The Indy Star has a compilation of quotes from different members of the Indiana Congressional delegation in response to President Obama’s speech last night. It is worth reading (and entertaining in some instances). I want to point out two specifics that I found interesting:
Mark Souder pulled no punches:
President Obama has increased the federal deficit as much in his first year as President Bush did in his first five years. He has also proposed unprecedented takeovers of private businesses and expanded the powers of the federal government far beyond what is necessary to deal with the economic downturn.
The president, in my opinion, has turned a likely serious, but relatively short recession, into a potential depression.
Senator Lugar, on the other hand, continues to make me scratch my head:
President Obama’s address to Congress tonight, and the release of his budget on Thursday, come at a critical time as our economy continues to weaken and our national debt is mounting. The president has initiated work with Congress on these critical financial matters. At the same time, we must continue to be vigilant in addressing our national security challenges and continue to provide American leadership in the world.
I suggest four increasingly interconnected areas in which the United States should not lose focus: nuclear proliferation, global energy security, global food security and climate change. The United States possesses unique abilities to address each of these problems that no other country has. Three of the four — proliferation, energy scarcity and climate change — pose grave potential threats to the United States itself.
I won’t argue with the Senator on much here regarding nuclear proliferation and other items, but it really frustrates me that he has bought into global warming (sorry…climate change) and then procedes to elevate this failing theory to the level of one of the top 5 issues.
Souder is already de facto incorrect with regard to his ‘relatively short recession’ statement. Since World War II the average recession has lasted 10.4 months, with ranges from 6 to 16 months. This recession began December, 2007, so it is stretching into 14 months already. It was ‘relatively’ long before he even took office.
But Further, it is driven by credit contraction, which is qualitatively different from all other post-war recessions. With a huge housing bubble collapsing, and with massive insolvencies in the financial sector, ‘potential depression’ was already the case. It is potential depression which we are struggling to avert, in a circumstance that is no fault of Obama’s. Past credit-contraction-driven events have tended to be far more severe than run of the mill recessions, and to have lasted years and years. Such was the case with Japan’s lost decade of the 90’s, our own 1930’s, and two periods in the 1800’s in the U.S.
I think Republicans are on sound ground when arguing for ways of doing things better. But too many statements coming from Republicans in the House have tended to undermine credibility either by exposing an objective lack of understanding of what is going on or perceived willingness to subvert that understanding to score political points. In my opinion, that’s why Republicans are not polling well either in the business community or in the broader population.
My own feeling is that the reason for this lack of ability to lead is that House republicans don’t come so much from business environment anymore as from a law/politics background, and therefore have an inadequate personal understanding of the economy.
I will cut Souder a little bit of slack. I have linked to a Fed Reserve graphing (though I like the raw data a bit better). While the recession officially began in December, 2007, you will see from the data that the recession was…well…mild (if not non-existent) for the first half of 2008. It was really only the second half of the year that actually looks like a recession.
research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=GDPC1&s[1][transformation]=pch#
Republican arguments that do not include at least some thinking regarding what the Constitution allows the federal government to do are weak arguments, from my point of view. But I do agree that the ideas that they have put forward are superior to what the Dems are putting forward. But then again, that isn’t a very high hurdle.
Your observation about business vs law background is interesting. You are right in that we are lacking business representation in government, which I think is because conservatives in business don’t want to have anything to do with government.
I disagree that the Republicans are polling poorly because of a lack of leadership/business experience. They are polling poorly because when they had the chance, they left their principles at the door in both the fiscal responsibility area and in the ethics area. They will poll better when they have a history of standing for the right things consistently.
Excellent!
By the way, placing our banks in some form of receivership, whether explicit or implicit, is not unprecedented. In my opinion, it doesn’t matter which party or governing philosophy won last November. Every responsible leader would be confronted with the reality that our banking system is insolvent and will collapse with genuinely devastating consequences.
A collapsing bank is like a vortex… Business lines of credit evaporate…. loans are called in… A collapsing bank in a down economy can pull an extensive network of client businesses down with it.
An excellent local example was the collapse of the 160+ employee Frank E Irish Company last summer in Indianapolis. A 8-decade old family firm, they were squeezed by copper prices on Lucas Oil, a contract which by its municipal nature could not be renegotiated. They asked for an increased line of credit from National City Bank to carry them through to their next job, which was already contracted, but National City itself was nearly insolvent because of its mortgage business, and was being governed by a Hedge Fund. They had no flexibility, and so foreclosed, in spite of the fact that the Irish company was in negotiations with other financiers that wanted their business.
160 employees out of work. Copper prices back down. Squeeze over. Company destroyed in the meantime, because its bank was itself under too much financial stress to serve as a proper banking partner.
