IN THE NEWS
John Dunham’s Op-Ed on Panic Policymaking in E&P Magazine
John Dunham’s Economic Analysis for Senate Candidate McMahon cited by the New Haven Register
John Dunham discusses LIBOR and Lobsters with Inc. Magazine
INSIGHTS: Freedom Manifesto
By Guest Columnist Steve Forbes:
Chairman Forbes Inc., Editor in Chief Forbes Magazine, Co-Author Freedom Manifesto
Our book deals with the fundamental question at the heart of the 2012 presidential election:
What kind of nation do we want to be? The choice between Romney/Ryan and Obama/Biden boils down to two dramatically disparate visions of America. Are we a country founded on the values of freedom and limited government as envisioned by the Founding Fathers in the Declaration of Independence and the Constitution? Or do we want to become a European-style social welfare state?
Freedom Manifesto illuminates this choice—really, choices. For example, do Americans want Apple or Solyndra?-a society that provides the chance for anyone to get ahead or one based on cronyism that keeps out true innovators and newcomers? Do they want Silicon Valley or Detroit?-a creative innovation economy like our technology sector, or one mired in rigidity, like our over-regulated health care industry? My co-author Elizabeth Ames and I explore these choices and others in the book.
Government is essential to the functioning of free markets because it establishes rules of the road and creates a stable environment where transactions take place according to the impartial rule of law. But Big Government is different from reasonable government. It directs people’s activities and imposes constraints on individual freedom. We wrote Freedom Manifesto to help readers get past the familiar rhetoric and soundbites to see the real moral distinctions between economic freedom and Big Government. The widespread “conventional wisdom” has long been that free markets are amoral, uncaring and driven by “greed”-while Big Government is a force for compassion and fairness. This insidious, deepseeded belief is the opposite of reality.
Not only are Big Government’s inefficient and ever-expanding bureaucracies ill-equipped to deliver on their promises-they are often guilty of the very greed, excess and corruption routinely ascribed to the private sector. The only way to a truly fair and moral society is through economic freedom-free people and free markets. Throughout history, open markets have helped the poor and everyone else by unleashing unprecedented creativity, generating wealth and raising living standards. Promoting trust, generosity and democracy, economic freedom has been a more powerful force for individual rights, self-determination- and humanity-than any government bureaucracy.
Read more on Amazon by clicking the link.
ON THE ECONOMY: Home, Home on the Range
By John Dunham:
Managing Partner, John Dunham & Associates
“Home, home on the range, where the deer and the antelope play. Where seldom is heard a discouraging word, and the skies are not cloudy all day.”
When I was a kid, I used to sing this song endlessly – and badly I must admit – all the time. The state song of Kansas, Home on the Range, was written in 1873 by Dr. Brewster M. Higley.
Back in Dr. Higley’s time a home really meant a home on the range, as thousands of settlers were riding the new railroads west in order to claim homesteads. In the late 1800s most Americans lived on farms. The opportunity to start one’s own farm – one’s own business – was encouraged by the Federal government.
Today, home ownership is still encouraged by the government through tax policies that make the interest on loans deductable, as well as on direct subsidies that have made the market for mortgaged backed securities more liquid. This has led to very high home ownership rates in the United States which have been shown to have some good societal benefits. Unfortunately, it has also tied many middle class families’ prosperity directly to the value of their homes.
Beginning in roughly 2001, the price of homes began to diverge from the long term inflation adjusted trend. Traditionally houses have been a good inflation hedge as their value tended to rise at a rate of population growth plus inflation; however, the very loose monetary policy started by the Federal Reserve following the 9/11 attacks encouraged a lot of speculation in the housing market. As such, prices increased much faster than trend during the early 2000s. This housing bubble burst at the end of 2007 helping to accelerate the most recent recession. Since that time, housing prices fell by about 18 percent and are now about in line with the trend. In fact, according to a recent article in The Economist house prices are actually undervalued in the US now.
So what does this mean for the economy? Well, on one hand this is a good sign. Since bottoming out in the middle of 2011, housing prices are up by over 3 percent according to the Federal Housing Finance Agency. This means that homeowners’ wealth is increasing, which could spur demand side effects in the economy. It may also help to loosen labor markets as people can now sell their houses and move to areas with lower unemployment. These impacts will undoubtedly help to improve the economy over time.
On the other hand, US inflation rates have been muted by the housing market allowing the government to borrow and print huge amounts of money without spurring headline inflation growth. This is about to change dramatically. Since housing represents as much as 40 percent of the market basket used to calculate the Consumer Price Index, falling home prices offset higher food, energy, tax and other costs. Now, with house prices starting to rise, this effect will reverse itself, pushing headline inflation up rapidly. Higher inflation will stoke interest rates, making the federal deficit more difficult to finance, increasing consumer credit costs and likely having a countervailing negative effect on both production and demand.
In today’s economy, every good thing seems to come with a discouraging word. It was so much easier back when the buffalo roamed.
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