to get something, anything, through the Congress has, however, at least died down somewhat.  The artificially-prescribed deadline(s) came and went without the dire consequences predicted by advocates of a Big Government intrusion into the market.  Our 401(k)s took a big one-day hit, no doubt.  But the world didn't end as we know it, and the resulting government action, while likely to be less efficient and effective as a freer-market approach, will be better for the further debate and negotiation.

In response to this editorial in the Houston Chronicle, I sent the following response:

Re:  "Bad Move:  House Defeat of Bailout Legislation Will Deepen Impact of Financial Crisis"

So Speaker Pelosi (and, implicitly, the editorial board of the Chronicle) blames Republicans and a lack of government intervention on the current financial crisis and the failure of the House of Representatives to pass the bailout plan.  Unfortunately, this claim ignores some important facts.  First of all, 95 Democrats voted against the plan -- over 40% of Speaker Pelosi's caucus.  Secondly, the crisis on Wall Street is not the result of too little government interference in the marketplace, but rather too much.  The housing bubble is the result of government tax and other incentives that artificially inflated the demand for housing, while the collapse of the mortgage market is largely attributable to the government encouragement of subprime lending.

Sincerely,
Dave Smith