How should we respond to the crisis?

Summary:  Twenty months into this downcycle, its nature remains invisible to most Americans.  We see only parts, neither the whole nor its place in history.  Many posts on this site have attempted to explain the former; this post attempts the latter.  I believe that seeing today’s events in the light of our past shows the best path for us to take.

Note:  I have received many emails asking what I think should be done.  That misunderstands the role of this site, which seeks to help Americans better understand our changing world.  Posts are never directed at our ruling elites, but intended to show America that there are alternatives to the choices offered to us.

This is just another crisis

Consider recent events as a step in the long evolution of the American State.  Financial crises and wars have shaped our nation.

(1)  The Founders, led by Secretary of the Treasury Hamilton, choose to have the new nation take on the burden of repaying the 13 State’s war debts and the war loans from France.  Rather than take the easy path of defaulting, we take the difficult road and lay the foundation for America’s reputation and prosperity.

(2)  During the next 150 years we incur loans during wars and pay them off afterwards.  Inflation averages near zero.  Growth is among the fastest the world has ever seen.

(3)  President Johnson’s combination of the Great Society programs and the Vietnam War — guns and butter — strained the national finances.  Under a gold standard, this was expressed — or signaled — by an outflow of gold.  Rather than deal with the actual problems, President Nixon decisively breaks the pattern of American history.  He takes us off the gold standard in 1971.  The problems remain, and grow worse and deeper during the 1970’s.

(4)  As these problems grow to crisis levels, President Carter appoints Paul Volcker as Chairman of the Fed.  He takes drastic actions, which send the economy into the 1980-82 recession — in many ways the worst since the Great Depression.  Presidents Carter and Reagan take additional reforms — such as deregulation of industry, forced reform of unions, tax cuts, decontrol of oil prices.  These lays the foundation for a 25-year long economic expansion.

(5)  Volcker’s successor, Alan Greenspan, and our Executive and Congressional leaders fail to continue these reforms.  Worse, every crisis is met with additional monetary and fiscal easing — with insufficient tightening after the situation calms down.  Debts grow at an accelerating rate, reaching levels not seen since 1929 — and then exceeding those records.

Today:  We again face a crisis.  Will we take the difficult road — as we did at the Founding, after each war, and in the Volcker-Reagan era?  Or will we take the easy road — as we did in the Nixon and Greenspan eras?  Each of us knows which is which.  Much depends on our decision in the next year or two.

What are the key factors to consider?

There is no need to spell these things out.  These decisions are not complex at the general level on which we provide guidance to Congress and the President.  The details are best left to experts, but the values on which the plan is built must come from us.  Here’s my list. 

  1. Fidelity to our core values, which should guide us in troubled times — or they are useless.
  2. Social justice — we need to see that the less fortunate are protected as best we can.
  3. Prosperity for our children, and their children; taking the path to long-term success for America.

The Paulson Plan reflects a very different vision of America.  I believe that we all know that, which accounts for the haste and panic used to ram it through Congress.  Reflection and reason are its enemies.

One way or another, the resulting bill Congress passes and President Bush signs will reflect our values.  Or our ignorance and apathy (it comes to much the same thing).


“The road less traveled” by Robert Frost

Two roads diverged in a yellow wood
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the undergrowth

Then took the other as just as fair
And having perhaps the better claim
Because it was grassy and wanted wear
Though as for that, the passing there
Had worn them really about the same

And both that morning equally lay
In leaves no step had trodden black
Oh, I kept the first for another day!
Yet, knowing how way leads onto way
I doubted if I should ever come back

I shall be telling this with a sigh
Somewhere ages and ages hence
Two roads diverged in a wood
And I took the one less traveled by
And that has made all the difference


Here is an online petition, with objections to the Paulson Plan very similar to those in this post, with 160 names on it so far.

To the Speaker of the House of Representatives and the President pro tempore of the Senate:
As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:
1) Its fairness. The plan is a subsidy to investors at taxpayers� expense. Investors who took risks to earn profits must also bear the losses.  Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.
2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If  taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.
3) Its long-term effects.  If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, Americas dynamic and innovative private capital markets have brought the nation unparalleled prosperity.  Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.
For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

Please share your comments by posting below.  Please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

Key Treasury Department documents

We cannot plead the “we didn’t know the details in the fine print” excuse. The important details about this massive nationalization have been clearly spelled out for us.  See this page for a current list of Treasury Department documents.

