The Financial Crisis And What To Do About It

Conrad Black tells us what brought us to this national financial crisis and tells us what to do about it. ("Lessons to Learn From Wall Street's Week of No Return," National Post, September 20, 2008.)

Broadly, the principal official financial policy errors in the United States over the last 15 years or so (during which time there has been minimal inflation and unemployment, and nearly 30-million net new jobs created), have been:

• Nothing has been done in U.S. tax policy to discourage excessive debt accumulation by the American public, which has spent more than it has earned for years, most of it on non-durable goods, and much of it imported. This has created terrible financial and psychological vulnerability throughout the population.

• Nothing has been done to reduce the back-breaking importation of oil, which has grossly raised energy costs, fueled inflation, enriched unfriendly states such as Russia, Iran and Venezuela, and financed their mischief, and burdened the United States with about half of its $800-billion annual current account deficit.

• Successive U.S. administrations of both parties have sat, inert as suet puddings, while China has piled up a $265-billion annual trade surplus with the United States.

• The deliberate reduction in the value of the U.S. dollar came too late to save manufacturing jobs and went on too long to improve the real buying power of American consumers. Meanwhile, Washington’s low-interest-rate policy was too deep and prolonged, and encouraged compulsive spending and expansion, and excessive borrowing and speculation, especially in housing.

Beyond that, the United States and other countries have fallen too far into the fool’s paradise of the service economy. The U.S. GDP of $13-trillion is about half composed of worthless and non-productive effort, which yet engages the efforts of a large number of very skilled people. A trillion dollars annually goes into legal expenses to feed the absurdly litigious society and state prosecutocracy. Another great fortune goes to insane insurance costs on medical lawsuits, and superfluous consulting fees -- which mainly substitute for what management should be doing, and provide a lightning rod to shelter inept management from shareholder wrath.

His three step recommendation for fixing the situation is as follows. Go to the story itself for fuller details.

In the first step, the U.S. government should raise spending (and bailing out financial institutions will ensure that), increase the money supply, cut the discount rate, and reduce taxes, and not with Barack Obama’s shell game of “refundable tax credits,” which is only one step short of the late Montreal mayor Jean Drapeau’s famous “voluntary tax.”

The second step should unfold over the longer term, as the U.S. incentivizes savings, starts to seriously reduce energy imports, follows market forces in a redistribution of some effort from service to productive or research areas, and regains or exploits more of its sophisticated manufacturing potential.

The third step is creating the right combination of public-sector vigilance to prevent self-destructive financial excess, and private-sector fermentation, without regulators substituting themselves for commercially accomplished people.

Politically, he sees McCain as more likely to pursue a recovery agenda as opposed to a deepen-us-into-terrible-depression agenda. "Who would be the best for the task? Both candidates were pretty unconvincing last week. But I still believe that a tax-cutting ex-combat pilot is a better bet than a soak-the-rich ex-social worker."

Conrad Black, born and educated in Canada but now a British citizen and member of the House of Lords, is a former media mogul, author of biographies of Maurice Duplessis, Franklin Roosevelt, and Richard Nixon.