Credit Crisis & Extra Credit Palin

By John Tillman, CEO

My liberal friends have been chortling throughout this current crisis. “What do you say about free markets now, John?” is the usual refrain.

Of course, they miss the point entirely. No one has changed human nature. Each of us in our own lives tries to do the best we can within the rules of the game and within our own moral code. Some things may be within the rules of the game, but you may choose not to fully exploit some opportunities. Others will. We all do our best, and we make mistakes. That’s life.

Markets are no different. But let’s be clear for my liberal friends, and some libertarians—free markets do not mean anarchy. After all, the Declaration of Independence explicitly says in order to “secure these rights...governments are instituted among men.” Governments are instituted, and they define the rules of the game. Sometimes the rules work really well. Yet, on occasion, the rules become onerous or create incentives that allow natural human behavior to run unchecked and harm others. Not good.

Men (and women) are not perfect, and the rules of the game instituted by political actors are sometimes faulty. And herein lies the root of the credit crisis—it is not free markets that went awry. The rules of the game governing Fannie and Freddie, the Community Reinvestment Act and loose money policies of the Fed created the credit bubble in the first place. There are other factors, of course, but this is a root of the problem. Then you mix in the mark-to-market accounting rules, and you soon have a toxic stew whose stench is now permeating LaSalle Street, Wall Street and Main Street.

Almost every market failure or dislocation can trace its root cause to bad public policy. The challenge today is to get the fix right and remember it is not markets that failed, it is the rules of the game “instituted among men” that failed.

Extra Credit Sarah Palin

Sarah Palin has a much different challenge tonight than Joe Biden. She must get all the extra credit questions right (Question from Gwen Ifill: “Given the current financial crisis, do you think the U.S. should revisit the Bretton Woods agreement?”) as well as demonstrate leadership, judgment and capacity to govern.

Biden simply has to avoid talking too much or commit another gaffe (“Gwen, thanks for giving me an advance copy of your new book on the Age of Obama and yes, I’d be happy to write the introduction.”). It will be assumed he does not need to be quizzed on knowledge questions while Palin will be.

Watch the questioning tonight and see how many questions are fact and knowledge-based as opposed to leadership and judgment-based. Regardless of your views on Palin, the true test of a leader is not their fact-based knowledge going into a job, though there must be a baseline reservoir, of course, but rather the key is leadership, judgment and ability to absorb new information rapidly and make the right calls case by case (yet within the parameters of an overall strategic vision).

Of most interest to me is observing what happens when judgment intersects with leadership. Presidents Clinton and Bush were both out front on the risks of loosening the rules of the game on Fannie and Freddie. They had the right judgment, but neither was able to lead and put in better rules. 

Certain members of Congress (Frank, Dodd, Schumer, et al.) had the wrong judgment but successfully led and prevented the corrective measures that would have avoided or mitigated the current debacle.

Keep this in mind as you think about who can lead when that leadership and judgment is focused upon doing what is right, even if it is unpopular. Who is more likely to have the backbone necessary, whether in a vice president or president? Who will be willing to stand against the tide? These same principles will matter to us in Illinois after November when the entire state begins to focus on 2010.

Questions?  Comments?  Like to get involved?  E-mail John Tillman at jtillman@illinoispolicyinstitute.org.

Announcing OpenIllinois.org

By Kate Campaigne, Director of Transparency Policy

I am pleased to announce the launch of our new OpenIllinois.org (http://www.openillinois.org) website, which highlights transparency in government efforts occurring throughout the state of Illinois and brings attention to the crucial need for comprehensive transparency in all levels of Illinois government.

At www.openillinois.org you can also find stories about our Liberty Leaders’ worthy efforts, transparency pledge, and read about our partners who support transparency in government, like For the Good of Illinois, AFP, ATR and NTU.  Led by the stellar efforts of hard-working Liberty Leaders, we have the goal of one day seeing a fully transparent Illinois. 

The Goose Is Dead

By Greg Blankenship, President

Last time we told you how the governor’s budget power play had caused a fracas over the closing of government-funded parks and historic sites. Since then, the legislature has come to the rescue, almost on cue, by discovering the $200 million needed to overturn the governor's veto.

But taxpayer beware: Just because the spending is appropriated doesn't mean the governor won't play more games with these funds.  

In other budget news, there is a new hole in the budget according to the Commission on Forecasting and Government Accountability. This new hole amounts to $121 million, resulting from declining riverboat casino revenue. Opponents of the statewide smoking ban blame it as one of the chief causes. Here we see another example of how over-regulation harms businesses.  

“The road to hell is paved with good intentions…” and all of that.

A lot has been done over the years to punish this industry. And, because the state licenses it, the legislature and governor simply see it as a goose that lays golden eggs.  The problem is three-fold: a 50% tax on gross revenues -- not profits -- for the most lucrative casinos; an additional 3% tax on casinos that goes directly to horse racers; and the smoking ban. Put them all together, and, lo and behold, the goose is dead...and it isn't laying golden eggs any more.

Ronald Reagan described it best by saying, “The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”  The casino industry in Illinois has stopped moving, and politicians aren't getting other people's money to spend on their friend’s pet projects.  At least for the time being.

Makes one wonder what they'll tax next.