Some FM posts about the current crisis

For a full listing see the FM reference page about the Financial crisis – what’s happening? how will this end?.

A few of the most important posts warning about this crisis

This crisis has long been forecast by many, including in articles on this site.  Even now that we are in the whirlwind, these provide valuable background material on its causes — and speculation about the results.  To see the all posts on this subject, go to the FM reference page about The End of the Post-WWII Geopolitical Regime.  Here are some of those posts.

  1. A brief note on the US Dollar. Is this like August 1914?, 8 November 2007 — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
  2. The post-WWII geopolitical regime is dying. Chapter One, 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
  3. We have been warned. Death of the post-WWII geopolitical regime, Chapter II, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
  4. Death of the post-WWII geopolitical regime, III – death by debt, 8 January 2008 – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
  5. Geopolitical implications of the current economic downturn, 24 January 2008, – How will this recession end?  With re-balancing of the global economy, so that the US goods and services are again competitive.  No more trade deficit, and we can pay out debts.
  6. A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
  7. What will America look like after this recession?, 18 March 208  — The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
  8. The most important story in this week’s newspapers , 22 May 2008 — How solvent is the US government? They report the facts to us every year.
  9. The World’s biggest mess, 22 August 2008 — A brillant ex pat looks at America from across the ocean.

22 thoughts on “How should we respond to the crisis?”

  1. Robert Frost’s poem is ambiguous. “And that has made all the difference,” doesn’t qualify whether the difference was a positive or a negative one. Did taking the road less traveled lead to a dead end, or some joyous adventure? We are left to wonder.

    Does America’s “road less traveled” point to the hard path of austerity and regeneration, true to our values? Or does it signify the lees-traveled path to inflationary ruin that dooms empires? We are left to wonder.

    This particular poem is often cited by scholars as an American favorite. Apparently the American literati imagine themsleves to be the type that are inclined to take the road less traveled themselves. The paradox is that if everyone takes the road less traveled, it will actually become the road MORE traveled. People do love to imagine themselves as better than their natures will allow. This may be why Congress is about to be stampeded into a “solution” that will destroy our national values.
    Fabius Maximus replies: I suspect you are over-thinking this.

    “We are left to wonder.”

    Perhaps a Comp Lit professor might find this poem confusing, but I am confident the first 100 people in the Cambridge telephone directory could easily explain it.

    “The paradox is that if everyone takes the road less traveled, it will actually become the road MORE traveled.”

    This is not a paradox. The “road less traveled” is not more valuable because it is less traveled (the poem is not about optimum commuting routes, in which case it would be a paradox). This path is better because it leads to a superior destination.

  2. How interesting is it that this non-Constitutional, un-elected money Czar gets to serve such lengthy terms?
    Where I’m going with the rhetorical question is that, as you see so often in projects, the core works well enough, but the add-ons are where the challenges reside.

  3. It might be said that public apathy combined with distaste for politicians’ games is such that true democracy no longer exists in the developed world.

    Politicians are free to enact any laws they can get away with, and only risk expulsion from office if the economy turn sour, the jobs market becomes tighter or the circulation of money becomes more difficult.

    One of the good things about this blog is its call for citizenry to exercise personal responsibility for their destiny and reclaim the levers of political and public policy debate/opinion.

  4. Perhaps like many conservatives, I agree with the principle of ‘fast action’. Yet I am not convinced that Paulson’s fast action is close enough to ‘optimal’. What is optimal? We don’t know, now, but we’re arguing about it. We will never completely know, but just as do know some things about the Great Depression, the economists will come to some 2/3 or 3/4 agreement on the causes and better strategies.

    Paulson wants to avoid gov’t meddling in executive compensation — bad. All the clawback taxes/ penalties etc that are possible should be used against those overpaid incompetents. McCain has suggested a max salary of a gov’t employee (? maybe ~$200 k?). I think that’s a pretty good top.

    Too much cash seems available for the big financial guys — but in an internet age it’s not clear the world of production and distribution really needs as much finance as it has been getting. And the future debts of Social Security and Medicare are still there, with crisis getting closer every year.

    Fab, I’m pretty concerned that your #2 is in direct opposition to #3. Socialism really does do an OK job for the poorest, when ‘unemployment’ is not only rare, it is illegal (as under the commies). But the general prosperity suffers hugely.