That is the type of scene that would be repeated on massive scale in this crisis. It is happening all around us, by the way, which is why companies are shedding their payrolls in order to stay in business or are closing their doors. And it can snowball, as it did in the Great Depression, the last recession brought on by credit crisis.
Having signed off, I’m compelled to sign back on with another observation about the Frank Irish company collapse last year…
The reason that Republican House leadership, not to mention John McCain, lost so much credibility with business people last year was that they seemed to have little understanding of the severity of crisis, indeed little understanding of the role banks play in the economy. In my opinion, the idea of simply letting the banks fail was clearly a nonstarter for any with an understanding of reality. So I ask you to believe me that when the Republicans spoke against intervention, they earned credibility only with those who didn’t understand the crisis.
Now our stock market has lost 50% of its value as the economy spirals and expectations for earning retract. These are not just paper losses. Real value has been destroyed, and it isn’t over yet. It could get much much worse. The polls seem to indicate that not much credit is being given to the Republican opposition for sincerity of intent. I agree.
I continue to see too much coming from too many Republicans in the House Leadership that indicates to me either bad faith or lack of understanding of the crisis. The problem is that there are legitimate areas for improvement, and because the current Republican leadership in my opinion has undermined its credibility with mindlessness in the face of crisis, both last fall and now, they have lost any leverage whatsoever, rendering Republican influence marginal. That’s regrettable.
But, Chris, I repeat my question. Is the intervention in the banking system CONSTITUTIONAL? OK, I’ll grant that the intervention may not be unprecedented, but we have acted in unconstitutional ways before.
Yes, of course it is constitutional. The institutions are insolvent. Arguably, they have also been fraudulent. And the confidence of their depositors is based entirely on the guarantees of the FDIC. They wouldn’t have any depositors if it weren’t the long term backing of of the U.S. taxpayer. And their shares are securities regulated by the SEC, which can also justify federal intervention when material misrepresentation has been occurring. There is no Constitutional question whatsoever with respect to publicly traded, FDIC-insured banks.
Please point to the section of the Constitution that authorizes this type of intervention.
I should observe that if a proposal existed to seize profitable and solvent banks, that would be Constitutionally problematic. There is no such proposal. The banks in question are in desperate trouble. Other banks which are in solid shape are in no danger.
I have to run to a meeting… but am I to understand that you are calling all banking regulation unconstitutional? Whatever aspect of the Constitution empowers the government to make laws and regulate commerce does it… including most likely the inter-state commerce provisions.
No, I am not calling all banking regulation unconstitutional. What I am calling unconstitutional is the spending on one dime of federal money on a financial institution in order to “help their balance sheets” or to “encourage liquidity”. This is not regulation, this is intervention into markets.
What I am alluding to is that there is a thing called the tenth amendment that says that the Constitution has to tell the Feds that they can do something in order for it to be Constitutional. Writing regulation that says that an interstate bank must hold certain reserve levels or even (stupidly) require them to loan money to people who cannot afford to pay the loans back is clearly in the realm of Constitutional regulation.
Regulation means writing rules of engagement, not providing the cash to do business.
In anticipation of one common response to my rant regarding Constitutionality is the common idea that this type of spending is providing for the “general welfare”. The problem with this argument is that the Constitution actually defines general welfare in Article 1 Section 8. Items that are providing for the general welfare are things like: regulating international and interstate (not intrastate) commerce; write laws regarding naturalization and bankruptcies; promote science BY protecting intellectual property (i.e. patents, copyrights and trademarks); etc.
It is a limited set of activities and the tenth amendment says that they cannot be expanded without Constitutional amendment.
ALL regulations are market intervention. The interstate highway system is market intervention.
Once again, cash to the banks (or whatever) are not regulation. Just because A is a type of B and C is a type of B does not mean that A is C.
We are on dangerous ground when we start to try to use other expenditures to justify the Constitutionality of another. But the interstate highway system can be argued is an form of the “post road system” that is explicitly listed in Article 1 Section 8. I personally have my doubts–at least in today’s environment–but at least it is a plausible argument. I am still looking for the plausible argument for bank stimulus.
Part of my issue with your critiques of the Republicans, Chris, is that you are asserting that Republicans (or Republican leadership) do not understand the scope of the problem. But what some are doing is arguing that the scope is there, but the government has no business getting involved. It is not a public discussion point, but the view is essentially the point that I have been making regarding Constitutionality.
It is possible to “see” the size of the problem and STILL argue that the government should not spend money on it. That is my argument.
You can argue that the founders were short sighted or that things have changed since then. But we either will have to honor the Constitution or not. We seem to be using it for kindling right now.
