Also, some thoughts from Steve on this sluggish economy:
A lot has been written about how this economic recovery is more sluggish than previous recoveries. I submit three reasons, all based on excessive government interference.
1. This crisis involved a real estate bubble. This is tremendously more damaging than a bubble involving a different sector of the economy, such as the tech or commodity bubbles of the past decade. Real estate touches every part of the economy. When homeowners are underwater on their mortgage, it negates the inherent dynamism of the American economy because it doesn’t allow for the free flow of labor. People are unable to follow a job either because they can’t sell their house, or because they refuse to sell it for a loss. It also negatively affects the creation of small businesses due to the decrease in credit. Bubbles come and go, and usually are relatively short term events, but real estate bubbles in particular cause tremendous damage. This bubble was specifically caused by low underwriting standards and low down payment requirements, which existed to fill the demand for mortgages created by Fannie Mae and Freddie Mac. It was exacerbated by government mandated mark-to-market accounting.
2. This recovery is also more sluggish than usual because of the bringing forward of demand. Two programs in particular contributed to this: The Cash for Clunkers program and the $7,500 Federal Housing Tax Credit. The American economy thrives on creative destruction. The quicker we can bottom as an economy, the quicker we can normalize. These programs prevented us from bottoming.
3. More uncertainty has been created by the government during any crises since the Great Depression. The health care bill, which will revamp one-sixth of the economy, ate up nearly all of 2009, a time when companies should have been making plans on how to claw their way out of the economic mess. Instead, they didn’t know what the rules would be regarding a large part of their expenses. The health care bill wasn’t the only uncertainty causing law though. Dodd-Frank makes it harder for banks to lend, the inability of companies to repatriate cash to the U.S. because of the corporate tax policy keeps money (and jobs) overseas, and the changing of the rules in TARP and bondholder protections in the GM and Chrysler bankruptcies made business and investors question what exactly the rules are.
Plus, here are Steve’s comments on Biglari Holdings in the Indianapolis Star this week.