Supply-side father Art Laffer penned a blockbuster in today’s WSJ entitled, “The Age of Prosperity Is Over.” (Art and Steve Moore have a new book out with the same title.) It compares the Bush administration and Congress with Herbert Hoover for all their bailout actions.
The money sentence: “Financial panics, if left alone, rarely cause much damage to the real economy, output, employment or production.” Art asks: If all these bailout measures are so good, then why is the stock market so bad? It reminds him of Richard Nixon or Jimmy Carter. Art also argues that huge budget deficits will increase future tax burdens on the economy and will do nothing to encourage economic growth. He says stop rewarding failure.
And let me add, in today’s news, the car companies from Detroit are looking for bailouts. Perhaps other industries, as well. Plus, the Treasury will be parking new capital into the insurance companies. Who knows? Maybe retailers will be next. By the time we’re done, perhaps oil companies, who are now suffering from $60 oil, will get bailed out, too.
I wonder if our free-market capitalist system doesn’t really need a nice big failure to reassert its bona fides. Yes, I am growing weary of all this.
Meanwhile, a new paper from the Minneapolis Fed takes issue with the credit-crunch hypothesis. Looking at Federal Reserve Board data, they note that various forms of bank loans are actually rising, not falling. Putting a pencil to their analysis, I can report this: Total loans and leases from U.S. banks are growing at a 19 percent annual rate over the last three months. Business loans are up 19 percent. Consumer loans are up 13 percent. Real estate loans, which include home-equity and commercial real estate loans, are up 15 percent at an annual rate.
The worst story is inter-bank loans. They are flat. That’s the LIBOR story, which is healing after the FDIC guaranteed bank-to-bank loans. The LIBOR rate has come way down. I think the FDIC move was the single-most important contributor to credit stability.
But when you look at all the other loan categories that are rising, and then the 20 percent growth of the basic money supply, and the tax-cut effect of plummeting energy costs, you have to wonder: Just how bad is our economic story?
Maybe Washington oughta slow down and stop panicking.