You are right. Some appear to find the prospect of the global economy falling into a prolonged depression, as it has several times in our history, more acceptable to their conscience than bending their principles with respect to intervention. That is another reason in my opinion why House Republican leadership is presently being dismissed for ideologues rather than responsible and pragmatic participants in the governing process.
Principle: a comprehensive and fundamental law, doctrine, or assumption (www.m-w.com)
I guess I would respond that if you are “bending (your) principles” then you they aren’t really principles.
There may be some people who dismiss the Republicans as rigid ideologues, but I still suspect they are considered just other politicians because they did NOT hold to their principles.
What is insulting about the position you have taken is that you believe that your understanding (or the understanding of whatever people you are trusting) surpasses the understanding of the founding fathers. Personally, I think that is a poor reading of history.
Joel, the Founding Fathers haven’t taken a position with respect to this crisis. (The Founding Father’s were not mindless automatons.. they adapted to crisis and contingency.)
You do tend to sustain an observation I made last fall that there were many participating that would have opposed the institution of a federal reserve or national currency. Here you are expressing reservations about the interstate highway system.
Whether you like it or not, or agree with it or not, your positions if the Party were to adhere to them would have the support of no one but cave men.
Because if the government doesn’t do it, no one will?
No, Chris. The American people do awesome things particularly when the government gets out of the way.
Currency is constitutional (Article 1 Section 8 again). I agreed that the interstate system is constitutional as well, but the logic used to get there is somewhat tenuous. The Federal Reserve is quite tenuous.
I argue that the Founding Fathers DID take a position regarding this crisis. It is called the 10th Amendment (ratified and everything!).
If the Constitution must be reevaluated for every situation that comes up, then don’t use it at all. Just make Obama Emperor and disband the Imperial Senate–oops, I’m confusing my stories.
Joel:
Here it is:
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”
Injection of capital, whether one agrees with it or now, is empowered as a provision for the general welfare of the United States. Congress is explicitly empowered. It’s a very broad empowerment, so long as it trespasses on no rights or explicit limitations, (and even then the most Conservative courts in the land uphold the power when it is deemed compelling with respect to general welfare, even if it isn’t in the least bit compelling… as in the case of banning gays from marrying!)
Among the awesome things done when government got out of the way was the selling of a massive leveraged structure of credit default swaps… this was one financial institution selling insurance against defaults of another…
But real insurance companies are required BY GOVERNMENT to keep a base of reserves on hand as a means to pay losses, so they aren’t just selling snake oil. Credit default swaps were completely unregulated, and so when defaults began, they ricocheted through the economy, creating crises even for conservative companies that thought they had insured against loss.
It was not an excess of regulation in the shadow banking system that formed… it was an absence of it.
Chris, you simply do not read. That Article 1 Section 8 DEFINES “General Welfare” and it is not just anything someone thinks might be in the best interest of the government. They are SPECIFIC, ENUMERATED, LIMITED things. You have selectively stopped the quotation before the enumerations begin. Injection of capital is specifically NOT provided for and is therefore unconstitutional. Try again.
I say you do not read because I already address this argument 8 comments before you made this General Welfare assertion.
Regarding regulation of financial institutions: I think it is a mistake to make blanket arguments for complete deregulation or complete regulation. The Democrats have created a straw man argument saying the Republicans want to pull down any regulation of financial institutions, yet I have seen no such argument pushed by the Republicans. On the other hand, I have seen stupid regulations pushed by the Democrats–specifically the Community Reinvestment Act.
Where Federal regulation becomes dumb is when they start telling commercial entities where or how to do business. Where it works is when they regulate things like the reserves required–or said another way, how much leverage is allowable. Obviously when new instruments come to be used like what you point out, the government should review the instrument and decide if and how it should be regulated. But when the Feds tell a bank who they should lend to, we will have problems.
Joel, on a grammatical basis, all the clauses are equal, not subordinate.
I disagree Chris. Note something–in the first clause it says (as you quoted) “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States” but then subsequently includes things like: “To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;
To provide and maintain a Navy;
To make Rules for the Government and Regulation of the land and naval Forces;”
If the clauses are all equal, then there would have been no reason for the document provisions for an Army and Navy, because that was already covered by the clause “provide for the common Defence”
Actually, if all the clauses were equal, there would be no reason for the inclusion of any of the remainder of Clause 8 with the exception of the limit of 2 years on appropriations. Tell me which of the subsequent clauses has to do with anything that is not either the common Defence or the general welfare of the United States? Why explicitly write that post roads are included? Why authorize the creation of a court system? Why authorize the patent and trademark system? Why set of the system of coining and borrowing money?
