Recovery is impossible without some change

Households need to save more. Banks need to rebuild capital. These are not bad things.


Recovery is impossible without some change

The longer the credit crisis wears on, it seems, the less we learn. In the early days the signal-to-noise ratio in the commentary was relatively high, as these things go. But since the crisis intensified last fall, the volume of nonsense has grown exponentially, and not all of it in Paul Krugman’s columns.

Each new intervention only spurs calls for still more radical measures, often to deal with the consequences of the last. So the expenditure of trillions of borrowed dollars in fiscal “stimulus,” much of which will, as critics suggest, be dissipated on imports from other countries, becomes the pretext for “Buy America” rules, to prevent such “free riding.” In the same way, corporate bailouts are used to justify capping the salaries of executives at recipient firms—which may at least make these CEOs think twice before taking the government dosh.

Before things go completely off the rails, it’s time for a little review. Let’s start by understanding that there is nothing particularly new in what we are going through. Manias, panics and crashes are as old as capitalism, or older. The linkages between sectors may be more intricate, the effects may spread more rapidly around the globe, the feedback loops may be more violent, but the essential elements are neither mysterious nor novel. Arguments that they reveal a crippling weakness in “free market ideology” would be more persuasive if the crisis had not been encouraged and exacerbated at every turn by government action, from the Fed to Fannie Mae, from mortgage interest deductibility to Basel II—and if those making such arguments were not so obviously peddling their own ideologies. Faddish claims that rational “economic man” must give way to the insights of behavioural psychology will likewise prove overhyped in time, not because men are not often or even always irrational—an insight with which I assure you economists since Adam Smith have been entirely familiar—but because rationality, the idea that people respond in relatively predictable ways to incentives, remains the best working assumption.

As we should beware of casting too broad a net in our search for causes, so we should not overreach in listing the possible consequences. Attributions of the crisis to “global imbalances,” in which the U.S. saves too little and China saves too much, only get it half right. The willingness of Chinese households to save was not a cause of the U.S. housing bubble—they simply replaced U.S. savings, which had fallen to near zero—nor did China invest all those billions of surplus dollars in the U.S. as some sort of favour, but rather because it made sense on its own terms. That is unlikely to change. The U.S. dollar is and will remain the world’s reserve currency—the euro is in far greater danger of collapsing—so the feverish scenario often painted, of a cataclysmic fall in the dollar leading the Chinese to cash out (and thus make things worse, not least for themselves), is unconvincing.

What is more true is that Americans were saving too little—or in the case of their government, dissaving (running deficits) to the tune of hundreds of billions of dollars a year. With the stock market collapse having wiped out much of their nest eggs, American households are responding appropriately—rationally, you might say—by rebuilding their savings. Yet their government is doing everything in its power to prevent this necessary adjustment, not only tripling its own annual borrowing but offering Amercians hefty bribes to carry on with their previous extravagance. Not content with indirectly subsidizing mortgage interest payments, via the tax code, the Obama government now proposes to subsidize them directly as well. All of this is not merely an attempt to forestall the inevitable—auto bailouts, anyone?—but actively harmful to growth in the long run. Households need to save more. Corporations need to reduce their leverage. Banks need to rebuild their capital. These are not bad things. These are good things. No lasting recovery is possible without them. It may be that they entail some additional pain in the short run, but if you’ve noticed, the road to the long run runs through the short.

That does not mean that governments should, in the caricature of stimulus proponents, “do nothing.” (Or as Obama put it in Tuesday’s address to Congress, “I reject the view that says our problems will simply take care of themselves.”) Be clear on this: the choice in these debates is not between doing something and doing nothing. Everyone, or nearly everyone, agrees the crisis is of a kind that requires massive government intervention (even if, as I say, government was massively implicated in causing it). The question is what kind of intervention. Fiscal stimulus, of the kind proposed in both Canada and the U.S., is at best a diversion. If the problem is averting an all-out 1930s-style implosion, monetary policy is the necessary and sufficient remedy: central banks can supply whatever amounts of money are necessary. If the problem is fixing broken credit markets—which remains the nut of the crisis—that will require more money, and still more ingenuity: the parade of plans for relieving banks of so-called “toxic” assets, under first the Bush and now the Obama administrations—TARP, TALF, PPIF, on and alphabetically on—are forgivable, given the complexity of the problem. And yes, if the problem is ensuring this never happens again, one part of the solution will be intelligent reforms to financial regulation, though these will as often mean repairs to existing, and comprehensive, regulations as they will new ones.

