Arnold Kling  

Give Back My Wallet

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Rasmussen reports,


Forty-five percent (45%) of Americans oppose the federal government subsidizing mortgage payments for financially troubled homeowners, according to a new Rasmussen Reports national telephone survey.

Thirty-eight percent (38%) think government subsidies are a good idea, and 18% are not sure which course is best to follow.

It seems likely to me that more people oppose the auto bailout than support it, more people oppose the housing bailout than support it, more people oppose the stimulus than support it, and more people oppose the bank bailout than support it.

Starting last September, our country has gone through six months that shook the world. We have abandoned free markets. We have abandoned democracy, in the sense of having policies that reflect the popular will. The United States has become a technocratic dictatorship.

I'm tired of watching Paulson, Geithner, Bernanke, and now the Obama Administration picking through my wallet and giving my money to people who I don't want to see get it. President Reagan expressed a vision for the fall of the Soviet Union when he said, "Mr. Brezhnev Gorbachev, tear down that wall." My vision for the fall of the technocratic dictatorship might be expressed as, "Mr. Obama, give back my wallet."


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COMMENTS (51 to date)
Len D'Alotto writes:

I'm tired of it to. Through a layoff during the tech crash and some mistakes of my own, my wife and I lost our house, my retirement fund and my childrens college fund. We are rebuilding while living in an apartment. I work 2 jobs, my wife works, we have not bought a new car in ages (both our cars have over 100K miles on them), we do not go out, we do not take vacations and do not get help from the government. Why should my money go to keep people from facing the same problems I am facing? Shouldn't my money be used by me to rebuild?

elvis writes:

We are tired and livid of this too.I think it's more than 45 % opposing now.
We are for a tea party!
Elvis

Jonas Reschat writes:

It was "Mr. Gorbachev, ...", not Mr. Brezhnev. Brezhnev died in 1982, Reagon held his speach in 1987. Not that it matters to the point of your post.

SenatorMark4 writes:

Of course we've dumped democracy! What do you expect when we allow government to force us to report all our income on IRS Form 1099's but then when they get their grubby hands on it they dispense it without a hint of record keeping. Just to remind you, as if you needed it, a San Francisco street bum is entitled to at least $300 a month according to some ("that's not much money") but your kids are worth less in the taxed world. I know we'll all be getting 1099's after this financial disaster for less. Income, re-distributed or earned, MUST be reported on IRS 1099! 1099 for ALL!

DUB writes:

Caplan says that we get bad economic policy because politicians give the people what they want. You say we get bad economic policy because the politicians don't give the people what they want. Is there any way to get good economic policy? Or, are we getting it and it's just the economists that are wrong?

hutch writes:

"Caplan says that we get bad economic policy because politicians give the people what they want. You say we get bad economic policy because the politicians don't give the people what they want."

i thought this as well. i wonder if somehow politics weren't involved if we'd have better economics policy, generally. maybe not necessarily in the case of the size etc of the stimulus, but possibly as a whole.

K T Cat writes:

I like your commentary, but you're missing the central point here. No money is being taken from your wallet at all, at least not specifically. No one is talking about tax increases. That's the problem. We're spending $800B on stimulation, $275B on mortgage bailouts, ~$60B on automaker bailouts and on and on and on, but not one word is mentioned of tax increases to pay for it.

We have totally detached earning from having. That's the real thing to worry about. The economic crisis is the symptom, not the disease.

Eugene writes:

Dub, I think the point is rather that "We, the people..." should ultimately (yes, yes, indirectly through elected representatives) be the ones determining what we get.

Besides, much of this current trend goes well beyond what I would think of as strictly economic policy.

JohnnyL writes:

The Prez says that we are all to blame. The Prez says we all have to make sacrifices. When do we get to see him and our rulers in Congress begin to sacrifice. Let's see some cutbacks to Congressional salaries and perks. How about a 50% salary reduction until the economy meets certain economic benchmarks? How about putting into law that they get no raises and their travel perks get rolled back in years in which the economy doesn't perform? How about a little shared sacrifice? If the EPA can threaten to regulate carbon dioxide based on climate models, then someone should be able to model how your representatives votes and actions on legislation affected the economy for good or bad and then publicize this. Make then stand up and answer for their actions.

bgfred writes:

The poor sot taxpayer is going to foot the bill, sooner or later, one way or another.