Madison wrote in Federalist Paper 41, “Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars. But the idea of an enumeration of particulars which neither explain nor qualify the general meaning, and can have no other effect than to confound and mislead, is an absurdity”
Joel, the framer’s seem to have mastered in other parts of the Constitution the skill of clear enumeration and subordination. Why would they suddenly here lose that skill and adopt a grammatical structure of equivalent semi-colons?
It’s a hard sell, Joel. Understanding your right to this opinion, I’m not seeing any of the leading limited-government-type institutions, (Cato, etc.) adopting this line with any seriousness or conviction. Are there?
Well I didn’t see any answers there. I don’t think the structure means anything at all if the specifics enumerated in Clause 8 can simply be covered by the generality of “general welfare”. Did they simply write examples? Nowhere else do we see examples being written into the Constitution. So we need the Defence AND a Navy? That doesn’t make sense. You are concerned about sentence structure. I am concerned about logical structure. I have not heard any logical argument for having a catch-all that, essentially, allows a creative politician to do anything that they want and then having specifics that would indicate that there is a limit to what government can do.
You are correct that others are not making this argument. I think there are political reasons for this (e.g. you have already said that I am a joke for not bending my principles to agree with busting the Federal budget to theoretically make financial institutions solvent–the real political world is tougher than that!). There are philosophical reasons as well. If the argument is convincing that the Constitution actually means what it says, then what else must be reconsidered? Medicare? Social Security? NPR? Department of Education?
The Ban on Gay Marriage?
(I did not say you were a joke (did I?) I certainly think (generally speaking) our current crop of Republican representatives are, though.)
Chris, Good point re Gay Marriage ban. That is why it is either a) completely a State issue (my preference) or b) requires a Constitutional Amendment. My real preference is to change the laws (particularly tax laws) so that it doesn’t matter what the government thinks about gay marriage.
You end up calling me a joke because you call my position a joke. The way you actually said it was that only cave men would follow a party like that. (I’m picturing a Geico commercial now).
By the way, part of the reason that I think we have gotten where we are is that we have been too hesitant to amend the Constitution. So rather than actually use the Constitution, we redefine what was written to match what we would like to do.
In my reading this evening I came across someone else making a similar argument to mine. I haven’t finished the article yet, but I thought I would share his linguistic reading of Article 1 Section 8 (from http://www.heritage.org/Research/Thought/fp0023.cfm )
“First, they said that rebuilding Savannah would promote the general welfare, drawing on language in Article I, section 8, clause 1, which says, ‘The Congress shall have power To lay and collect Taxes, Duties, Imposts and Excises, to pay the debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.’
…
“However, there is one very large problem with this argument: The provision invoked by the aid advocates is a Taxing Clause, not a Spending Clause. It is very clear textually, grammatically, and structurally that the only power granted by this clause is the power to lay and collect taxes. The language about the general welfare describes one of the purposes for which taxes may be layed and collected: ‘to pay the debts and provide for the common Defense and general Welfare of the United States.’”
Joel, I did not call your position a joke.
How do you know that I wasn’t expressing a high opinion of the singular perspicacity of cavemen? (Okay, now I’m joking….)
What I meant by the comment was that the economy is going over a cliff. Markets can self-destruct… and have in the past. Economists are almost unified (excepting fringe, in my opinion) in the belief that in an environment of collapsing demand government must act, else total economic collapse is possible, wherein so much value is lost that to begin again is a matter virtually of brick-by-brick reconstruction from practical scratch. The intervening years of human misery, lost productivity, capacity dis-use, and wealth destruction are for most too painful to contemplate. Only those practically speaking who are so rigorous on principle as to be willing to adhere to such a scenario of destruction rather than abandon principle and forestall destruction are, figuratively speaking, cavemen, who would be comfortable in a world that has devolved deeply and painfully to survival of the fittest.
In my opinion, it is as if a magnificent ocean liner, glittering but discovered to be poorly constructed, was falling apart in storm tossed seas, and a coast guard vessel were available to tow it to calm water, but there were those on board the liner who refused the assistance out of principle.
Here is more than 100 that oppose the original bailout
faculty.chicagobooth.edu/john.cochrane/research/Papers/mortgage_protest.htm
CATO reports over 200:
belowthebeltway.com/2009/02/10/more-on-economists-against-the-bailout/
Even editorialists at the New York Times are getting uncomfortable with it:
http://www.nytimes.com/2009/03/03/opinion/03tue1.html
Some are starting to predict a double-dip recession because of economic reactions to the bailouts:
uk.reuters.com/article/stocksAndSharesNews/idUKLNE52200G20090303
Rejecting the bailouts: not just for fringe economist anymore!
There are several different topics afoot… bailout… nationalization (foreclosure)… tax increases… tax cuts… fiscal stimulus….
Hamhandedness is playing a significant role in undermining confidence.
In the meantime, demand is collapsing.
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