Fannie and Freddie and the future

"Support for the income tax was strongest in the western states and opposition was strongest in the northeastern states"

Does seem ironic given today's ideological divisions, but from a practical standpoint, the populous states currently pay a disproportionate burden of taxes. I wonder if that explains the popularity at the time.

Incidentally, Am 16 was ratified 1913--the same year as the Fed Reserve Act, at the end of a large European arms race, and just before the assassination of Archduke Ferdinand. It was only 5 years before the US entry into WWI and one of the greatest government confiscations of private wealth and blood in history.

Coincidental?

The history of the Federal income tax and Federal Reserve system in this country is stained by two world wars, two major cold war engagements, a Great Depression, US defaulting on its foreign exchange agreements, a period of stagflation, a major worldwide financial crisis, and the probably unavoidable federal government default on debt obligations to its citizens (SS/MC).

A resounding success?

"And it has become quite a different monster."

How true. This is a good line of thought to proceed on. When did the government switch from performing true "general welfare" projects and start engaging in Marxist re-distributionist policies? I propose it happened during the ratification of the 16th amendment authorizing the Federal government to levy income taxes.

Here's some detail:

http://en.wikipedia.org/wiki/Sixteenth_Amendment_to_the_United_States_Constitution

On July 12, 1909, the resolution proposing the Sixteenth Amendment was passed by the Sixty-first Congress and submitted to the state legislatures. Support for the income tax was strongest in the western states and opposition was strongest in the northeastern states.[18]

Ironic huh?

"The government was created in the first place to pave roads, public safety"

And it has become quite a different monster.

viking - it's a big disingenuous to think of the government as thieves. The government was created in the first place to pave roads, public safety at the local level, national defense at the federal. You need taxes to fund this. Now anything beyond these basic functions is theft for the purposes of redistribution.

Good point, Crusader. Except when it comes right down to it, the rabble want blood less than the vampires in government who are eager to use the general discomfort of the rabble to suck more power for themselves - that is, suck the blood of everyone over whom they can exert power.

Equitable.

That's why I said it was just an invitation to the chase, a chase that can never be concluded in any satisfactory manner.

It doesn't exist in nature.

Crusader--

And you think that I don't?

If a thug breaks into my home at night and steals $1000 worth of my property, what emotions do you thing that stirs in me?

Now imagine someone stealing 200 times that much from me EVERY YEAR.

AND they have the police on their side.

AND every time I express the remotest dissatisfaction with that amount just INCREASING, I am bombarded with indignant Freislerian sanctimony about MY greed.

AND I learn that that money, which I have invested decades of my life into and continue to work very hard for, is being spent toward the destruction of my values.

If you think about that, you will get some idea of my emotions toward "my" Federal government.

http://www.youtube.com/watch?v=aNi5256dhvM

viking - you realize these high falutin' intellectual discussion don't mean anything to the rabble. They just want blood.

EM, just who is going to sign up for those jobs, other than desperate people with nothing to lose?

Methinks I do not believe that law has ruled in the USA for some time, going back at least to FDR. Expediency is everything. Neither the state nor the people of the United States are willing to trade expediency for principle.

Theft is everywhere and always by definition inequitable, even theft applied equally to everybody (which never happens). The real question is how much additional state-imposed inequity will individuals collectively tolerate relative to the state's ability to suppress them.

The problem with anything "equitable" is that the distribution of risk, willingness to work and intelligence is not equal. Thus, making all outcomes the same means that they will not be equitable.

Theo, I agree with you completely but what you said doesn't contradict the quote you responded to. Any way you look at it, Fannie & Freddie are just another tool of central planning while pretending that's not what's happening.

"Fannie and Freddie are going to stay in the hands of the government, partly because government likes have the tool."

That's not it. China, Japan and us petro-rich norwegians had invested a lot, A LOT, in Freddie and Fannie bonds. If the US government don't fully back up these bonds, you'll never get us to lend you a cent more. And the current administration needs money, I believe.

The answer to the "equitable" problem of course is to just go whole hog into Communism for 50-70 years. Just to show the leftist!