The backlash to all this can't start soon enough for me - but hopefully the longer it takes to start, the power/momentum it will have.

Gary Rogers writes:

All I can say is that I am behind you 100 percent.

KT...everyone is going to pay for this fun via massive inflation. There is a not insignificant risk here that the economy gets much worse and the politician's answers will be "give us more of your money". Yes, tax rates haven't risen yet, but it is just a question of time when the bond market shuts down and people stop buying U.S. treasuries. They will have to raise interest rates to very high levels and this will stifle the private economy.

The political election was in November. The economic election is going on as we speak -- people are starting to vote with their wallets and they don't like what Obama is doing one bit. If the fraudulent "carbon regulations" go through, it will be the coup de grace for the economy.

Snark writes:

"i wonder if somehow politics weren't involved if we'd have better economics policy, generally."

Impossible. We'll never get pure economic policy without the final coat of politics. It's part of the process.

guthrie writes:

Careful, Arnold! You could be accused of calling the President a mugger, and that would be racist...

fedgovernor writes:

You have a choice.

In America, the payment of income taxes is voluntary. Says so on every tax form.

Stop. Paying.

jeanneb writes:

K T Cat:

Don't worry. They just haven't gotten around to that yet.

Not only will taxes go up (way up).
Once things are bad enough they'll confiscate what's left in our 401k's. They'll do it under the guise that investing is too risky and they'll take better care of our money. They'll transfer all of it to the Social Security "fund"....and immediately spend it. We'll get an IOU promising to pay us when we retire.

Think I'm kidding? They've already had hearings on it.

what's what writes:

"fedgovernor writes:
You have a choice.

In America, the payment of income taxes is voluntary. Says so on every tax form.

Stop. Paying."

really? maybe I should move to the U.S.

I don't see it on the Canadian tax form

Allan Yackey writes:

There is a fatal flaw in the current system of mortgage financing that has not been rectified. The idea of writing down current mortgages where the home now is less than the mortgage using the same system only risks running the valuation of real estate unrealistically downward in the same manner that it was inflated over the last decade.

When the concept of securitization was first presented to us in the late 1970’s we missed the fatal flaw. While government policies greatly exacerbated the problem with its insistence that lenders provide financing to people literally without income, the flaw lies with securitization itself. What it did was to remove the appraisers from accountability to the eventual holder of the mortgage.

In the old days, mortgages were issued by local lenders. First, local lenders had some sense of what homes were worth. An unrealistically high appraisal would attract the attention of the local lender. If the lender began to lose money on mortgages where the appraisals in retrospect consistently overestimated the market, the appraiser would soon be out of business.

With securitization, not only does the investor on the East Coast who ends up with the mortgage not know what a home in Broad Ripple Indiana is worth, but the home there is only a part of a package of thousands of mortgages. The lender will NEVER know who the appraiser is, and doesn’t hire him in the first instance.

The appraiser is hired by the mortgage broker or mortgage initiator. The broker only gets paid on closed loans. The higher the appraisal, the happier the seller is. As a practical matter, the broker has already determined how much the buyer can pay and the transaction is already on the table when the appraiser enters the picture, so the appraiser needs only to in effect approve the transaction that has been negotiated. The more of these he/she approves the more business the broker pushes his/her way. All of the biases in the system are in the direction of generating higher appraisals. This is where we are dealing with people who are trying to be honest.

You can only imagine what the situation became when the seller, broker and appraiser were dishonest. The structural brake on this that existed in the form of the local banker who had some information and who would be burned was gone. In large part this explains the engine that drove the appraisals higher and higher. Even among the honest appraisers the bias caused them to seek support for higher and higher numbers.