But if the problem is avoiding a necessary process of adjustment, I’m afraid no amount of policy can spare us from that.


Recovery is impossible without some change

  1. How very true : and rather depressing. I remember doing a paper in University (many many years ago) and encountering a great reference document -> basically it was an extremely detailed auto-biography of a Babylonian man whose father gave him a box of gold and told him to go in search of a more efficient supplier of hops and flax etc (family business making beer) .. well the long and short of it is he chased women, spent the coin and generally all around screwed up and returned home where his father had to retrain him as it were – well the point of this story is that during a good part of this misadventure Hamurabi or some other King maybe .. man my memory is getting bad … anyways … there was a lot of concern as merchants were all investing in a sort of ponzi scheme and I remember sitting back and thinking = damn the more things change the more things stay the same.

    • I think the story you’re thinking of is from a book called “The Richest Man in Babylon.” It’s one of the best books on personal finance ever written.

  2. Obama’s soaring rhetoric and beautiful speechifying has many Americans believing (for the time being) that a massive government with him at the healm can be the solution to all problems.

    Under Obama, economic downturns are to be a thing of the past. The state can ensure that everyone who wants to live in a nice house, can. Inneficient or outmoded industries need not close down. Universal health care, that is cheap AND superior, universal post secondary education – all attainable and affordable. Realizable under the relatively simple formula of “taxing the rich.”

    Obama’s left leaning and socialist friends in the press can only carry his water for so long. The greatest expansion of government since the creation of the modern welfare state will not turn out well, and the American public will be merciless.

    Bush erred in his failure to crack down on government spending to be sure, but Bush’s “soaring deficits” that the Left loved to trumpet as the signature sign of economic failure are already looking like the good ol days.

    Andrew, I do believe that the abscence fiscal conservatisim that you’ve been bemoaning may be just around the corner.

    It will come on a tide of anti-Obama sentiment that will make Bush’s image at the end of his term seem like he was the Easter Bunny.

    Sadly, America and the World will be going through much pain over the next several years before we get there.

    The tonic will be foul tasting indeed.

    But tonic it will be.

  3. BTW,

    you won’t find this chart:


    bieng displayed on too many MSM pages.

    “Soaring deficits” were only bad under Bush. Exponentially greater deficits, that make the previous “soaring deficits” look like little pebbles beside the boulder,

    are now acceptable. “The One” we’ve been waiting for tells us all will be well.

    • I think you’ll find that the budgets previous to this one did not include the price of the war in Iraq, which is now represented in the budget.


      To quote Obama from TFA:

      “This budget looks ahead 10 years and accounts for spending that was left out under the old rules — and for the first time, that includes the full cost of fighting in Iraq and Afghanistan. For seven years, we have been a nation at war. No longer will we hide its price,”

      Gotta watch out what you read on blogspot. After all, it’s just a blog. Also, the Gateway Pundit? Are you serious? I mean, I’m decidedly a little left, but I don’t smoke what the hippies hand me. Be careful with what ideologues feed you!

  4. Let’s start by understanding that there is nothing particularly new in what we are going through.

    Yup, and despite that we don’t have enough sense to devote some time and effort to preventing the next incident.

  5. “Soaring deficits” were only bad under Bush.

    Soaring deficits were ignored under Bush.

  6. There is 40 years of blame to go around, though Bush deserves a special place of blame because he exacerbated rather than changed the situation. Plus, he committed an extraordinary amount of resources to two wars that he, his government and his fellow citizens refused to take seriously.

