Once again demonstrating her total lack of practical economics


Fortune and the New York Times call Hillary Clinton on her absurdly inept plan to "rescue" homeowners
You know, I've been trying not to pick on Hillary. These days it's too easy a shot. But sometimes, she makes it necessary. I don't know if you saw this one from a few days ago.

"I have a plan - a moratorium on foreclosures for 90 days [and] freezing interest rates for five years, which I think we should do immediately," Clinton announced at what was the last Democratic debate before the Nevada Caucus on Jan. 19. A 90-day moratorium on foreclosures would throw a lifeline to some deserving homeowners, though I suspect it would only delay the inevitable for most. That's not my beef.

Where Clinton goes awry is her proposal to freeze mortgage rates for five years, which is essentially a much broader version of a deal President Bush recently hammered out with lenders to assist some subprime borrowers. If Clinton's only goal were to bail out homeowners facing steep rate resets on adjustable mortgages, her plan would work just fine.

For everyone else though, such a freeze would be disastrous. Interest rates on new mortgages would skyrocket - perhaps past 8 percent, as the mutual funds, pension funds and other investors who typically provide capital to the mortgage market shift their money into other investments where the government isn't impairing returns. With higher mortgage rates eroding buying power, the downward pressure on home prices would only increase. Lower home prices would lead to even more defaults, as more folks who'd lost the equity in their homes choose to walk away from their mortgages.

Government controlling the economy. Golly, where have we heard that one before? Do you really suppose Hillary Clinton knows what's best for a free market?

Of course, she did do well with those cattle futures...

She doesn't stop with defaulted mortgages. The Senator proudly proclaims just how much further she would go. Emphasis added.

Mrs. Clinton, whose campaign initiated the interview, can speak in both fine detail and sweeping historical terms about the economy — almost as would a policy adviser, which she essentially was for a long time. When talking about the middle class, she divides the decades since World War II into two periods, using the same cutoff point that many economists do.

In the first period, from 1946 to 1973, the pay of most workers rose steadily. The income of the median family — the one earning less than half of all other families and more than half of all others — more than doubled during those years, to almost $50,000, in inflation-adjusted terms, according to Census Bureau data analyzed by the Economic Policy Institute, a liberal group in Washington.

Since 1973, the income of the median family has grown only about 25 percent.

During the earlier period, Mrs. Clinton said, the share of workers in labor unions grew, allowing workers to win raises and benefits that they can rarely win on their own. Marginal tax rates on the affluent were “confiscatory” by today’s standards, she said. (In the early 1970s, the top rate, which applied to income above $1 million in today’s terms, was 70 percent; the top rate now is 35 percent.)

Jobs once paid enough that only one parent in many families needed to work, saving them from expenses like day care. And not only did the federal government invest in public goods like the highway system, but companies also invested more in communities than they do today. In Rochester, for example, Kodak helped build hospitals and schools.

“You had a corporate ethos, that, because of the more self-contained American economy, was really focused on community,” Mrs. Clinton said. “There was a sense of multiple obligations. It wasn’t just to one’s shareholders. It was also to one’s employees, to one’s community.”

Mrs. Clinton mentioned technological change, which has eliminated the need for many blue-collar jobs, as well as global trade, which studies suggest may be holding down the wages of some Americans.

But when discussing the causes of the middle-class wage slowdown, she tends to focus not on market-based changes, like technology and trade, but on institutions, like unions and the government.

For someone who is supposedly so qualified, she's missed the obvious. Government's "control" (read mismanagement) of the American economy exploded in the 1970s.

That might have just a tiny bit to do with the shifting economic forces.

— NeoWayland

Posted: Tue - January 22, 2008 at 12:20 PM  Tag


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