Monday, April 16, 2012

Giving Credit Where Credit Is Due

Kevin Warsh, former member of the
Federal Reserve System Board of
Governors. Future Treasury
Former Fed Governor Kevin Warsh published an op-ed in last week’s Wall Street Journal titled “Who Deserves Credit for the Improving Economy?”  In it, he challenges the notion that has seemingly taking hold in some inside the beltway circles that politicians and government largess are responsible for the modest economic recovery currently underway.  He opines that the strength of our economy lies in the citizenry not the government.  The citizen that cleaned up their personal balance sheets during the worst of the financial crisis and continues to do so.  The citizen who continues to delay consumption and make tough spending choices. 

The government has done just the opposite.  The Senate, in a clear abdication of responsibility has not passed a budget since April 29, 2009.  President Obama’s unserious 2013 $3.6 trillion budget was rejected by the House 414 to 0.  The recommendations of the President’s own bipartisan Bowles/Simpson Commission were rejected by both the House and the White House

The government continues to spend money it doesn’t have, while American’s tighten their belts and make prioritize their spending.  Mr. Warsh’s best point is as follows:  “We should not allow the failings of the US banking system to serve as a generalized indictment of the market economy.  The failures in the banking system owe at least as much to public policy failures (Fannie Mae, Freddie Mac) as to deficient private practices (poor risk management). The marketplace is still the best allocator of capital and labor.”

Where is this kind of thinking in Washington?  Mr. Warsh is currently a lecturer at Stanford’s business school and a distinguished visiting fellow at the Hoover Institution.  Should the upcoming elections result in a change of administrations, Mr. Warsh should be on a short list for Treasury Secretary.

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