Experts ask: Is America moving away from a free-market economy?

June 23, 2009

How much government intervention is too much? That’s the big question on the minds of many Americans looking at the economic plans launched by President Obama’s administration over the past several months. While some economists are welcoming additional regulation of the institutions largely blamed for the recent financial crisis, others say more government involvement is only going to make things worse in the long run, damaging the country’s free-market economy.

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“I think it’s a disaster,” says Economics Professor William Boyes of the W. P. Carey School of Business at Arizona State University. “I didn’t think I would ever see the United States move to a primarily government-controlled economy, and it’s happened in just a few months.”

Boyes, who has consulted for the U.S. Commerce Department, Federal Trade Commission, AT&T and Intel, is one of the vocal critics of recent economic measures taken by the administration. He believes the actions taken will significantly lower the standard of living in America over the next decade.

“It’s been proven throughout history that people who get to choose and spend what they want are better off than those who have to do what the government dictates,” says Boyes, who believes at least one-third of the U.S. economy is now directly owned or controlled by the government.

He doesn’t agree with the recent bailouts or the premise that certain banks and companies are too big to be allowed to fail, saying, “If something’s too big to fail, it shouldn’t exist. The whole feeling of systemic risk is ridiculous because in the long term, markets have always forced out inefficiencies. In a free market, businesses will fail, and you have to let it happen.”

W. P. Carey School of Business Finance Professor Herbert Kaufman, who has consulted for the New York Stock Exchange, commercial banks, savings and loan associations, and government agencies, including the U.S. Treasury, the World Bank and the Congressional Budget Office, disagrees with his colleague. He believes that much of the recent government intervention in the markets has been positive, including the bailouts of AIG and large banks deemed “too big to fail.” He also likes some of the new regulatory ideas.

“Nobody was watching, and regulation was insufficient. Free markets depend on transparency and people knowing what’s going on in the financial system,” Kaufman says. “I’m pretty favorable toward the Obama proposal on regulation, especially the calls for greater transparency, increased capital requirements for financial institutions, and making the Federal Reserve the basic arbiter and agency that deals with systemic risk and the whole spectrum of banking institutions.”

Kaufman does have some concerns about requiring the Fed to receive approval to use its balance sheet to infuse the financial system with liquidity, which it has already been doing at its own discretion over the past few months. He believes the independence of the Fed has kept the financial system from “falling into the abyss,” so far. He also doesn’t like the extra layer of bureaucracy that would be created in the form of a group to determine which organizations the Fed should consider a systemic risk and treat differently than other institutions.

Dean Robert Mittelstaedt of the W. P. Carey School of Business, who previously served as vice dean at The Wharton School at the University of Pennsylvania and who is on the boards of three public companies, is concerned about systemic risk, too, but he thinks the country is moving in the wrong direction with some of these new measures.

“I think it’s dangerous, both broadly speaking from a moral hazard standpoint, where people expect to be bailed out, and philosophically after 200-plus years of capitalism,” says Mittelstaedt. “We’ve been more free market-oriented than the rest of the world, and then all of a sudden, we have more government involvement. Unfortunately, America is like a pendulum; we tend to wait for something bad to happen and then try to fix it. We take risks, get burned and then go back to being overly conservative. That’s a dangerous way to live.”

Mittelstaedt does believe that the “ripple effects” from allowing huge companies like AIG and larger banks to fail would have affected the lives of millions of people, so he thinks those specific bailouts were needed. However, he is wary of further government intervention or bailouts, with the sole exception of additional oversight to prevent future problems.

“In some cases, we need regulation to save us from ourselves,” Mittelstaedt says. “The real problem that created the current financial crisis is that nobody was thinking of systemic risk and how interconnected financial institutions are. Safeguards created after the Great Depression didn’t work because we had other kinds of risk that had crept into the system since then. The Obama administration’s proposed new regulatory group would be the ‘glass half-empty’ people looking at what bubbles could happen in the future and new ways to prevent them.”

The professors and dean also offer views on other recent government intervention.

  1. On the auto industry bailouts –

Boyes: “The auto companies should have been able to file bankruptcy at the very beginning so contracts and other inefficient setups could have been resolved. U.S. labor costs are 20 percent higher than for foreign companies, and the government involvement will force the automakers to produce smaller cars that Americans don’t want, instead of larger trucks that have traditionally made a profit. The auto companies will be begging for money for the next 10 to 20 years, and taxpayers will subsidize them until they ultimately fail, anyway.”

Kaufman: “We do have bankruptcy processes in place that could have been used without government involvement. However, I understand the employees and suppliers that would have been affected. I don’t necessarily think it was the best solution for this.”