The proposals to write down mortgages to the current value of the property simply put the process into reverse. The mortgages are still held by the same absentee lenders who are without knowledge of the market. The situation is even worse, because the party with the nominal interest adverse to the seller (the buyer) is absent. Aside from the remoteness of the lender, if the federal government in any way provides a subsidy for mortgages that are written down, then the actual remote lender has no dog in the fight.

This is true even if we put these things into bankruptcy court. This is unlike “cram downs” on cars and trucks where there is established blue book value. A 2006 F150 is a fungible item with a blue book value, a home is unique and the appraisal of the home is a one time process without anything like a blue book. The pressure in this situation is all downward.

What makes the matter worse is that as houses in the neighborhood go through this process more and more houses will lose value. A cascade of houses going through this process is likely. With each transaction comparables of lower and lower value will be available, and the trend of the market will be down. That makes it reasonable for an appraiser to factor the market trend lower and lower.

What makes this all the more frightening is that the system has not been changed in a way to make a difference. Currently, in an effort to control appraisers, mortgages require not one but two independent appraisers. This makes it more difficult for a single appraiser to wander too far up or down. But nothing has been inserted into the system to replace the relationship between the old savings and loan that held the mortgage and the appraiser. There is no downside for an appraiser who over or under appraises a property in a knowing or unknowing effort to satisfy his/her employer.

Kevin writes:

I don't think we've abandoned democracy. This is just a case of the populace simultaneously changing its mind and losing its illusions in a big hurry. People are getting exactly what they democratically chose in November - it's just that a lot of voters made that choice by voting against something and/or suspending their disbelief just long enough to try to make a difference, and now they're not so sure about that choice. For all the Republicans' whining that Obama promised nothing but hope and delivers nothing but fear, I don't think it's really fair to characterize this as a bait-and-switch. All this legislation is exactly what people would have expected of Obama and a fully Democratic congress if you'd asked them a year ago, when their heads were still clear. We don't have a technocratic dictatorship - we just have a lag time in the accountability of our representatives.

Stephen O'Brien writes:

"Thirty-eight percent (38%) think government subsidies are a good idea. . ."

I suspect that far fewer than 38% would have thought this was a good idea if Rasmussen had rephrased the question to ask whether "your tax dollars should be used to subsidize mortgage payments for financially troubled homeowners?" KT Cat is correct that there has been no discussion about where the bailout money is coming from. I suspect some of the 38% believe that there's a magic room stuffed with money somewhere in Washington, and no matter how many billions you take out, there's even more in there the next day.

Unablogger writes:

K T Cat writes:

I like your commentary, but you're missing the central point here. No money is being taken from your wallet at all, at least not specifically. No one is talking about tax increases.

KTCat,

There does not have to be a tax increase. It is automatically built into your wallet. 10 years from now when inflation has reduced the dollar in your wallet to 10 cents, this debt will be paid back with those 'tiny dollars'.

John V writes:

Even though the public can be on the better side of any issue, it all depends on the issue. Using popular polls such as this don't work for me to buttress any points.

I'm sure we could find many polls where public opinion is on the other side of the issue...in which case, you wouldn't running to side with the masses.

Keep that in mind...for the sake of consistency. ;)

aez writes:

"fedgovernor writes:
You have a choice.

In America, the payment of income taxes is voluntary. Says so on every tax form.

Stop. Paying."

How? Without prohibitive consequences to my family and myself, that is? I have already called the IRS to find out how to pay taxes under protest.

I guess it depends on what prohibitive consequences are...?

Dan Weber writes:

We have abandoned democracy, in the sense of having policies that reflect the popular will

Maybe I've read too much Mencius, but the policies wouldn't be any better (or worse) if they had popular support.

Two wolves deciding that the sheep's house really belongs to them is technically democracy, but it's not freedom.


(And as a responsible homeowner who underbought, I'm not necessarily opposed to doing something to help those who are near default, if it actually helps prevent default. I still haven't decided if this proposal does that.)

