The Onus of Promoting an "Ownership Society," and Business Week Predictions

As I was going through my old collection of business magazines, I came across the following articles from Business Week:

A Prescription For Health-Care Reform (9/20/2004). Glenn Hubbard wrote that "An "Ownership Society" agenda has taken center stage in President George W. Bush's agenda for a second term, with proposals for Personal Accounts in Social Security, expanded incentives to save for retirement, and Personal Reemployment Accounts to aid workers in finding a new job. But a central plank of this agenda, and one that can be enhanced to improve markets for health care, is already law: the Health Savings Accounts (HSAs) passed in the recent Medicare reform." Nearly four years later, none of the three proposals put forth by Dr. Hubbard have seen the light of the day; in fact they have been dead for a while. It is rather scary to think of the consequences if people had put their "Personal Accounts" funds into the equity market as it was reaching a top, only to see the sharp downturn due to the credit crisis.

The September 20, 2004 Business Week issue had an article on tax code titled "What A "Fairer" Tax Code Might Look Like: A reelected Bush may rework the existing system -- or try for a consumption tax. " It says that "President George W. Bush has the tax code back in his sights -- but this time he's not just talking about tax cuts. In his Sept. 2 speech to the Republican National Convention and on the stump since, he has called for making the tax system "fairer, simpler, and more pro-growth" than the current 'complicated mess.' "
Another rosy forecast for a second Bush term. This forecast proved to be very taxing.

America's Stark Fiscal Choice. Another article in the same issue says that "While President Bush's soaring campaign rhetoric promises Americans that they can have it all -- new and expanded tax credits for private health, savings, and retirement accounts plus big permanent tax cuts -- the reality is beginning to bite. The cost of these ambitious plans, on top of committed expenditures for the new Medicare drug benefit, the war in Iraq, homeland security, agriculture, energy, highways, education, and more, will add trillions of dollars to a federal budget deficit already spinning out of control. Responsible Republicans are beginning to say that Bush must make a choice between his radical plan to change Social Security, health care, and savings programs and making his first-term tax cuts permanent. The wise choice would be to go with entitlement reform. America is facing a severe crisis as its health-care system cracks and the baby boomers approach retirement. "

The "business" publications like BW and WSJ painted such a rosy forecast of the Bush second term- however the results speak for themselves. Perhaps the greatest disaster Bush's eight years have wreaked is the creation and destruction of hopes and dreams in millions of people, both in the U.S. and abroad- especially that of home ownership. Prudent progress towards it was derailed by the financial innovators, the Fed, and the Government.

History of an "Ownership Society"

A few weeks ago, a student in my class commented that all the history courses she took were very limited because they all seemed to end with World War II or earlier. Other students chimed in- it appeared that stuff that happened in the recent past was of no historical relevance. As this was in my business course, I decided to give them a ten minute education on recent history related to the economy- the past fifteen years.

• 1992-1993 Beginning of the widespread use of the browser- we really need to thank Marc Andreessen and his buddies at U of I for making this blog and everything else on the Internet accessible so easily.
• 1992-2000 Massive (over) investments in technologies, esp. Communications, and Finance. This can be looked at as pulling future investment 'into' the present, thus forcing reduced investment in the future (reversion to the mean effect).
• 2001-2002 Reality check. Dawned on investors that some investments made above will never pay off, and some would take many years. Collapse of investment.
  9/11- collapse of travel.
  Recession.
  Job Losses, especially the higher paying high tech ones.
  Outsourcing of tech (part of the payoff from capital investments in 1992-2000).
  
• 2003 - 2Q 2007: President George Bush's two part response- Iraq War and Create an 'Ownership' Society.
  Shift the gains from wage earners to 'owner-investors.'
  Fed Chair Greenspan responds by lowering interest rates to 1% in July 2003. Became very cheap to borrow money, both for individuals and institutions.
  Reduced regulatory environment and lax enforcement made it very easy to borrow and lend money.
  Tax code changed to significantly benefit investors and owners- shifting the burden to wage-earners.
  Tougher bankruptcy laws made it more favorable for lendors.
  Massive borrowing to finance housing and other needs, as opposed to funding from savings.
  Spawns asset bubbles- Housing Bubble, Real Estate bubble, Stock Market Bubble, Commodities bubble, etc.
  Lower interest rates, with higher global demand, spawns inflation
  
• 2005-2007 Fed responds by raising rates trying to lower inflation
• 1Q 2007-3Q 2007 Cheap money not available. Borrowing to finance spending becomes difficult.
  Job Losses
• 3Q 2007 to present. Fed dramatically lowers rates and puts in other extra-ordinary measures to make it easier to 'borrow.'
  Assets being repriced.
  Ownership (that arose from borrowing) being reduced.
  

Next step is to take a stab at the future- that's for another blog.