    I remain a thorough skeptic that “stimulus” spending at all applies to our current economic situation where we have a mountain of personal debt, a low birthrate, and the most developed economy, and an extremely high standard of living. Where exactly is our economy supposed to grow?

    Instead of trying to make the economy grow, we should instead be concentrating on making the economy more efficient, cleaner, faster, and more stable. We already have enough wealth, but we need to manage that wealth properly to provide a higher quality of life. That’s going to mean spending less but spending better.

    That means not spending based on “stimulus”, but spending on infrastructure and long term. Sure it won’t do much for the pain some people are having in the here and now, but neither will the “stimulus” spending which will just go to fat men in suits who already know how to work the system and probably already receive funding from the government already.

    • Exactly. The idea that the economy can continually grow despite the fact that we live on a planet with finite resources is absurd and I don’t need an economics degree to figure that out. On a personal and a public level, we need to get our house in order and that means tightening the old belt for a few years down the road. I hope Obama remembers that he said this would not be easy but that if we all work at it we can do what needs to be done.

    • Agreed. Suppose we stopped growing the population by bringing immigration into line with less-than-replacement birthrates. Next, suppose we decide to stop wrecking ecosystems by trying to run a perpetual growth machine. Here are two problems with a steady-state economy (one that does not grow): First, it makes it impossible to pay back bank loans, because bank loans that have non-zero interest rates (a.k.a. “usury”) require borrowers to pay back about three times what they originally borrowed (for long-term debt like mortgages) through the magic of compound interest (aggregate payments of principal plus interest over the term of the loan). If three times as much money has to be “paid back” as the banks originally paid out as principal to borrowers, where does the extra money come from? It comes from money circulated into the economy in ever more loans. In other words, the banking system is a massive Ponzi scheme, and so as soon as “the economy”, i.e. the money supply, stops growing, the scheme collapses into a deflationary spiral. This is why bankers and politicians are terrified of recessions.

      Second, steady-state economies (in which, say, a constant population uses a fixed quantity of money for its economic activity) exposes a core flaw of capitalism, which is its redistributional aspects. Unfettered capitalism, uncorrected by progressive income and inheritance taxes, systematically redistributes money from those who have just enough to live on, to those who have excess money to invest. Capitalism naturally concentrates wealth in fewer and fewer hands. A steady-state economy would be a zero-sum game, and it would dawn on people that the story that “a rising tide lifts all boats” is no longer applicable (and was not very accurate even in an expanding economy, since regular folks have been at best holding steady for decades now, while the rich get ever richer and wealth is ever more concentrated in an elite minority). As soon as people figure out that the tide is no longer rising, and that they therefore are facing a zero-sum game with their neighbors, rich people will be looked at in a very different light.

      These are two of the reasons why capitalists and “free market” money-worshipping plutocrats are obsessed with eternal economic growth. Never mind that eternal growth is impossible in a finite physical and biological system. It’s necessary to sustain the illusion as long as possible, to stave off the day of redistributional reckoning and keep alive the myth of the rising tide that lifts all boats.

    • Actually Bush did try to stop some of the excesses – particularly around the roles of Freddie and Fanny – but was stopped by the Democrats who were in charge of the various banking committess of Congress.

  7. By the end of this, the phrase “stimulus package” will probably achieve a status in the English language worse than the vilest of swear words. The problem is that while the economies of most countries need a cash injection to avoid a classic recession spiral, simply throwing money at the problem and hoping it sticks isn’t the right kind of stimulus. There needs to be specific expenditures on projects or programs that have clear, long-term benefits (infrastructure being the most obvious) and low total costs (tax cuts that are unlikely to be repealed don’t meet this requirement). Spending for the sake of spending does little aside from balloon the total federal debt.

    In the US, things look pretty bad from this perspective. As overladen with unnecessary expenditures as the current stimulus packages are, it gets worse when you realize that Obama’s the restraining force through all of this, with Republicans calling for more ineffective tax cuts (in place of other expenditure), and Congress Democrats just calling for more anything (in place of… nothing). Tack on the already-present federal debt and it’s a horrible situation. Canada, for certain, is in better shape. Lower federal debt, a mostly balanced budget for the last decade or so, far less economic instability to react to, and a smaller stimulus package (though one still overburdened by needless expenditures/tax cuts), we’re winning on almost every count besides the fact that we rely on our struggling neighbours to the south for much of our export dollars.

