Friday, August 3, 2012

Economic recovery - how did we get here?

The tech bubble was driven by unending optimism on expected productivity increases from technology. Early growth in this was real because we did experience a huge increase in productivity due to automation and computers. Bubbles are a reality of making a market honest and pushing the value back to its real number. The housing bubble was the driver in the 2008 crash and this was driven by a policy to back mortgages with a gov funded agency (Freddie/fannie) and making mortgages to individuals who did not have adequate means to repay. If banks were left to themselves to make loans to those with adequate credit(their ticket to sustainability), we wouldn't have seen this crash. The fake increases in prices for many years was driven by the shortage of supply because more houses were being bought than were available. Social policies demanding "fairness" created the gov backstop and fueled this high demand. We now are faced with a situation where the housing bubble needs to return to true values but the pain of this is very hard to face. There is likely more potential for real economic growth from increased domestic oil production. Jobs here, dollars spent here, secondary services abound. Initiatives for solar energy have wasted tax payer dollars. Finding another means of generating electricity does not provide net economic growth. The supply is currently domestic and it shifts jobs from coal mines to other production lines. Businesses are speaking with their actions of showing the huge uncertainty of future costs and not hiring because of the hallmark legislation of this administration. Reagan saw historic job growth by lowering taxes of the richie rich from 70% to 35%. This administration is boldly trumpeting the idea that the rich need to pay more. The top 10% of wage earners pay over 40% of the taxes. Nobody gets an improved economic outcome from the government, except the crony capitalist such as the solar industry. The lack of recovery truly is the responsibility of this administration.