Economics & Business

Offering and obtaining loans is not charity

In our easy-money world of low-interest loans, many draw the conclusion that we should be able to borrow money just because we want it. Whether it is conventional loans for the purchase of homes or automobiles, or credit cards for buying practically everything else, terms are easy and cheap–or so it appears. This reflects the larger commercial picture as the Federal Reserve System has been keeping its interest rates low for member banks. This is designed to avoid the monetary disaster which is the likely consequence of the government’s fiscal irresponsibility. Annual budgets of more than a trillion dollars were bad enough; now the Obama Administration and the Democrat Congress have given us trillion dollar deficits!

The national debt now is more than $12 trillion (12,000,000,000,000), which is unfathomable in human terms. But what is clear is that it will never be paid off. In the meantime, the Fed is keeping interest rates low to avoid looming national bankruptcy.

But this is not sustainable. In a commercial recession that shows no significant signs of abating, our currency faces repudiation in world markets and, in due course, our own national market. No policy can keep the dollar sound when in fact it has lost its purchasing power.

If it’s any comfort to anyone, our national policy makers are as inclined to believe in fantasies about loans as all those Americans who moved into homes that they could not afford or avoided credit card fees for unpaid charges. Of course, that is no comfort at all.

Money, like any good in the marketplace, has its price. In a primitive barter system, we would be trading objects which for the most part are incommensurable. Money allows us to value the objects we want or need. But money itself does not, to state the obvious, grow on trees.

If one wants a house or a car, one has to pay for it. (At least, that’s what we all thought until the sub-prime market in real estate was cranked up by a combination of federal laws, ACORN law suits, and Fannie Mae and Freddie Mack credit terms.) If one wants money that one hasn’t got, one must likewise be willing to pay for it. This is plain justice for several reasons.

First, it belongs to someone else. However much one may long for someone else’s money, it is mere covetousness to imagine that one has a right to it. Just as one has no right to expect automobile dealers or owners to give one a car, or homeowners or mortgage companies to give one a house, no one is entitled to money from a bank or other lending institution.

Second, money is typically not lying around uselessly. It is invested in properties, securities or businesses that will yield a profit or dividend. The popular mythology of bankers sitting on hoards of money which they are selfishly denying to needy people needs to be discredited. No one in his right mind recklessly gives away money.

Third, money must be lent at a cost because there is no sense in taking it from a profitable venue and putting it into an unprofitable one. Money is not "free." There is a net loss for people who get back only the principal without the interest.

Fourth, loans must be repaid with interest to insure that the money lenders have a continual supply of money to lend to future borrowers. If debts are not repaid or the return falls short of where the money could have been invested more profitably, the capacity of the lenders is in question. Indeed, the capacity of borrowers to get money is seriously impaired.

In fact, the current artificially low interest rates have already pinched the market for loans. Lenders who do not wish to go out of business have found ways to protect themselves against a run on their funds by asking for more collateral or better credit.

Similarly, credit card companies try to protect their reliable customers by imposing more fees on the less reliable. Credit card users who pay off their monthly bills faithfully have been rewarded with no interest charges. Again, money must be flowing back to keep these firms in business. Where is the justice in the careful spenders subsidizing the careless ones?

The sooner we free ourselves from our addiction to easy money, the sooner our commerce will be healthy again. But that means facing facts about loans.

Income redistribution at U.S. expense

Many of us are still stunned that President Obama was awarded the Nobel Peace Prize even though he has no accomplishments to this credit beyond his major difference of opinion with his predecessor, if not practically every American president. He is determined to make amends for our nation’s sins by apologizing for them in speeches given abroad, as well as changing public policies to bring the nation in alignment with his thinking. In the text of the Nobel Peace Prize Citation, Obama is lauded for his efforts for promoting nuclear disarmament and combating "global warming," but I was particularly struck by this passage:

"Only very rarely has a person to the same extent as Obama captured the world's attention and given its people hope for a better future. His diplomacy is founded in the concept that those who are to lead the world must do so on the basis of values and attitudes that are shared by the majority of the world's population."

Let’s unpack that paragraph. Not for a moment forgetting that our President still has no significant accomplishments to his credit, let us take seriously his current hold on "the world’s attention." Obama is believed to agree with the "values and attitudes that are shared by the majority of the world’s population." Judging from other statements in the Text, that would be the aspiration for democracy and human rights.

While it may be true that most people either enjoy or seek democracy and human rights, a majority of the world does not enjoy them or is likely to. Democratic republics are to be found mostly in Europe and North America, with a scattering of them in Latin America and Asia. The only reliably democratic regime in the Middle East is Israel, which for its virtues has earned the hatred of Muslim nations, and many others besides.

Russia, China and emphatically the Islamic terrorists are not fond of democracy or human rights, not to mention the rogue regimes in North Korea, Iran and Venezuela; and the Third World generally has had little or no experience with these great human goods.

So what can it mean for the President to share the "values and attitudes" of most of the world? We have already seen what this means in practice as Obama negotiates without preconditions with despots likes Hugo Chavez, Mahmoud Ahmadinejad, and Kim Jung-Il; has appeased the Russians by abandoning missile defenses in Poland and the Czech Republic; asserts moral equivalence between Israeli settlements and Palestinian massacres; is trying to impose a Chavez clone as President of Honduras; and has even ended the close partnership between the United States and the United Kingdom.