    Also, you talk about ‘less fortunate’, but what if you change that to be ‘willfully irresponsible’? I see a bigger problem with those who have chosen irresponsibility, with bad results, than those less fortunate. Lying about your income to get a bigger house & a mortgage you can’t really afford seems to me a lot closer to irresponsible than to less fortunate.

    The criteria for who to help should be discussed more.
    Fabius Maximus replies: The final form of the “saftey net” was set in US by President Nixon (aid for dependent children). While we have tinkered with the design (e.g., the 1995 welfare reform), the overall design has a broad consensus. In the midst of a massive finanical crisis, on the brink of a recession (perhaps a long, deep one) seems a bad time to change this model.

    As for “optimal”… The Paulson Plan gives the equivalent of $2,000 from each American household to large financial interests. That is the essence of the plan, which was evident from the first — and became explicit at yesterday’s hearing. For more on this see:

    * “Bernanke on Fire-Sale Prices“, Caluclated Risk, 23 September 2008
    * “Getting real — and letting the cat out of the bag“, Paul Krugman, op-ed in the New York Times, 23 September 2008

    Perhaps we should hire Warren Buffett to invest the $700B in the financial sector. He got 10% plus big upside in his latest deal (see here and here). I doubt Paulson will get anything so good for us (the total will come to far more than $700B, and we might get little of it back).

    Buffett’s little deal shows that private sector money is available, but that politically powerful interests prefer to tap us for the money (I leave you to guess at the reasons why).

  5. One comment on Fed Chief Bernanke and SecTreas Paulson’s “testimony” yesterday before the Senate. If some minion at Goldman Sachs had come to Paulson back when he was on the selling end of these derivatives and said “Gimme $700 billion for a program, but I am not going to give you any business plan, any estimates or rationales on why it will work and want total legal exemption from any screw-ups I might make – and oh yeah, no oversight, just trust me,” Paulson would have gutted him or her like a fish. SecTreas didn’t even show up with a powerpoint presentation to lie with, no estimates, no rationales, nothing.

    Some thoughts on how to deal with the coming storm from the point of view of national or state policy:

    A path might be the promotion of a new “frontier” whereby title to foreclosed properties or government lands are given to citizens on the condition that they engage in intensive agriculture that produces at least x number of calories in produce each year. These landholders would be exempt from all property taxes for 5 years and, if at the end of those 5 years improvements have been made and the ag production goal is met, title passes free and clear to the land holder, any and student loan debt is forgiven, any credit card and/or home loan debt is cut drastically and the land holder has a new chance. It wouldn’t just be typically rural areas, but urban ag would be promoted and technical assistance provided via university extension programs.

    It would hurt the banks and holders of the debt obligations, but it could help rebuild a society of small land owners, tied to their communities. I could make producers out of people again, instead of consumers and help forestall problems with food supply that an eventual peaking in oil production could cause.

    Plus, it seems to match up reasonably well with our core values, provides some measure of social justice and allows for a road to prosperity for our children, and their children.

  6. It seems to me that the narrative presented is distorted and has some interesting omissions. To begin with, our Revolution was fought in resistance to the British attempting to recoup expenditures, which were lost along with the war. As a result the USA never had to pay those back, and reaped the resources of an essentially virgin continent by European standards, impeded only by Mexicans and natives. While we may have repaid loans made by the French during the Revolution, I am fairly certain massive other expenditures by them… sending the fleet to Yorktown for example… were never reimbursed.

    An imperialist war with which even General Grant did not agree turned half of Mexico into about a third of the USA. Territorial integrity was maintained by means of an almost certainly unconsitutional Civil War. Native claims to land and resources were essentially overruled by a policy very close to genocide.

    None of these facts should be taken to mean “America bad…” or somesuch nonsense… nations and empires have always behaved thusly. Despite these it is still arguable that our democracy represents an incremental improvement over prior systems.

    Sifting context it is indeed quite arguable that Frost’s text is ambivalent if not ambiguous. He sighs rather than smiles, and gives no direct clue as to whether the road taken, the less travelled one, is the better choice when reviewed with perspective. Given the lack of a clear statement, it might be that he indeed realizes he made the right choice, but also realizes that had a price, that there is no free lunch.

