Belief in Markets is neither Republican nor Democrat

We live in a relatively free society. We operate in a society which is run by markets. Some are tangible such as a stock market, or an auction that you may participate in. Others are less tangible, for example the housing market in your city.

It seems from watching politics that the only people that talk about the importance of markets is people of the Republican persuasion. It was not always this way, John F. Kennedy talked openly about the importance of markets.

As we come into a period of economic slowdown, it is important that all people regardless of party understand the importance of markets. Markets go up and then markets go down. This is natural. The idea that government can soften the swings of markets is an idea that is somewhat new, and I might add a fiction. As soon as you take an action that you think will fix a flaw in the market, you may influence something related that may be altogether destructive. The Federal Reserve cut its fed funds rate by 75 basis points. Obviously this is an attempt to spur economic activity. This may do exactly that. This may also cause inflation because making money more available may devalue the dollar. This is a perfectly proper action. This is an adjustment to spur private enterprise. We will see how it plays out but it is entirely appropriate.

The actions being discussed by Presidential candidates range from appropriate to downright destructive. For months candidates on the left have been discussing ways to soften the blow of the housing and banking downturns. They have discussed freezing Adjustable rate adjustments, they have discussed freezing forclosures. This of course would put even more pressure on an ailing banking industry. I have heard plans to outlaw sub-prime loans. This would be one of the most destructive actions I can think of. These loans are made to people with sub-par credit. Sub prime loans made to serious people with good reason to take this risk are perfectly appropriate. The extent that they were used was of course the reason for the problem. They were over sold by banks and over used by borrowers. Portraying these loans as predatory is wrong. It makes one party of a mutually agreed upon transaction a villain. People need to be serious about the actions they take with their money. By extension a bailout of these loans would also be destructive. The expectation would be that taking inappropriate risk and failing would be bailed out, and would reduce the seriousness that people would use in considering these loans.

The different packages for stimulus are also of concern. Many Democrats want tax rebates paid to people who did not pay taxes. This is nothing more than increased welfare. Much of the reason foreign investors don't trust the dollar is because of excessive spending. This would do nothing to improve this, in fact it would reinforce that opinion. Any stimulus package should consist of actions that increase investment that will create new jobs, expansion etc that would improve long term economic activity. Once again this is being proposed by Republicans. Democrats are proposing exclusively tax rebates. This would cause a one time blip of activity that would not sustain growth. From what we say with the previous rebates we saw most people paying down debt and saving the rebates. While solid behaviors, this does not spur economic activity.

Understanding markets is important and even vital for people that want to be our nations leaders. It should not be the exclusive province of one party. It has become that. Future expansion of our prosperity depends on serious consideration of economic policy, not goodies to the highest bidder as measured in votes.