Greg Ransom writes:

Does this mean you're now for free banking and for getting rid of the Fed like Larry White, George Selgin, Friedrich Hayek, and Milton Friedman?

"Tearing down the wall" in this case means ending the central planning of money, and giving money back to the free market.

Wouldn't you agree.

7horses writes:

I called my mortage company today to ask about refinancing and guess what ?

they asked if I wanted an interest only loan!

I wonder how many of the other bad mortgage products are still being offered.

Jim writes:

"more people oppose the stimulus than support it"

Wrong. CNN and Fox polls both show a majority support the stimulus. So you've got neither technocrats nor "we the people" on your side on this one.

Incidentally, I wonder how many of the 45% who oppose federal subsidies for 'troubled' homeowners support the federal subsidy for completely untroubled homeowners that is the mortgage interest deduction.

boqueronman writes:

The temperature is rising. Please watch the Rick Santelli video on CNBC on the floor of, I think, the Chicago Board of Trade:

http://www.cnbc.com/id/15840232?video=1039849853

It's both exhilarating and, frankly scary. What happens when the 47% who are the taxpayers refuse to continue subsidizing the 53% who are tax eaters?

Finally, here is a quote from the eminent philosopher and cultural critic Dave Barry which I think applies: "“The Democrats seem to be basically nicer people, but they have demonstrated time and again that they have the management skills of celery.”

Ozornik writes:

With all due respect, Arnold, (and I do mean that) it's just a big bombastic rhetoric.

The real mccoy would be - next time you encounter messieurs Volker or Goolsbee, or m-me Romer, or anyone else of that advisory ilk, will you shake their hands? Exchange niceties about family and weather? Or will you ask them about your wallet?
Can economist's community ostracize these looters?

I'd love for your co-bloggers to ruminate on this as well, but I bet nor you, neither them would dare...

Justin Ross writes:

DUB writes:

"Caplan says that we get bad economic policy because politicians give the people what they want. You say we get bad economic policy because the politicians don't give the people what they want. Is there any way to get good economic policy? Or, are we getting it and it's just the economists that are wrong?"

Caplan and Kling's point are just two sides of the same Caplan coin. Caplan points out that politicians face a trade-off between doing what's good economic policy and what's good politics. He explains this when he tries to explain why things are as good as they are.

Voter's may want protectionism, but they really don't want to be in poverty, and policy is the result of politicians facing these conflicting demands.

Here we have the converse case, where people don't want a policy, but politicians may actually believe this will do good and are willing to tolerate the trade-off of being slightly more unpopular.

MrDan242 writes:

It's a losing battle. With roughly 40% of people not paying any income tax, they have no stake to care about money being wasted because none of it is their money. The cost benefit to them is always positive for any government give away.

Bob writes:

And I want Bush to give me back the money he gave to the g**d*mn banks.

syn writes:

"No money is being taken from your wallet at all, at least not specifically."

I'm small business, single, no dependents to deduct and this year have paid enough tax(not including consumption tax) to subsidize a family of four comfortably for a year. Unlike Charlie Rangel (D-NY) and Tom Daschle (D-SD), I don't cheat and I don't mind taxes paid for reasonable public services however with inflation and tax increases on top of this massive stimulus debt President Obama signed into action, I might as well give-up and join the hope & change bandwagon.

Would never happen though, the thought of going down that road to serfdom gives me the chills.

Les writes:

It seems to me that Arnold and the public choice economists have it correct. We vote only for Tweedledee or Tweedledum, both of whom offer vague promises while running.

Once elected, they serve up policies that ensure their re-election, falsely labeled as if they actually fulfilled election promises made in the election process.

The political game succeeds so long as the pols find enough suckers to vote them in, and so long as moneyed interests can afford to buy influence.

Democracy has the advantage over dictatorship to the extent that we can pretend to choose our rulers, while they pretend to represent our interests.