"how can one change a system such as ours in an equitable and smooth fashion?

Posted by: Jim Egnor | Mar 2, 2009 11:16:33 PM"

Until you get that word "equitable" out of your lexicon, discard it, you will never see the reality.

The word "equitable" is essentially the invitation to the endless chase around the mulberry bush where the monkey chases the weasel.

Change in this country is going to involve pain and blood, or it isn't going to happen. The power is too entrenched and extends way beyond Washington D.C.

vikingvista - I have to agree that most people don't utilize that upper part of their brain. In fact the most astonishing thing are professional people who are very good from 9-5 at work, and clueless apes when it comes to economics.

I appreciate the responses and comments.

MWG--

"I always say that as soon as the libertarians put up a candidate I can support, I'll vote."

The trouble with our current two parties is that we have one--the Republicans--that openly professes that there is no rational basis for what they believe, and another--the Democrats--that professes that science has shown us the state's proper function is extortion.

Holaday:

What's the count on the Democrat presidental appointee tax evaders not being charged?

One month in and this is the sleaziest administration since er well ever

Crusader--

"why do you think most people don't care about liberty"

Animal tendencies. "I want it, I will take it." Liberty is just as self-serving and immensely more lucrative, but it is also more difficult both conceptually and in practice. With liberty you must go to the trouble of persuading people that what you want them to do is beneficial to them. That is an intellectual challenge. For persuasion to be successful, you must have a persuasive history, meaning you must have taken the time to establish a reputation demonstrating that you can be believed.

These are challenges that lowlifes like thieves and socialists simply are not up to.

Methinks,

When the President does it, it is not illegal, if the President is a Republican.

This is a bit off topic...

Did anyone listen to Geithner's testimony today? He said that AIG was a complex financial company that had a hedge fund which was "allowed to be built up without any adult supervision". Where was the adult supervision when Geithner wasn't paying his taxes? The point is, this is how the population is viewed by the monkeys in power. Geithner believes he's your father and he's above the law. Is there any doubt that the rule of law is breaking down in this country?

Jim Egnor:

My old friend Mickey Schwerner, who was murdered with James Chaney and Andy Goodman on a beam in Mississippi the night of June 21, 1962, by a group of political cretins, once in conversation described the American two-party system to me in these words, with which I have never found reason to argue: "It's the same old story," he said. "The moochers versus the misers."

This is for Mickey. Forest green.

Donald Westlake, "Put a Lid on It"

vikingvista - why do you think most people don't care about liberty? Hasn't history shown that is the case? Take the American colonists in 1776. Only 1/3 were pro-independence. I would think that 1/3 of Americans today are for freedom as well. But we have always been the minority.

My family always gives me a hard time for not voting in this year's elections. I always say that as soon as the libertarians put up a candidate I can support, I'll vote.

I think the problem for libertarians (politically speaking) is that most of us hate the "political class" so much, that no decent libertarian wants to become a candidate. What self-respecting libertarian wants to be associated with such a foul lot (though there are some exceptions).

"I'm afraid it'll take more than the right president being elected"

That's all we have to hope for. Neither the spirit nor the letter of the Constitution is much respected anymore. Nor is respect for the civil principles of peaceful coexistence and individual rights. So personality cults are the way to achieve any change. I'm afraid our democracy is disintegrating into something resembling a banana republic, Hugo Chavez style, and with an essentially similar pirate ideology. Still, even though it won't be a permanent change, the right leader can make a significant difference for a decade or two--much like the kings of yore.

Another opportunity to salvage liberty, which I do not hold out much hope for, would be the peaceful cessation of a state for the expressed reason of escaping Federal oppression.

CRC,

Yes we are entering a "whole new level" of socialism in the US. Still I am not nearly as gloomy. I will be completely with you though if the 2010 mid term elections don't usher out a raft of socialist Senators (and Representatives).

