Friday, June 1, 2012

The Battle by Arthur C. Brooks

At first, this book seemed a little fluffy...just some good old conservative bromides, but eventually Brooks got into some deeper concepts which left me with sticky notes all over the place. He really distills things down to the contrast between two groups of people in this country today; those who believe the government, especially on a federal level, should have more control in our lives, and those who believe the government's involvement in our lives should be as minimal as possible, and that we are all capable of determining our own destinies.

Now, I gotta admit that I have a short list of a few people (not the usual suspects) who really need some looking after to keep them out of trouble, but for the most part, I figure we can handle things ourselves, and get by with a little help from our friends.

One of the problems with the current debate about federal deficit spending is that the GOP did little to demonstrate that they were the responsible adults when they were last in power, during the Bush administration. Brooks says, "So Bush spent with abandon, and Obama went on to spend even more. Spending per se wsn't the real difference between the Republicans and the Democrats for voters. The difference was that the Republicans had no compeeling explanation for the crisis (real estate bubble and stock market bubble), seemed responsible for it, and had no obvious plans to fix it."

About time somebody admitted that G.W. Bush was not a fiscal conservative, and the congresses under his tenure spent like no one else before them.

The underlying cause of the housing bubble was not predatory lenders, nor gullible buyers, but the federal government's own policy, pursued for almost two decades, of encouraging home ownership, especially to people who had not previously been able to qualify for loans. Fannie Mae and Freddie Mac were right in the middle of this problem, buying up subprime and Alt-A loans like crazy, and repackaging them for investors to buy as if they were prime mortgages.

"By 1997, Fannie Mae was stimulating and buying subprime and Alt-A loans secured with nothing more than a 3 percent down payment. Four years later (by this time under the Bush administration) it was buying mortgages with no down payment at all...New government mandates required Fannie and Freddi to increase their low- and moderate-income loans to at least 55 percent of their mortgage purchases. From 2001 to 2006 subprime loans rose from 7 percent to nearly 19 percent of all new mortgages and Alt-As from just over 2 percent to nearly 14 percent."

When home prices fell, as none of the experts expected (How in the world could they call themselves experts...plenty of us laypersons out in the real world were wondering how housing prices could continue to rise forever?), the bottom fell out of the market. Government policies - however well intentioned - caused this crisis.

Seems like whenever the government comes up with a plan to stimulate the economy or help people out, it ends up with massive waste and/or fraud. For example, when it comes to the First-Time-Homebuyer Credit, put in place to stimulate the moribund housing market after the crash, "The U.S. Treasury Inspector General for Tax Administration found that nearly 74,000 individuals who already owned a home claimed the  First-Time-Homebuyer Credit. And more than 19,300 claims were made by those who had never bought a home at all. The youngest of the 'taxpayers' to receive the credit were 4 years old."

Why am I not surprised?

He succinctly states something I believe at my core to be true:

"Progressive taxation dismantles the cause-and-effect relationship between working hard and achieving success. Everyone knows we need to pay taxes for key services. But taxes for the simple purposes of income all pain, no gain, when it comes to optimism."

I believe in equality of opportunity in this country, not federally mandated equality of outcome. When politicians like to talk about "fairness", we should bear the following in mind:

"Equality of income is not fair. It is distinctly unfair. If you work harder than a coworker but are paid the same, that is unfair. If you save your money, but still retire with the same pension as your spendthrift neighbor, that is unfair. And if you stay in your house and make the mortgage payments even when its value drops but your neighbor walks away from his without recourse, that is unfair.

Fairness is a system that rewards hard work, merit, and excellence...Real fairness does not mean bringing the top (earners and producers) down. It means giving the bottom a fighting chance to rise."

Another telling quote:

"I once interviewed an executive of a large fast-food chain about his hiring practices. I asked him whether he felt bad about creating 'dead-end jobs' that paid minimum wage and offered little apparent possibility for advancement. He was surprised at my question. 'The best route to management in this company is by starting in the kitchen at minimum wage,' he told me. 'Most of our executives started that way. The problem is that so many entry-level employees have terrible work habits. They create their own dead ends.'"

As a former employer, I can vouch for that.

All, in all a very enjoyable book and a quick read on some basic principles of free enterprise.

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