K T Cat writes:

In all seriousness, my bet is that there will be modest tax hikes to pay for a portion of this spending spree, but the real payment of this will be through printing money and inflation.

mr. burns writes:

The debt will get inflated away . The inflation however may stay . This is the end of western socialism . The time when we relearn the old lesson that one can only consume what has already been produced and that notes (bills of credit) are not the same thing as real money. They are not wealth.

When Paul Krugman is ridiculed by little children and Barney Frank has been hung (after a fair trial) there may be some hope for this country. In the meantime: God, gold and guns.

Federal reserve delendum est

Joe Calhoun writes:

Arnold,

It is not us who have abandoned free markets. It is the politicians who have abandoned it - if they ever believed it to begin with.

Democracy? Well, the majority voted these guys into office. A majority may oppose these policies but they will vote most of these idiots right back into office in the next election. We have the government the majority deserves.

Methinks writes:

"Mr. Obama, give back my wallet."

Careful, Arnold! Someone is bound to come along and call you a racist again for that comment.

mark writes:

Giving up Democracy? A little bit heavy on the hypebolie aren't we?

More important, Let's get out of the Deflationary Death Spiral we're in, cause if we don't get out of that, you'll be wishing we had anything left at all.

So, how do we get out of the trap before the entire world economy shatters on the rocks? if you've got better ideas, I'm listening

http://blog.bloodstar.org

Methinks writes:

How? Without prohibitive consequences to my family and myself, that is? I have already called the IRS to find out how to pay taxes under protest.

I guess it depends on what prohibitive consequences are...?

The sad part is it depends on how much you owe. If it's a small amount, they might send you a few letters and call you a couple of times. In the end, they won't pursue it. I know of at least one case where a man has stopped paying taxes under protest and the government just let's it go. But, he owes about $34K.

If you're in the group of high earners that pays most of the taxes, then they will come after you as if you're a serial killer. Unfortunately, that's the group that needs to refuse to pay to make a difference. They'll freeze your assets and confiscate your accounts to obtain payment. It's like the mafia. And then imagine the political fallout? "They evil rich fat cats refuse to do their part as hard working Americans suffer... blah, blah blah.".

AJ writes:

Like Arnold, I was in graduate school with many of these economists. I don't recall Bernanke, Summers et al being so statist (although Paul Krugman was nuts even then).

Having worked briefly in Washington twice in my career, I think there are two phenomena which occur. One is the short run focus on the situation at hand - whatever the greatest current problem gets all the attention and focus and the costs and consequences of solving it be d*mned. The second (and possible candidate for a blog) is the confusion of the identity of the insitutions you are dealing with day to day and the overall health of the economy. You come to think that that AIG, Lehman, General Motors in the their present incarnation are essential and forget that the large activities they engage in will continue (or continue morphing) regardless of the institutional ownership, CEO, etc.

So, you take a sensible economist and stick him in ther and he acts like a statist. Then when they get out of power and back to academia they often repent.

Your thoughts Arnold?

AJ

Peterargus writes:

K T Cat:

"In all seriousness, my bet is that there will be modest tax hikes to pay for a portion of this spending spree, but the real payment of this will be through printing money and inflation."

You will get your "modest tax increase" starting January 1, 2011. That's when the Bush tax cuts of 2001 and 2003 sunset and we revert to 2000 marginal tax rates. Expect your Fed tax rate to jump by about 4 to 5 percentage points. And remember that happens without congress having to lift a sclerotic finger. For a couple earning about 100,000 taxable income that's $5000. If that's modest well... I am happy for you...

RogC writes:

The number of workers who file but either pay zero in taxes or receive back more than they paid continues to increase with each administration. Combined with those who do even need to file returns it becomes the majority of the country. The majority may now vote themselves any benefit they wish and the cost will be paid by the minority. Given this insanity the wonderment is really that so many people don't support these programs. We find ourselves today living the old quote that a democracy can only exist until the majority discover they can vote themselves the public treasury.

