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Saturday, February 21, 2009

(Video) Ron Paul discusses the alternatives to Obama's big-spending approach to stimulus with Bill Maher

Last night Ron Paul visited with Bill Maher on the season premier of his HBO show Real Time to explain how he thinks the government should best deal with the economic downturn:

Posted by Kalim Kassam on February 21, 2009 | Permalink


Ronnie is so fawn knee ! He says all the things late night TV watchers want someone to say to them, . They like him but they don't vote for him. Hardly anybody votes for him. But he is fawn knee saying don;t do anything and it will all fix itself.

Posted by: 419 | 2009-02-21 4:03:18 PM

Listen to what Gerald Celente has to say.


Posted by: The Stig | 2009-02-21 8:41:52 PM

Ron missed a few opportunities to shoot down the most glaring Maher/Air America/MoveOn straw men. When confronted with the old "capitalism caused the problem" canard he responded by repeating how much he hates the Federal Reserve. While valid, it's the kind of message that goes right over the mushy late-night brains of Maher's viewers. I would have preferred a direct attack on the policies of easy credit for low-income "homebuyers", a sacred cow for the American Left that Maher would probably defend AND ONE that George W. Bush embraced in order to win hispanic votes. It would have been quite the right-hook for Ron, exposing a chink in Maher's pmpous armour by illustrating how W. operated from the Democrats' own playbook.

Posted by: anonymous | 2009-02-22 11:56:44 AM

"When confronted with the old "capitalism caused the problem" canard he responded by repeating how much he hates the Federal Reserve. While valid, it's the kind of message that goes right over the mushy late-night brains of Maher's viewers."

Quite true. He should have gone into more detail about why he (and other free marketeers) hate the Federal Reserve. Of course, like you say, whatever he said would have gone over the heads of most viewers. Explaining Austrian Economics in 30 seconds is difficult (believe me, I've tried).

"Capitalism caused the problem" is an easy sound bite, which most Americans think they understand.

"The Fed caused the problem" is a much more difficult sell, given that the average person hardly understands what the Fed is.

Blaming "capitalism" then calling on the government to "fix the recession" is a lot easier than learning about economics.

Posted by: Jeremy Maddock | 2009-02-22 4:44:55 PM

People need to understand that the current economic problem began with an enormous misallocation of resources in the housing market. Trillions of dollars of surplus housing did not come about overnight. It took decades to create.

What incentives were there to create this misallocation? In the first place, mortgage interest was made tax deductible to encourage poorer people to buy homes they could not afford. In the second place, large government-backed mortgage brokers (Fannie, Freddie, and their little sister, whose name I forget at the moment) under-wrote the mortgages sold by financial institutions, thereby wrinsing the risk out of buying and selling them. This lead to ever riskier mortgages being offered that would not have been offered had there been no ultimate insurer. In the third place, the government was bamboozled in the early 1990s by a statistically flawed study that suggested that minorities were being discriminated against by mortgage lenders, and so the government passed laws requiring banks to write more and more mortgages to a demographic that could not afford them - the infamous NINJA mortgages ("no income, no job, no assets"). In the fourth place, the Federal Reserve made it artificially cheap to borrow money, and therefore to take the risk of buying a home or other assets on credit. People invested in a lot of dot-com companies that had no real revenue streams, which was fine as long as these stocks were in demand and the prices kept rising. But when the dot-com bubble burst and people pulled out of the stock market, there was a lot of money suddeny looking for another form of investment in the early 2000s. A lot of it went into "real" estate because nobody wanted to get burned again buying "virtual" assets.

Note that all of these perverse incentives were created by government interferences in the market, not by the market itself.

Everything went along fine as long as housing prices continued to increase - which they did, as long as the investing herd went into the housing market. But a couple of years ago, people started to realize that the housing market had become one big ponzi scheme, much like the dot-com market had before it. They realized that housing prices had been bid up beyond anything that was sustainable or affordable. Prices started to stagnate and then fall, paper-equity was lost, and all those people who put "zero down" on their houses realized that they were better off to default and move on. That further drove down the price of housing, making "sub-prime" mortgages untenable, too, because people could no longer flip them to get their mortgage albatross off from around their necks. (Selling, taking the equity out, and starting over had been their intended exit strategy when the high interest rates were due to kick in.)

Now banks and secondary investors were stuck holding trillions of dollars in assets whose true value was unknown but much less than face value. That threatened to make financial institutions insolvent, which prevented financial institutions lending and borrowing between each other for fear that the borrower would go under and take the loans with them. Credit tightened up. People couldn't even get credit to buy cars. And so on. Now the "real" economy was pulled into the downturn.

Pretty much every actor responded reasonably to the incentives that were dangled in front of them, given the assumption that real estate was a secure investment that would not experience significant deflation. That is, people behaved as rational market participants, in a government-distorted market.

Ron Paul is right that the only fundamental solution is to let the market adjust to the real demand for housing, which means letting those who bought assets they could not afford, and those who lent to people who bought assets they could not afford, pay the price. Let the housing market find its own level instead of trying to prop up a multi-trillion-dollar misallocation.

But how do you explain all of this on a late-night show?

Posted by: Grant Brown | 2009-02-23 1:37:39 AM

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