    For once, I agree with Coyne – the main lesson, which somehow we’re still failing to entirely grasp, is that financial prudence is the responsibility of everyone. Governments, corporations, banks, individuals, we’ve all been playing loose and fast with our cash. Right now everyone’s in lockdown mode with their money, but the true test comes when this is all over – will we learn to live within our means when we aren’t forced to by a global economic slowdown?

  8. I don’t know, Andrew. If a Nobel Prize winner on economics says Obama should be doing more, not less.. I don’t tend to think what he says should be seen as nonsense.

    • Agreed. By no means do I understand enough to believe Krugman (or anybody else) lock, stock and barrel, but if someone who has spent his career studying financial crises just like this one recommends specific actions, that counts for something.

      • Obviously no one has been listening to him if we keep having financial crises just like this one.

    • There’s a new Nobel prize winner in economics every year. They don’t all agree with Krugman. Canadian Robert Mundell won a Nobel prize in economics in 1999 or thereabouts, and he doesn’t agree with the current obsession over stimulus.

      Not that it matters, because a Nobel Prize in economics means nothing. It’s not a real Nobel prize for starters – it’s paid for by the Bank of Sweden, not by the Nobel Trust. Alfred Nobel refused to create an economics award when he set up his trust fund because he quite rightly believed that economics was a pseudo-science. The award was created by economists in order to elevate their field to the level of real sciences, a level it most assuredly does not deserve.

      And of course, we’ve all heard of economic “Nobel” laureates Robert C. Merton and Myron S. Scholes. They won the 1997 nobel prize in economics for their work on the Black-Scoles Options Pricing Model . Less than a year later they single-handedly brought the world financial system to its knees when their hedge fund Long Term Capital Management went insolvent. It triggered a massive financial bailout in 1998, at a time when we had never seen massive financial bailouts.

      If two Nobel laureates couldn’t even keep a single hedge fund afloat, why should Krugman’s Nobel prize mean anything?

    • Milton Friedman and Friedrick Hayek won nobel prizes, Scott. And I’d imagine they would be suggesting somewhat different courses of action from Krugman. Gary Becker also won a nobel prize, and he’s strongly criticized a number of Krugman’s preferred solutions.

      Also worth noting, as I’ve done a million times, Krugman won his prize for trade patterns. I don’t see how that makes him the authority on appropriate fiscal stimulus measures.

      • I should have read one comment down, I suppose.

  9. By the way, Krugman’s Nobel prize was awarded to him for his work on international trade. Some of that work was quite good actually – he answered some basic questions that had stymied economists for a long time. However, there is nothing in his CV that makes him uniquely qualified to advise governments on financial crises and recession recovery.

    • Raging Ranter,

      Bravo Sir.

      One of the Left’s greatest failings (and there are many) is the elevation of the “expert” to superhuman status. That, and the left’s selective use of experts (the MSM is notorious for trumpeting the “expert” opinion that fits the leftist story line, while remaining silent on opposing expertise that is very often more sound – the complete silence regarding virtually every scientist opposing AGW theory is but one [albeit aggregious] example.)

      One only has to watch a trial in which “expert opinion” is the main issue. One will find two “experts” with high credentials, each supporting an opposing position.

      Expertise has its place in society to be sure, but the role of “ulitmate decision maker” isn’t one of them.

      • Kody, the right is no better. Remember Aurthur Laffer and his “Laffer Curve”? He was lord and master of conservative economics until the mid-1980s when they realized the deficit wasn’t going to magically disappear because of tax cuts.

