Sunday, 9 November 2008

Kling on the current state of the US

At EconLog Arnold Kling comments on what should be done about the situation on Wall Street and with the big auto companies,
1. Firms are laying off workers that they probably should have laid off months ago, and they should not hesitate to do so.

2. It is ok for consumers to cut back on their spending; they should not feel they need to go out and spend to "help the economy."

3. Many home buyers are defaulting on their loans, which results in foreclosures, and government should not interfere with that process.

4. In many parts of the country, it makes sense for home builders to curtail activity until excess supplies of houses are absorbed.

5. Auto companies need to renegotiate their obligations to retired workers or go into bankruptcy and let the courts sort it out.

6. State and local governments need to renegotiate their obligations to retired workers or put the matter before legislative bodies and make hard choices.

7. Banks that are definitely insolvent need to be merged with healthy banks or closed by the FDIC.

8. Banks that are possibly insolvent, depending on the value of illiquid securities, need to be placed under close regulatory supervision.

9. New activity by Freddie Mac or Fannie Mae should be frozen. If banks don't want to make mortgage loans, then teenagers don't want to flirt.

10. The Treasury does not know what it is doing with its $700 billion in spending authority, so it should stop doing it.

Once the various excesses have been eliminated from the system and markets are back in balance--especially housing--we'll be fine.
Unfortunately president-elect Obama has been saying things like
The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil.

I would like to see the administration do everything it can to accelerate the retooling assistance that Congress has already enacted. In addition, I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States of America.
Renegotiating their obligations to retired workers or going into bankruptcy don't look like options for Obama.

And on another note, what has where cars are produced got to do with reducing a country's dependence on foreign oil? Buying less oil would reduce the US's "dependence" on foreign oil, but this has nothing to do with where the cars are produced or which companies produce them. Don't you just want people to drive cars which use less petrol, no matter where those are cars made.

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