I should add that a "noble and strong defender of liberty with the power to put down the forces opposed to and stealing liberty" doesn't really matter much for people that don't want freedom enough to fight for themselves. Ultimately, when you think about it, this is what the first American revolution was about. It was a BODY of people fighting for a common, shared cause. If people want freedom they will have to fight for it. Sometimes quite literally.

Sorry to be so dark and ominous but I fear we may be entering dark and ominous times. Previous moves toward the level of socialism were not as destructive as I expect this one to be for two reasons. First, there was less socialism to start. We're starting with a lot to begin with and building on top of it. Second, the country still had a great deal of freedom (both economic and political) which created momentum that carried the socialism along for the ride. In other words the country was strong enough to survive a little bit of it. We're entering a whole new level now.

What will it take to fix things? I'm afraid I've come to the conclusion there are only three paths at this point:

- Complete crash of the system and re-construction from the ground up (hopefully from core principles).

- Outright (and probably violent) revolution. This won't be pretty at all.

- A (hopefully) benevolent dictatorship where the dictator forcibly (against the forces of plunder and theft and coercion) changes things in the right direction (and then steps down after restoring a non-dictatorship but strongly restricted form of government). Sadly the probability of this going completely the other direction is at least 50%. The word "dictator" might be wrong here...perhaps "noble and strong defender of liberty with the power to put down the forces opposed to and stealing liberty."

Jim,

It has been about 40 years since the 1970's. Whole generations of people don't know how much government stifles prosperity and prosperity is taken as a given. Until Government meddling brings the ability to prosper to a halt long enoough, unemployment skyrockets and people spend a significant amount of time tangled in bureaucratic red tape, nothing will change. I think we have to reach the fatigue with government we reached in the 1970's.

Well, maybe the Sovie...er...Russian fascists oligarchs will like us more, seeing how we will have the same sort of system of private/public corporatism.

Or is it public/private corporatism? I forget.

Just the fact they aren't expected to be profitable tells us everything we need to know. As for how do we change the system, I'm afraid it'll take more than the right president being elected, and that's the problem. As long as we're dependent on the particular administration in office, the system will be unstable. It will probably take Constitutional amendments which remove any loopholes used to get around limitations -- a restatement and clarification of limited government. A total collapse of statism might do it, but I doubt it'll be "smooth" and at least half the nation won't think it's "equitable".

Russ Roberts states in his opening:

"This New York Times story suggests that Fannie and Freddie are going to stay in the hands of the government, partly because government likes have the tool. I think there's a chance it they will return to their quasi-private form."

Make no mistake about it. Quasi-private is being in the hands of the government. It's like being "a little pregnant": you either are or you are not.

"how can one change a system such as ours in an equitable and smooth fashion"

If the right candidate is ready and popular when the public becomes disillusioned with the current administration, significant progress can be made.

One of the characteristics of the right candidate would necessarily be someone who would win the election while unabashedly and optimistically advocating the right policies.

Obama had that opportunity, but unfortunately his policies both before and after the election are about 180 degrees from right.

The right policies would entail some of:

* an end to bailouts,

* a controlled failure of insolvent financial institutions with establishment of a perpetual institution for managing such, so that all would know that future Federal policy is already structured to allow failure rather than bailouts.

* a dramatic reduction in the size and scope of the Federal government (at a rate that MUST exceed tax cuts) including a shift to the private sector of large portions of Medicare and Social Security,

* pro-growth fiscal policies (i.e. reducing government restrictions on real growth; NOT fiscal "stimuli"), and

* a revision of the Federal Reserve's Congressional mandate to include ONLY predictable low inflation (as in GENERAL, not just average, level of prices) targeting.

Public opinion is rapidly reaching critical mass on this with widespread disapproval of the government bailouts. The opportunity might be right by the time Carter--er uh, I mean Obama--runs again.

Have been following this blog for a month or so...and apart from having been "torched" over a comment I had made early on, I've appreciated your perspectives of realpolitik within the study of economics. My question to the audience in general---how do you perceive change of our political and economic awareness will occur? Given the inherent nature of the "established beast" within DC and corporate influence upon same---how can one change a system such as ours in an equitable and smooth fashion?