        Milton Friedman was correct about a lot of things, especially the need for extreme monetary discipline to ward off inflation. But he was wrong about a lot of things as well, yet was raised to a status among conservatives well beyond what he deserved. That’s not to say I’m legitimizing the scorn being heaped on Friedman now by luminaries like Naomi Klein (a total economic illiterate if there ever was one). But Friedman, for a time, enjoyed God status among conservative thinkers much like the Krug does amongst the “stimulators” now.

        Friedman was right about certain things and wrong about others. So is Krug. And we’ll soon find out that Krug should have kept studying and teaching us about trade flows, as he was doing before his adoring fans anointed him “Stimulator in Chief”.

        • The thing that bothers me most about Krugman is how inconsistent his work as a public intellectual has been. In Peddling Prosperity and The Age of Diminished Expectations, Krugman attacks policy entrepreneurs that divert attention away from the core issue: productivity growth. When productivity growth increased in the late 90’s, and further increased in the 00’s, Krugman decided that short term macroeconomic factors were the most important part of economics. Krugman has largely become the kind of policy entrepreneur he attacked in other works.

        • RR
          You nailed it. It’s our responsibility to NOT set experts up on their pedestals or help pull them down if they insist on clambering on up there themselves. Perspective and informed skepticism should be our watch words. Trouble is it’s so human to want to be always right or simply bask in the glow of brighter lights then our own. It’ll never change i suppose, at least until human nature does anyway!

          • But at the same time, experts still generally know more than the populace, and anyone who doesn’t think so should do their own surgery rather than rely on a doctor. In this case, the problems probably arise more from economics being nearly impossible to predict, not that that the experts aren’t good at their field. Climatologists can’t predict long term weather patterns, but they are still good at knowing stuff about the weather.

          • Mike T, you’re correct. That’s why economists and climatologists should both refrain from “forecasting”. Their forecasts are the product of computer models, which themselves are nothing more than expensive toys for graduate students. Surgeons are much more cautious and measured in their predictions. They have seen unpredictable results too many times. (You cut a patient open and a blood vessel bursts, or you find a bunch of tumours that didn’t show on the MRI.) With that kind of instant feedback, you learn very quickly to avoid bold predictions. Economists and climatologists, on the other hand, make predictions years into the future. The feedback simply isn’t fast enough to drive home the point that they can’t forecast worth crap. By they time they find out they’re wrong, they’ve invented 15 excuses.

          • Mike T
            Perhaps i wasn’t very clear. My comments are aimed squarely at the followers, the amateur economists and Climatologists. Expert opinion is to be valued, now more than ever. It’s the followers who put say, Friedman up there with the gods, their work becomes a sort of othodoxy. I’m no real advocate of direct democracy. I don’t want guys like Kody having any more power than free speech already adequately provides. It’s not the first rate minds i fear, rather it’s all the econd rate ones and worse, who cheer them on.

  10. Financial prudence. Oh yes, sure, some of us have chosento be prudent. It has not been easy and there’s the rub. Take your average stock market investor, for example. Always expecting higher and higher returns. It didn’t matter how those returns were achieved. Leveraged buyouts that killed companies that were doing okay and producing fine products but didn’t have huge profit margins, bad commercial paper, zero down mortgages etc. etc. People were not content with lower returns and were constantly encouraged to go for more – and were told there was little risk because – hey – the market always goes up – eventually. Well, I think eventually will be a long time in coming.

    Some of the same thing applies to government – it’s far easier to throw money at things (where’s my instant cash?) than to plan for the long term, e.g. infrastructure, the right kind of green energy and so on. When governments opt for a ‘quick fix’ we should not be suprised. Governments run by people who wish to be re-elected and so making the right decision is often superceded by making the politically expedient decision.

    • In the general theme of props for nobel-winning economists, I think far too little attention has been paid to the flip-side of the expectations games. If we apply Robert Lucas’ rational expectations framework, it doesn’t seem to me that expansionary fiscal policy will work if enacted from a position of steep deficit. That is to say, anybody with half a brain should realize that tax cuts or beneficial subsidies put forth this year or next year are not fiscally sustainable. They are almost certain to be phased out in a few years, and more than canceled by tax increases. Given that state of affairs, people are likely to save a good proportion of their tax cuts – inhibiting any “stimulating effect”.

