US Economy on Trial in Davos

The US economy was called into question by Russia's Prime Minister, Vladimir Putin at this week's annual World Economic Forum in Davos, Switzerland. In his speech given on the opening day of the Forum, Putin initially called for the an end to blaming the current global economic crisis on the US. However as the speech continues, Putin questions the role the US played in the global crisis. Putin asserts the US corporations were subject to substandard regulations and a lack of governmental oversight.

According to Putin, this lack of restraint for fiscal risk has resulted in a world where the economy of one nation, the United States, has brought on huge inequities between the US and other nations. Putin states, "Corporate appetites with regard to constantly growing demand swelled unjustifiably." Putin further points out that he believes that the "corporate appetites" has resulted in wealth being, "distributed extremely unevenly among various population strata" around the world. So much for ending the blame game.

It would appear that a round of "Kumbaya" will not close this year's forum. Let's just hope that next year's forum doesn't start off with "Workers of the world, unite!"

How the City of New London Bypassed Private Property Rights

Yesterday's Wall Street Journal featured a book editorial for a new book titled, "Little Pink House." The book by Jeff Benedict, details how the City of New London took the home of a woman through eminent domain. Susette Kelo, the homeowner, purchased in her home in a desirable neighborhood, made various improvements to the property and over time made close friendships with her neighbors. To Susette Kelo her "little pink house" was paradise.

Now enter the City of New London, who were looking to expand their tax revenues and attract Pfizer, a large corporation, to build a facility in their area. Unfortunately for Ms. Kelo, her home was one in a number of properties that the city wanted to acquire in order to provide the area with not just a corporate research facility but also build luxury hotels and condos. New London believed that the increased tax revenues from the redevelopment was the basis for deeming Ms. Kelo's home as blighted and subject to eminent domain. Susette Kelo fought the order and the case made it all the way the Supreme Court in the case Kelo v. City of New London.

In the end, the Supreme Court ruled in favor of the City of New London. Susette Kelo was forced to give up her home in exchange for a monetary settlement. I think this case is a classic example of how controlled our markets can be. While I can appreciate New London's argument for expanding their local economy, the core value of private property so central to a free market should not have been bypassed.

Ever since I was first exposed to economics in my high school social studies class, I have been an admirer of Milton Friedman who won the 1976 Nobel Prize for Economic Studies. Friedman abhorred government involvement in markets. Since the US economy has had more enough government interventions lately, I thought it may be interesting to look back some of his opinions on economics. Little did I know the wealth of video clips available on the Internet.



One video I found was of an exchange between Milton Friedman and Phil Donahue in 1979. In the You Tube video titled Milton Friedman - Greed, Friedman extols the merits of capitalism. According to Friedman, in a capitalist society the incentive of having the ability to follow your own self interest has led to extraordinary achievements. The interview ends with Donahue challenging free markets as manipulated and therefore lacking in virtue. I think Friedman does an excellent job in pointing out that the self interest of our elected officials can be anything but virtuous.

Too Big To Not Be Confirmed

Recently one of the phases used a lot in the media these days has been, "to big to fail." For example, the $700 billion dollar bailout was sold to the American public as a way to save banks who were "to big to fail." Or how about the auto bailout. The automakers and their related industries were declared too important to our economy so they had to receive a bailout.

This week has brought an interesting twist to the "to big to fail" mantra. For first time since this economic meltdown started last fall the media is touting Timothy Geithner's confirmation as Treasury Secretary as too critical to fail. Apparently, the politicians in Washington think that Timothy Geithner is the only man who can handle this economic mess in spite of his inability to file several years of his taxes properly. In The New York Times article titled Geithner Grilled Over Tax Issue, Iowa Senator Grassley expressed how vital Geithner is in saying, "To some he isn’t merely the best choice; to some he is the only choice.”

Looks like the politicians in Washington are looking to give Timothy Geithner a magic hall pass.