I fear that many Americans’ reluctance to take seriously Obama’s "transformation" rhetoric has blunted the alarming significance of these developments. Remember that Presidential candidate Obama deplored the fact that Americans use more energy than the rest of the world, leaving out of consideration that Americans produce much more than other peoples do.

Somehow it is unjust, according to Obama, that Americans have a higher standard of living than most other nations. Obama is also troubled that some Americans make more money than others. He famously told Joe the Plumber that those who make more than a quarter of a million dollars should "spread the wealth around."

Obama does not seem to understand that when some people succeed in their businesses, they are making jobs for others, not to mention that America is an upwardly mobile society in which those who make relatively small incomes in time work their way up to higher levels. More, he has difficulty distinguishing between disparate incomes in countries that encourage free competition and those which repress it. Class distinctions are not permanent in America as they are in our largely undemocratic world.

For Obama, I believe, just as the lower incomes of some Americans justify a claim on those in higher income brackets, so does the lower standing of most of the world have a claim on the United States.

Given the "values and aspirations" of most the world, it has no difficulty with international income redistribution. It seeks to transfer our wealth to other nations that lack our productivity and, more important, our freedom. Obama obliges by imposing unsustainable social welfare spending on our people, abandoning proven oil production for costly "soft" energy, and refusing to develop nuclear energy.

Whether Obama or not succeeds in "transforming" America from a prosperous nation into a succor (pun intended) for the rest of the world, he is laying the groundwork by catering to the world’s "values and aspirations." Be prepared to be fleeced.

Socialism really is a bad idea

As I noted last week, whenever a critic of Democrat policies uses the term "socialism," Democrats bristle. But if a policy or measure gives ownership of some business or industry to the government, (e.g., General Motors), socialism being defined as government ownership of the means of production, then it is entirely fair to call it socialistic. Not that this offends or renders defensive everyone on the left. Despite the fact that Democrats last year defended "spread the wealth" schemes - - without acknowledging their socialist pedigree - - last spring liberal columnist Evan Thomas of Newsweek devoted a cover article to proving that socialism is not such a bad thing even as he conceded that that is what the Obama Administration stands for.

Liberals know that Americans are not supportive of socialism in spite of their interventionist policy changes over the last 76 years, beginning with the New Deal, which brought massive government controls, intervention and regulation with the National Recovery Act, the Agricultural Adjustment Act and the Social Security Act; supplemented by the Great Society’s War on Poverty, Medicare and Medicaid.

The liberal strategy largely has been to advance in increments, their big innovations depending upon massive electoral victories in 1932 and 1964. They have been quite successful in getting the camel’s nose under the tent for years, without acknowledging the ultimate goal of their legislation.

One wishes that the American people as a whole could discern more readily that socialism by degrees is still socialism, even if we must be grateful to the American Constitution for making it difficult for American liberals to go as far as European social democrats.

The question must be posed: what’s wrong with socialism? Isn’t it right that the people have protection against wealthy corporations that have unlimited power to hire and fire thousands of people and earn unconscionable profits at the expense of the public? If the foregoing were an accurate description of the American marketplace, I might support socialism too. But it is not.

In the past I have written about the uncoerced trading relationship that exists between businessmen and their customers, and indeed their employees. Unlike the peasants of old in Europe, or millions of unfortunate people in unfree countries around the world today, no one in America  is forced to work for anyone in business or to fork over money to them. Despite government intervention that has distorted the marketplace, there is more "upward mobility" among Americans than any other people in the world.

Much of what rightly offends Americans is actually a product of government intervention. Why did three companies dominate the automobile business for so many years? The oligopoly of General Motors, Chrysler and Ford was necessary to pay the inflated wages and benefits of their employees who had the advantage of being represented by a powerful union that could negotiate contracts for the entire industry, thanks to the National Labor Relations Act of 1937. The Obama Administration is attempting to perpetuate that advantage through its majority control of GM.

Why do utility companies enjoy local or regional monopolies and have their rates set by a government agency? Where’s the competition in that? Why were there so few broadcasting networks which were (and are) practically mirror images of each other? Government regulation of these industries has restricted competition.

The real driving force of socialism is hatred of the marketplace which, governed by the profit motive, is alleged to be nothing more than greed. Members of Congress who enabled the reckless lending of Fannie Mae and Freddie Mac, thereby causing an unprecedented credit crisis, believe that such government-sponsored entities (GSEs) are morally superior to private corporations. That is why they are trying to take advantage of the recession, ignoring GSEs’ miserable performance.

The truth is, major government programs, such as social security, medicare, medicaid, stimulus packages and so on either do not pay for themselves or are facing bankruptcy. Meanwhile, Democrats think it is better for their cronies in GSEs to pull down huge salaries than for corporate executives to do so.

Socialism assumes that the amount of goods and services available is always limited, overlooking America’s incredible increase in individual wealth. The object of socialism is to establish "equity," but actually punishes people for being successful and rewards the unsuccessful. Every government program depends on taxing those who have earned their wealth in the marketplace and redistributing it to others, especially the well connected in politics and government. The key element is coercion, which betrays the lack of charity by that very fact.