      It is worth comparing past stimuli (or lack thereof) in this regard.
      1. The Kennedy tax cut
      The Kennedy tax cut significantly reduced unemployment and ushered in the prosperous 60’s (forming a strong basis for arguments like the Laffer curve). The economy was in the recovery phase of a small recession in the 50’s, which accounts for some of the boost. However, it is worth noting that the budget was in near balance when the tax cut was enacted.

      2. The Reagan tax cut
      This one is severely misrepresented if you look at the timing of growth. In 1980 the economy was in a recession, but by 1981 it appeared to have leveled off. Unemployment skyrocketed, however, after the combination of Reagan’s tax cut (and some spending cuts), peaking at over 10% in mid 1983. Unemployment did not start to edge down until various other measures had increased taxes to sustainable levels. It is also important to consider that Volcker had increased interest rates in order to combat inflation, which was successfully defeated in this period.

      3. Read my lips: some new taxes
      Bush Sr. technically kept his no new taxes pledge in the sense that taxes went down as a % of GDP, but his response to the recession of the early 90’s was quite modest. Unemployment went up over 2 points from its low point of 5.4%, and Bush sr. certainly lost popularity. However, the recovery the early 90’s recession was quite sharp, and indeed featured a period of increased productivity growth (productivity growth was essentially 0 from the 70’s till the mid-90’s).

      4. The Bush tax cut of 2001
      The dot com crash drove an increase of unemployment from 4% to 6.4%, in spite of Bush policies that entailed a large tax cut, as well as substantial increases in government spending.

      Why have such varying policies led to similar outcomes, in which a recession essentially ran its course in a fairly short period of time, regardless of the stimulus policy – except for the Kennedy example? A few things are worth considering. Firstly, fiscal policy is often “sterilized” by monetary policy which partly cancels out the fiscal expansion. Bank governor Crow’s response to the early 90’s recession in Canada is a good example of that. Secondly though, the stimulus measures that have been most effective have been the most credible – ie. Reagan AFTER tax increases, and Bush Sr.’s inactive stance. In the case of Bush II, while a fiscal expansion reversed the dot com crash, it also hopelessly worsened the nation’s finances and opened up the door to another recession, wherein the government was ill-equipped to address the economic firestorm that awaited.

      That said, I somewhat disagree with Coyne’s point that we need higher savings rates, etc. Growth in the long-run is not merely driven by capital expansion. It is also driven by increases in labour productivity (and increases in population, but lets stick to per capita growth). Productivity growth has actually continued to rise since the mid-90’s, meaning that at the end of the day, the economy could produce more at full employment than it could have before. The economy will recover regardless of what the state does (barring a collapse of the financial sector, as happened in the 30’s). Of course, the less the state does, the more beneficial/less harmful this recession will be in the long run (as less efficient producers fail, and as inaction reduces the resultant increase in debt).

      However, that doesn’t mean modest stimulus is senseless for a country in a position like Canada. For one, monetary policy is constrained by the fact that interest rates are close to zero. Additionally, the United States may be in a liquidity trap at present. Given that Canadian interest rates are set in response to US rates, monetary policy is a tool of limited utility in the present crisis. There is a lot of infrastructure spending that the government was going to make anyway – by spending now it can take advantage of low costs, while providing a stopgap for some of the increased unemployment. Is it temporary? Absolutely, but once the recovery starts, those employed by infrastructure projects will be able to find new jobs. Planned tax cuts can be accelerated as well with a similar effect. This spending will be effective because Canada is making it from a position of fiscal strength. People do not expect large tax increases to follow in the next few years in Canada for that reason. Simple economic growth and modest restraint during the recovery will bring the budget back into balance.

      • Good summary. But I think we need to avoid falling for the “fallacy of the narrative”. That is, we have a tendency to put events in historical context, and then build a narrative around known facts. This leads us to mistake correlation for causality.

