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December 19, 2008

Setting the Record Straight

Joe Charlebois

I rarely respond directly to other columnist's points of view or more precisely an individual column, but our local WFMD star and Frederick News Post columnist, Katherine Heerbrandt, couldn't be more wrong on so many items in her December 17 column.


A self described economic novice, Ms. Heerbrandt feels that our country's current malaise is a direct result of free market economics. Since moving from a Keynesian economic system (government involved economy) to a more laissez-faire one, reducing over-regulation, our economy was spurred as no other time in our history.


When was that? This happened when Ronald Reagan became president. Mr. Reagan – as you may recall – took office when there was true malaise throughout the United States. I am not saying that current day concerns are not valid. What I am stating is that we were much closer to a second great depression in terms of statistical analysis than we are today.


In 1982 unemployment rates had reached an untenable level of 10.8 % of our population. Currently we stand at 6.7%, almost one-half the percentage of 26 years ago.


In 1980, according to the Bureau of Labor Statistics, the average rate of inflation was 13.58%, with a high of 14.76% in March 1980 – just 10 months before Mr. Reagan was sworn in.


Interest rates were as high as 20.31% in Mr. Reagan's first term; and when he left office they had come down to 8.85%.


Deregulation for deregulation's sake is not what took place. What took place was lifting some of the unnecessary burdens from business and allowing them to operate more freely.


Just think how many of us used air travel before Mr. Reagan's arrival, and what was the cost per flight?


Overall this was a boom to our economy, not a failure.


In regards to those who would "bust" the unions to save the auto industry, well, they may have a point. The UAW is currently holding the proverbial gun to the head of all of us. The auto industry is intimately intertwined with the overall U.S. economy. The UAW does not want to give back enough in concessions to save Detroit. It is gambling that the threat of the "big three" failing will force Congress to give in and provide bridge loans to keep their employers afloat.


Well, how long will it keep them afloat? If the underlying cost per-car-differences between Detroit and all other auto makers – regarding the employee – are not addressed, our tax dollars will continue to disappear into the UAW's pocket, and the big three will still fail.


Mortgage companies were initially the unwilling pawn when the Community Reinvestment Act was signed into law in 1977 by President Jimmy Carter. What this required was that the loan originator could not discriminate against the "general wealth or poverty of a neighborhood." What this did was force underwriting regulations to be overlooked for the overall benefit of society. This allowed those who would not previously qualify to get loans that they may or may not be able to pay back.


Further, lessening of standards was put in place in 1992 when the federal government forced Freddie Mac and Fannie Mae to devote a certain percentage of their loans to "affordable housing." In 1995 further pressure was put on these lending agencies and mortgage companies to loan or else to previously "red lined" neighborhoods (neighborhoods that were off limits to lenders due to financial risk.)


The left is chiefly responsible for the increased risk in the real estate market and lack of oversight when calls for a review of Fannie Mae and Freddie Mac were asked for – such as that made by Arizona Senator John McCain several years ago.


Once again, the law of unintended consequences has risen up and bitten us in the behind.


Yes, things are bad and most of us are concerned with the overall health of our economy; however, it could be worse.


They will be worse with more government intervention, not less. The United States still is the model for free market economies and we lead the world in productivity and wealth.


Look where the free market has gotten us.


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