Reading several recent news stories, it occurred to me that other countries understand what made America great better than we do these days, or at least better than our current leadership does. There are several lessons we need to relearn.
The first lesson comes from a news item I read about how China will soon overtake the United States as the world's leading manufacturer. It is forecasted to happen next year, ending America's 110-year run as the world's leader (which is how we became an economic powerhouse). China has learned from America that producing goods leads to solid economic growth and jobs. America has increasingly become a consumer-based service economy, and lately our leaders are acting like it's the government that produces economic growth and jobs, a falsehood. In a free country like ours, the government, the public sector, actually consumes wealth for the most part. As I mentioned in a recent post, China, as a result of it's market-based reforms, has become the world's largest creditor nation, while we have become the largest debtor nation.
The next lesson comes from, of all places, a former communist country, Russia. Dmitri Medvedev, the Russian President, sees an opportunity for Russia to take a prominent place in what he calls a new world economic order, which he says will rise out of the ashes of the financial crisis and end the heyday of western, and particularly American, dominance. Listen to what Medvedev is proposing for Russia:
Mr Medvedev laid out a series of new initiatives that aim to boost its attractiveness as an investment destination. “Russia needs a real investment boom”, in order to achieve its modernisation goals, he said. To stimulate that, Mr Medvedev announced Moscow would introduce zero taxation on capital gains for companies working on long-term investments starting from January next year and said Russia was improving the legal system to provide better protection for businesses against the long arm of bureaucracy.
Mr Medvedev said the state would concentrate its efforts on fostering a good business climate. “No matter how many state-owned companies we have, modernization will happen, above all, through private business. And only if there is competition,” he said. “The state should not tear down the apples from the tree of economics. What the government should do is help grow our apple orchard, develop our economic environment.”
Mr Medvedev said he was cutting the list of strategic enterprises five fold in order to reduce the role of the state in the economy and foster more private initiatives.
Russia is proposing pro-growth, private sector, business-friendly policies with less interference from the state to grow it's economy. In America, Obama is proposing quite the opposite - bigger government, anti-business, centralized control, and ever more regulation.
Since when did Russia understand market economics better than the United States Of America ? Why are we letting that happen ?
The final lessons come from our neighbor to the north, Canada, and it comes from another unexpected source, Canada's Liberal Party. First, one must understand that Canada's Liberal Party is actually their center-left party. What we call liberal (left-wing) in America is called the New Democratic Party in Canada. The Canadian Liberal Party is liberal on most social issues, but have made several smart conservative moves on fiscal issues, as pointed out in this Associated Press article.
The first lesson concerns how Canada largely avoided the banking crisis that devastated America and Europe:
The banks are stable because, in part, they're more regulated. As the U.S. and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren't as leveraged as their U.S. or European peers.
There was no mortgage meltdown or subprime crisis in Canada. Banks don't package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans.
In Canada's concentrated banking system, five major banks dominate the market and regulators know each of the top bank executives personally.
Notice that even though Canada is dominated by large banks, which we have been calling "too big to fail" in this country, there was no housing meltdown, because Canada doesn't bundle and securitize mortgages like we do. The Canadian banks don't sell their mortgages like we do. Canadian banks HAVE to know their customers can pay back their loans. The survival of the Canadian banks depends on it. That's the way the mortgage market used to work in America as well, until our government changed all the rules and let secondary mortgage entities like Fannie Mae, Freddie Mac, and Wall Street investment firms into the mortgage game, which incentivized our mortgage lenders to hand out loans like penny candy and then sell them. The government actually took these steps in the guise of lessening risk, one of the great ironies of all time.
Speaking of Fannie Mae, it is now primarily owned by the government (the taxpayers), and Fannie, along with other government mortgage entities, are still buying and selling houses like crazy, selling them for pennies on the dollar. The cost to taxpayers is $146 billion and rising. Before it's all said and done, Fannie Mae will be the single largest receiver of taxpayer bailouts.
And the recent financial regulation reform bill EXCLUDED Fannie Mae from it's reform. Great work, Congress. As usual, it was partisan politics over practical reality. The financial reform package leaves the secondary mortgage market TOTALLY in place, despite the ludicrous dog and pony show the Democrats put on to claim they were "ending bailouts forever," and "ending too big to fail." God, they think we're stupid. Fannie Mae is the biggest of the "too big to fail" in the mortgage market. As one realtor said in the article linked above, "we're all working for the government now."
The other lesson from Canada's Liberal Party concerns how it balanced it's budget. This one will make Obamamaniacs roll over in the graves they are digging for our country:
[Canadian] Liberals took office facing a $30 billion deficit. Moody's downgraded Canada's credit rating twice. About 36 percent of the government's revenue went toward servicing debt.
"Our situation was dire. Canada was in a lot of trouble at that point," Martin said. "If we were going to preserve our health care and our education system we had to do it."
As finance minister, he slashed spending. A weak currency and a booming U.S. economy also helped Martin balance the books. In the 1998 budget the government estimated that about 55 percent of the deficit reduction came from economic growth and 35 percent from spending cuts.
"The rest of the world certainly thinks we're the model to follow," said Martin, who was prime minister from 2003 to 2006. "I've been asked by a lot of countries as to how to go about it."
Canada eliminated it's deficit via economic growth policies and spending cuts. Are you listening, Mr. Obama ? Are you listening American liberals ?
Let's summarize the lessons we've learned today from other countries, which happen to be lessons America knew for a long, long time but appear to have forgotten. In order to restore America, we should - cut taxes on investment, cut government spending, enact pro-growth, business-friendly policies, restore our manufacturing sector, stop politicizing the mortgage market to "increase home ownership," and replace it instead with the old way of making mortgage loans, under which banks were highly incentivized to make responsible loans to qualified individuals. We should do everything we can to help the private sector, instead of growing government to the point that it strangles our economy.
That's what we should do, and it also happens to be what I've been advocating on this blog (gosh, I'm so smart. Allow me to pause a moment to pat myself on the back).
But instead we have the Obamamaniac in charge, doing the precise opposite, following the failing quasi-socialist European big government entitlement model that has the West collapsing under mountains of debt, as I pointed out in my recent post, Living On Borrowed Time.
It's not too late, America, but our time is running out. If you remember anything as you cast your ballots come november, remember that.
Or, we can send our President back to school for an Economics 101 course, and hope for the best.
About This Blog