        Recessions don’t last forever. Even depressions don’t last forever. Prior to the Great Depression, the US had recovered from several other depressions without anything like the New Deal. Likewise, the Kennedy tax cuts, the Reagan tax cuts, and whatever other significant policy changes happened in the US during the latter half of the 20th century, may or may not have shortened the recessions or boosted growth.

        I think it is likely the Kennedy tax cuts had significant effect, because his cuts represented the biggest reduction in marginal tax rates, from the highest levels in US history. The top marginal bracket was paying 93% before his cuts – 70% after. It is almost certain that the US was on the wrong side of the Laffer curve with top marginal rates of 93%!! Other than extreme examples like that, I think it is very hard to attribute specific periods of economic recovery and boom with specific anti-recessionary policies.

        Canadian Liberals and Conservatives like to squabble over what brought Canada out of recession in the mid-1990s. Liberals argue it was the Martin/Chretien Infrastructure Program. Conservatives argue it was large tax cuts in Canada’s two richest provinces – AB and ON. I would argue they’re both wrong. It is far more likely that Canada’s economy recovered because: A) The US economy entered a full-fledged boom, driving up Canadian exports, and B) The separatists lost the 1995 referendum, ending political instability that was most certainly keeping some foreign investment on the sidelines. In fact, it seems almost impossible that any sort of fiscal policy would have overwhelmed those two factors.

  11. So, the average Canadian spends $8950 per year just on maintenace for one automobile per year.
    In the US, it is probabl.y the same or a bit more. Multiply that by the no. of drivers, that is $4 Trillion.
    Everybody, other than necessary service vehichle drivers, quit driving for a year and pooled that into a fund, the US could create the most amazing transit system ever seen.

    • You sir, are an idiot. Are we supposed to all sit home for a year while your marvelous transit system gets built? And how will that transit system get funded? The economics of mass transit never work because when you drive your own car, you don’t have to pay yourself wages, while transit systems have huge labor costs.

      Assuming your $8950 figure is right (and I doubt it is) then for $25/day you get unlimited door to door, no transfers necessary transit that is waiting outside your door and ready to go 24/7. People prefer the automobile because of its superior convenience and flexibility and that’s not going to change as long as they have free choice.

      • Actually, the plan could be put in place quite effectively. Build more transit, and as routes become available non-commercial traffic isn’t allowed on that route.

        • It’s impossible to get people to think about a world that isn’t car-dependent when urban planning has made living without a car impossible. But the car is one the biggest impediments to freedom I can think of. The expense, the time wasted in traffic, the difficulties during inclement weather, the hostile urban environment that’s created when the car is the centre of everything.

          It’s one of the biggest delusions of modern life that the car provides freedom.

          • I was lucky enough to get rid of my car a year and a half ago, and I must say life is so much better without it. (It was a beaut, though — mint condition 1990 Chevry Lumina — I miss it, though I don’t miss driving it.) You don’t spend two hours a day in that self-hypnotised “Now we’re traveling from place to place tra-la-la” mental deep-freeze and you do feel the effects in the evening — you’re much less tired. I’m also healthier from all the walking. And I save a lot of money: I wasn’t spending $25/day on it, but between gas and insurance it still cost a good deal. But I have the luxury of living in an urban environment now . . . and couldn’t afford to park it anyway . . . so I can’t claim a moral victory; but I can report that life is better without it.

            I agree with Jack Denver that we can’t just shut down the car right now, but I think Oemissions is right that massive investment in mass transit is the way to go. There must be a way to rewire the suburbs to give them access to mass transit, atoning for the titanic urban planning mistakes of yesteryear. Traffic engineers and urban planners must have been planning this in their laboratories, no? I mean, the research must be out there — we just need the political will. (Epitaph for most innovations in Canada, I know.)

      • Anyone who thinks that a greater dependence on public transit can increase our freedoms should be sentenced to a lifetime of transit strikes. We just endured a 10 week transit strike here in Ottawa, and it was unmitigated hell. Not to mention economically disastrous. 20% of Ottawa commuters currently depend on transit. The city wants to spend $5 to $7 billion to increase transit ridership to 30% over the next 20 years. I can just imagine what the next transit strike will be like.