    Moving right along to the current economic situation, it does seem that it might make more sense to treat the liquidity issue for sound financial institutions separately from the bad debt issue. Paulson seems to think combining the two will achieve the next stability sooner, with fewer if any piecemeal actions. He may or may not be right. However, it is an utter misread of American history, and indeed that of Britain before it, to say that the interests of government have been ethically separate from those of commerce to the benefit of the citizenry. That has never been true.
    Fabius Maximus replies: I disagree with your history.

    The American colonials did not object to the taxes, but to the process by which they were levied. No taxation without representation. The English people had long fought for their rights, and moving to America did not make them less dear.

    “and reaped the resources of an essentially virgin continent”

    Those rewards were produced by the sweat and blood of the people here. Granting the people here the rights of Englishmen would have allowed the Crown to enjoy the fruits of their work.

    “While we may have repaid loans made by the French during the Revolution, I am fairly certain massive other expenditures by them … were never reimbursed.

    We repaid the loans to France. France’s military expenditures were made to further French national aims, which also benefited us (their allies). There is no basis in logic, law, or ethics for us to pay France for these things — nor was there any agreement to do so. Do you advocate billing Iraq for our expenditures there?

  7. I thought of writing Durbin, Obama, and Biggert, my reps in DC. I was going to say: NO MORE WELFARE FOR THE WEALTHY and BAIL OUT MAIN STREET NOT WALL STREET. Problem is that they have already signed on to the scam so I decided to save the postage. None of them seem to have a clue as to the socialist path we are on.As for the debt load, I think we will walk away from it. Michigan did that in the 1820’s and it was 40 years before they could sell another bond. Instant gratification, that’s US. Now that the party is over we will all go home, if we still have one. The current national debt load is about $140,000 per person. I don’t have that kind of money. Little 2 year old Nathan down the street doesn’t either.

  8. Fabius in response #5:
    “As for “optimal”… The Paulson Plan gives the equivalent of $2,000 from each American household to large financial interests.”

    I think you made a slight but important error, the Paulson Plan gives the equivalent of $2,000 from every AMERICAN (man, woman, child, regardless of income level), not every household.

    If we assume an average houshold size of 3 people and a median household income level of $44,000 per year then this corporate bailout will be the equivalent of about 14% of the average pre-tax household income.
    Fabius Maximus replies: Thanks for the correction! It has been noted above.

  9. Is anyone talking about following the money trail to find and prosecute those who profited unethically?

    I refuse to believe that America is full of people who signed these loans with a GOAL of not paying, defaulting, and foreclosure, to the tune of $700b. Think about it – that would be 1.4m loans of 500k with zero payments.

    My guess is that most people were SOLD a loan (used to be called ‘sold a bill of goods’) and then found themselves in a financial dead end.

    Their name was on the paper, but someone else walked away with the $, and they were left with a bill, and then no property after the seizure. They made a big mistake, but the bailout proposed absolves everyone but them of all blame.
    Certainly there are plenty of legitimate investors who were also sold down the river. The unanswered question, as it was with the S&L bailout, and most of the other bailouts, is WHO WALKED AWAY WITH THE MONEY?

    It would not surprise me to find out that many properties were traded back and forth wealthy individuals who pocketed the money and walked away from the last loan in the chain.

    It is ironic that many of the same voices who want to absolve all in the financial community bridle at the idea of trying to help homeowners keep homes by rewriting the loans on gentler terms, crying that these people are getting something for nothing. Baloney. Anyone who outright refuses to pay will lose.
    Fabius Maximus replies: This is not a “mortgage” crisis. That was just the first phase, as subprimes were the leading edge of the first phase. Auto loans, credit card debts, business loans … there is a large pile of debt that exceeds our ability to carry it. It build up over 50 years, and will take years to work down to a reasonable level.

  10. The real problem is that for every $1,000 mortgage payment there is somewhere between 20-40 times riding on that in the derivatives market, i.e. about $30,000 of which about $2,000 (or less) was invested up front for those instruments. So more than a 10% decline in receipts ends up wiping out those firms because they are obliged to pony up more than their initial $2,000 (times x billions since these things are bundled into tens of thousands of mortgages at a time).

    So Joe Sixpack is not the only person who got into too much for too little. Without the derivative overhang, this crisis would not really be one although it would be very serious. Furthermore, without the drive to create all these leveraged instruments, few of the highly questionable mortgages (no downpayment, ARMS, overpricing of the house in the first place etc.) would have been made and there would be less default levels accordingly.