Mr Econotarian writes:

I've determined that the share of $800 billion in additional income
taxes falls like this, based on average quintile share of income
taxes:

Household...Stimulus
income.......cost (NPV)

$15,900: no net income taxes
$37,400: no net income taxes
$58,500: $ 1,553
$85,200: $ 4,624
$231,300: $30,467

Source:
http://www.cbo.gov/ftpdocs/88xx/doc8885/EffectiveTaxRates.shtml

Methinks writes:

Fabulous post, Rogc.

A minor nitpick: The majority may now vote themselves any benefit they wish and the cost will be paid by the minority.

Will they? That minority happens to be the most productive and the smartest of the population. It also happens to contain most of the entrepreneurs necessary to create the wealth the government wishes to tax away. They will surely find a way to either shelter income and induce the government to create more tax loopholes or simply move away. At the end of the day, nobody will invest without adequate compensation and that means that the decreasing minority will continue to earn its required return while the tax base the dependents are relying on persistently declines along with their hopes.

Niccolo writes:

Better watch out Arnold, you might attract the large "but we're in a deflationary spiral and Keynes is our only savior," crowd that apparently follows your blog, but understands literally none of it.


I mean, really, who cares if the government is becoming more and more dictatorial over people? Apparently, only us dogmatists.


:rolls eyes:

Dezakin writes:

Yeah, who cares if we really are in a deflationary spiral and the politicians clamor for the New Deal version two and world war 3?

I'd rather have some quantitative easing with a traditionally pork laden dumb stimulus package that reignites money supply and money velocity than go through that or even Japan's lost decade.

Adam writes:

I am not so sure, Arnold. Governments in constitutional democracies don't govern by opinion polls. They are run by elected representatives. Our self-absorbed and foolish voters have elected a mix of socialists, scallywags, and fools. Caplan wins this argument. That is, the problem is not a lack of democracy. The problem is the lack of an informed, watchful, and active electorate.

Best,

Adam

Chester White writes:

These idiot government policymakers use static tax modeling in their calculations.

That is, if a 20% tax rate brings in $X, a 100% tax rate would bring in $5X.

We are absolutely screwed.

Go John Galt with me until sensible people control Congress again. Hunker down, cut your spending (especially on union-built cars), decrease tax-generating income (but don't evade), and wait.

RogC writes:

They will surely find a way to either shelter income and induce the government to create more tax loopholes or simply move away. At the end of the day, nobody will invest without adequate compensation and that means that the decreasing minority will continue to earn its required return while the tax base the dependents are relying on persistently declines along with their hopes.

Actually, I agree with that but feel the process is acutely painful. When situations deteriorate to a certain point  then governments inevitably declare an emergency followed by restrictions on movement of capital. In the USA ,at some point MI, NJ & CA at the least will become desperate to stop the tax base from moving out of state. I believe there is zero chance the state pols will reverse the policies driving people & business away so it seems natural to expect they will try punitive measures. Once upon a time such a scenario would have seemed ludicrous but with a ‘spread the wealth around’ national viewpoint it might well be allowed to happen.

Methinks writes:

Actually, I agree with that but feel the process is acutely painful.

Oh, and I agree with that.

In the USA ,at some point MI, NJ & CA at the least will become desperate to stop the tax base from moving out of state.

True. NY will too and that's why I moved from the state last year. However, there's still a little thing called "the constitution" to contend with the unrestricted government view. The supreme court upheld it even during the Great Depression and I have some hope it will continue to do so long enough for those who see the writing on the wall to escape.

In the USA ,at some point MI, NJ & CA at the least will become desperate to stop the tax base from moving out of state.

Perhaps. There are already restrictions - if you immigrate from the United States, the government levies a large, one time tax on all of your worldwide assets plus a cap gains tax when you actually sell your U.S. assets. Only the Soviet Union had such an asset confiscation policy in the past. But if you're worried about capital movement, then you just have to be creative with your capital. What is the government going to do with an apartment or stash of metal you own in Hong Kong? That capital is already outside the United States and it's notoriously difficult to move apartments on the 15th floor of a building back into the jurisdiction of the United States. The most worrying part, if you're not politically connected, is to figure out when to physically move yourself and your family out of this banana republic before it completely collapses.

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