        Declaring them an essential service is a non-starter, and plays right into the militant ATU’s hands. If they get essential service designation, civic governments lose all control over their wages, benefits and pensions.

        I was actually in favour of some limited expansion in transit infrastructure (as in more dedicated transit routes and a downtown tunnel – never the absurdly expensive trains) in this city until the strike happened. No more. Until ATU has been broken (which would require a constitutional amendment to remove collective bargaining from the Charter – not gonna happen) there is no way we should even be considering public transit expansion. Spend the money on expressways and overpasses. The unions can’t control the roads.

        • I agree with your sentiments regarding unions – in Toronto we have bus-drivers making over $100,000/year – more than, for instance, most professors (because driving is just sooo challenging). As a result Toronto has North America’s highest transit fees (though one ticket to and from work is still way less than $25). However, public sector unions in other areas are not nearly as troublesome, although they have us by balls. One solution is to count transit workers as essential services and ban them from striking. Part of the problem is also one of political resolve. Our mayor in Toronto is a shill for the unions, and even if he weren’t a prolonged strike could be fatal to him. It is always politically easier to raise fares.

          Simply because transit is a natural monopoly, however, does not mean that it can’t be privately managed. You can take bids for private companies willing to manage the transit system (subject to regulations – control ticket price so that the only way they can make a profit is by cutting costs and encouraging more ridership), or segments of the transit system. Private management isn’t necessarily more efficient but it is more ruthless than government, because it is not constrained by public opinion. Additionally if transit workers worked for different organizations it would be easier to divide and conquer. Some workers who had good wages might not be willing to strike, or at least could be negotiated with separately.

  12. To me, the fall in personal savings has been one of the key problems over the last decade. I’m not entirely sure that fueling economic growth with cheap credit and retail spending is a good idea. But that’s what’s been done, and now too many people have too much debt, and not much money in the bank. Of course, that’s the fault of the people in question, but there sure hasn’t been much in the way of attempts to convince them to do otherwise.

  13. It is a pretty sure sign that a state plan will fail when it contradicts every fundamental of sound economic behavior for a private individual or corporation. It is also almost certain that putting the same people in charge of cleaning up the mess who contributed mightily to confecting it in the late nineties is also going to fail.

    Can anyone name a regulation or government intervention enacted in the last 20 years over the operation of the financial markets that acted positively in respect of this crisis?

  14. “Arguments that they reveal a crippling weakness in “free market ideology” would be more persuasive if the crisis had not been encouraged and exacerbated at every turn by government action, from the Fed to Fannie Mae, from mortgage interest deductibility to Basel II—and if those making such arguments were not so obviously peddling their own ideologies.”

    Yup, you nailed it – it was ridiculous for Alan Greenspan to continue a Keynesian interest rate policy on the one hand and to espouse a self-regulating free market on the other. I guess he didn’t want to be blamed for sinking Bushito like he was blamed for sinking Daddy Bush’s second term with his too tight monetary policy.

    Oh, and it was Greenspan who repudiated his own ideology in Congress – in the face of the facts.

  15. The problem is still the mind set that the consumer should still dig himself into more debt to so call ” help the economy”.
    Thats been the problem for the last 20 years. Buy-buy-buy and pay for it tomorrow. Brain wash our kids with targetted ads. The economy is not going to recover untill the consumer has real dollars to spend.
    That means limiting credit especially plastic. Encourage the government to bring in strict controls on interest and service fees by banks and credit card companies. If they balk then close them down and build a new (debt free) national bank with the bail out moneies we are giving them and the auto industry.

  16. Average cost to runone automobile for one year in the US is $10,000. 260 million registered vehicles. Do the math.. Quit driving for one year . Pool the money and invest in the collective public good.

    • Longer 0emissions: Kiss freedom goodbye. Coerce the population of individuals into giving up a transportation choice (they freely opted for) and confiscate the wealth (they freely devoted to that transportation choice), in order to pool their wealth into 0e’s chosen priority.

      Good luck with that plan, comrade.

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