    So what is being saved here is not the mortgagors – many of whom were imprudent in taking on these commitments in the first place – but the mortgagees and the invisible attendant throng of derivatives-makers all over the planet.

    My suspicion is that the Treasury is going to try to find many of the party-counterparty combinations in these instruments and have them cancel each other out and then put in new more straightforward insurance packages that are less leveraged, reduce the interest rates for mortgagors and in some cases readjust the principal due amount based on closer-to-fair market valuations and so forth in order to reduce the failure rates and therefore the resultant derivatives fallout which is really what is driving the crisis.

  11. Matt Brown has it exactly right. A good article is: “Boiler Room“, BDean Starkman, Columbia Journalism Review, September/October 2008 — “The business press is missing the crooked heart of the credit crisis”

    For those who haven’t seen it already, it was fraud on both ends, bundling up worthless mortgage loans and selling them as securities and getting people to sign their names to mortgages that they could never possibly pay. This was quoted in the article:

    “Mike Garner: Then the next one came along, and it was no income, verified assets. So you don’t have to tell the people what you do for a living. You don’t have to tell the people what you do for work. All you have to do is state you have a certain amount of money in your bank account. And then, the next one, is just no income, no asset. You don’t have to state anything. Just have to have a credit score and a pulse.

    [reporter] Alex Blumberg: Actually, that pulse thing. Also optional. Like the case in Ohio where twenty-three dead people were approved for mortgages.”

    I’ll admit, it was very irresponsible for those dead people to sign up for loans, especially when it is so hard for the living impared to hold down jobs.
    Fabius Maximus replies: For many months it was a subprime crisis, then the realization slowly dawned that many Alt-A loans were also defaulting. No problem, they were really just another form of subprime loans. Then prime mortgages started defaulting, so it became a mortgage crisis.

    The public’s understanding of the crisis lags the facts, which makes accurate diagnosis impossible.

    Now auto loans are going, followed by credit card loans and real estate construction loans. As we slide into a recession, more and more loans will go bad. Eventually we the horrible truth will become clear. It was not evil loan salesman, or devils in the form of GSE executives, or whatever other excuses will we invent. We have taken on more loans than we can support.

    Only then will a solution (i.e., effective mitigation tactics) become possible.

  12. Moon of Alabama wonders if there is really a “liquidity” crisis and cites this observation today:

    (quote) The fear is that losses and deleveraging on Wall Street will lead to scarcity of credit on Main Street. But as David C. Johnston points out (NYT reporter, author of “Free Lunch”, writing here), there is little evidence that such scarcity exists:

    Ask this question — are the credit markets really about to seize up? If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.

    So for one we wonder if Paulson’s diagnosis is correct at all.”” (end quote)
    Fabius Maximus replies: One entertaining aspect of this crisis is to watch folks who 3 months ago were happy as clams discuss abstract technical distinction, like faux connoisseurs discussing whether the grapes for this Chablis were grown on the north or south side of the field.

    The solvency/liquidity distinction is IMO quite irrelevant to our situation, as we have both dynamics at work. That Johnson does not see the financial machinery of this nation grinding to a halt is astonishing; that he apparently believes that drastic action should be delayed is delusional.

  13. FM, without being too argumentative, I believe that a historically-based case for Americans always taking the high road simply does not hold water. It may be that a few representatives in Parliament may have been enough to keep America in the English fold. Or it may be that underlying economic and other dynamics would still have led to Revolution. I think the latter is true, and let us not forget that even forming a Union required the compromise of allowing human slavery.

    Similarly while I agree Lincoln was right to fight, I also cannot see how it was constitutional. At the end of that war, rather than repatriate or fully integrate the freed slaves, we permitted segregation, and had a culture that was at least in part apartheid-based until 50 years ago. As in the Revolution, the issue of tariffs and domestic manufacturing was at least as contributory to the Civil War as any higher principle. Follow the money.

    In acting to stop Hitler we enabled Stalin… no free lunch, and again, ambivalence. Similarly what was once considered immoral- gambling- is now an activity that allows states to raise money rather than by imposing taxes, and also acts as compensation to the natives, as we allow them to have their ‘revenge’ by luring us to casinos.

    Our historical record also includes granting human rights to corporations before granting them to many of our human individual citizens, and a Republican president who declared that ‘the business of America is business.’

    None of the above is meant to disrespect the hard work of farmers, miners, soldiers, or anyone else in the history of America who acted nobly and did things that have benefitted Americans then and since. It is simply to say that the entire context is relevant. Indeed, I would assert that bearing these skeletons, dark sides, ambivalences and instances of ‘dirty laundry’ that conflict with our pervasive self-congratulatory mythology in mind is essential to find the real high road out of the current situation.
    Fabius Maximus replies: You are not being arguementative to assert that “a historically-based case for Americans always taking the high road simply does not hold water.” I agree, and believe that most folks would agree.

    “It may be that ”

    I don’t do counter-factuals. The English government did certain things which the founding generation considered violations of their rights. They protested, the English government used force, and the rest is history.

    “I think the latter is true, and let us not forget that even forming a Union required the compromise of allowing human slavery. … In acting to stop Hitler we enabled Stalin”

    Since they were neither angels or Gods, I believe that our ancestors’ failure to create Heaven on earth can be excused. As I hope our descendents will similarly excuse our failures.

    “pervasive self-congratulatory mythology”

    Evidence of such a thing? Its is human nature to express pride in our people’s accomplishments, expressing that more loudly than out faults. That does not mean that we are not aware of the dark side of our ancestors, or ourselves.

  14. One of the things I particularly remember from de Toqueville’s “Democracy In America” is his cautionary warning that if politicians ever found out that they could buy votes by plundering the public treasury, it would be the beginning of the end. Well…

    The rampant greed demonstrated by the current financial crisis, coupled with the mountainous 53 trillion in unfunded obligations behind THAT, should send shivers up everyone’s spine.

    To quote one of my father’s favorite pundits, Pogo, “We have found the enemy and he is us.”

    The question is whether we can muster enough common sense and virtue to regain our balance, or whether we will devolve into a Hobbesian jungle.
    Fabius Maximus replies: The common form of this is quote attributed to Scottish lawyer Alexander Tytler (1847-1813). No reliable source has been found for it, but it might be correct — whoever actually said it.

    “A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

  15. Well said, Greg! I would add that in the giant organism that is our economy, within the even more giant organism that is the global economy, it is equally important to recognize how the organism works, who has shaped it and controls it, as it is to rededicate ourselves to core values. As you point out, I think, some of those “core values” are merely window dressing for actions of a completely different character.

  16. The general hatred of the President sure wastes alot of energy. As Fabius pointed out this started under the Johnson (Democrat) administration and got kicked into high gear under Nixon (Republican). Plus the unbelieveable amount of deficit spending falls under the responsability and authority of the house and senate. The have passed the blame/credit to the President irregardless what party they belong too. There is enough blame to pass around for both parties.

    Also falling into the mental relativity of the so called “bad things” America has done only serves to seperate us. We are one of few nations in history that has had the flexibility to change and update ourselves without destroying oursleves in the process. No nation is perfect. Aiming for utopia is nice but which version?

    For the nation to pick the right direction the citizen must pick the right direction and that has been the problem. We the people must quit expecting the state to bail our fannies out every time things get rough. Once you can convince a solid enough group of voters to head in that direction then the rest will fall into place. We just need to get it started.

  17. “Americas dynamic and innovative private capital markets have brought the nation unparalleled prosperity”

    These are importanat elements in making a Great Nation , but i would add:

    – Immigration
    – 9 Million Square Kilometers of Vast Virgin Lands with Acceptable and moderate climate (compared to canada and russia the other large nations)
    – Large Reserves of Natural Resources
    – A Long Period of Piece
    – Safe-Borders
    – Low-taxes in the 1800s

    the world have always had dynamic and creative cultures , but the coincidence of a Creative People, A Good Land, and the SCALE is what made the US a great nation in terms of Economics.

    Despite having the lowest ratio of College,Master, and PHDs Degree compared to other western nation, the US was able to outproduce the rest in terms of technology and science in the last 100 or 150 years. It wasn’t that other Western Nations favored quantity over quality, it was merely the effect of the Larger population and economy.
    Fabius Maximus replies: There are many nations with the key elements on your list: natural resources, peace, borders. Australia, much of Africa and Latin America.

    In any case, your list confuses results with inputs. Peace and safe borders, low taxes — these are outputs of a well-functioning polity, not inputs like natural resources.

    I do not see what scale has to do with our success, other than making us larger. Singapore is a great success, although just a dot.

  18. Pingback: Update: why has the worst recession since the 1930’s had so little impact on the economy? « Fabius Maximus

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