Mittelstaedt: “I think the auto bailouts were not only unnecessary, but also a huge detriment to how our capitalist system is supposed to work. We are protecting an industry that is not cost-competitive on a global basis. The auto industry worldwide had a 40-percent excess in manufacturing capacity before the crisis. You can fool the laws of economics for a short time, but not for long. If taxpayers subsidize U.S. auto products that are unsustainable, the rest of the world will look at this as protectionism – and it is.”

  1. On the mortgage situation –

Boyes: “Mortgages were messed up by the government pushing Fannie Mae and Freddie Mac to make subprime loans. Government messed it up, and now government is going to save them. The government will be pushing for loans to very low-income customers before long, and then we’ll either have another housing bubble or rapid inflation.”

Kaufman: “One of the things in the new proposal is that when mortgages are sold, the original mortgage owner will have to have a piece of the mortgage on their books, which will motivate the financial institutions to underwrite to better standards, instead of just originating a bunch of mortgages because it’s profitable. As a former economist for Fannie Mae, I’ve been advocating for privatization of Fannie and Freddie for more than a decade because of the government liability, but it’s too late now. I don’t see any alternatives at the moment.”

Mittelstaedt: “Fannie Mae and Freddie Mac are a perfect example of the kind of mess you create when you try to mix social and business objectives. They were created to make more capital available for people to own homes, but Canada doesn’t have a Fannie/Freddie equivalent, and they are within 1 percent of the United States in home ownership. While well intended, it’s not clear that Fannie and Freddie were ever necessary, and they influenced risk management and questionable loans that are at the heart of the current crisis.”

  1. On other proposals –

Boyes: “I think the whole plan regarding the SEC is a joke. The reason the markets are falling is because of regulation. The SEC didn’t understand the situation. If they just called for more transparency and stayed away and removed the monopoly on credit ratings, consumers and investors would be more cautious and have more information to make decisions. Now, people will just say, ‘The government will protect me.’ Normally, you make a profit or take a loss much more carefully when you don’t think someone will back you up.”

Kaufman: “I’m hugely in favor of the notion that hedge funds will have to register with the SEC and be more transparent. I believe that under the new proposals, the Fed will also be able to deal with problems before they become systemic risks. I just don’t like the executive branch oversight and blurring lines between the Fed and the executive branch. I think it adds bureaucracy and results in far too much executive branch authority over the Fed.”

Mittelstaedt: “I like the idea of having an agency to deal with consumer credit issues, such as credit cards. That’s protecting consumers from themselves. There are a lot of financial organizations that, if offered the opportunity, will make high-risk loans to turn a profit. However, that motivation can lead to a crash that hurts others and makes it tough for those with good credit to get loans. There’s a reason society doesn’t tolerate drinking and driving, either. Sadly, even if these new rules are the right thing to do, you wouldn’t have been able to sell people on them two years ago and get it done.”

Feeling a (Sun Devil) draft...

June 23, 2009

Check"> out the history of the Pac-10 in the NBA Draft in PDF Format by clicking here"> src="" alt="Get Acrobat Reader" border="0" height="10" width="9" />

Click">">Click here to see where past Sun Devils have been drafted

The NBA Draft is Thursday, and all the information you need on the Sun Devils is right here. More to be added in the next day or so. Download Full Image

Just click on James">">James Harden or Jeff"> Pendergraph to get their updated bios complete with clips, links and final ASU statistics.

CONFERENCE BREAKDOWN RECAP: Here is a look at last year's draft numbers by conference: Pac-10 (12), Big 12 (9), SEC (6), Big East (4), Atlantic Coast (4), Conference USA (4), Big 10 (3).

Paola"> Boivin of the Arizona Republic explains why Harden and Pendergraph measured out perfectly at NBA Combine, and it has Coach Sendek's fingerprints all over it

The"> Oklahoma City Thunder media talks about Harden possibly being a great fit

Do you realize just how decorated and how many awards James">">James Harden received this year?">"> Click here to read about it

Scott">">Scott Bordow of the East Valley Tribune wrote about Pendergraph's workouts and his preparation for the draft (June 18)

Scott">">Scott Bordow also touched on what Jeff meant to ASU in this March story

Paola">">Paola Boivin detailed Pendergraph's appreciation for ASU's success in February

JEFF VS. A TOP 10 PICK: In his final five games against Arizona and Jordan Hill, all ASU wins (ASU had lost 24 of 25 to Arizona prior as Herb">">Herb Sendek is 5-2 against the Wildcats), Jeff"> Pendergraph was 28-of-44 (.636) from the floor, 24-of-28 (.857) from the free throw line and averaged 16 points and 10 boards. Hill was 30-of-72 (.417) from the floor, 14-of-21 (.667) from the line and averaged 14.8 points and 10.8 rebounds.

25 WINS: ASU posted 25 wins for the first time since the 1974-75 team led by Lionel Hollins went 25-4. ASU's school record for wins is 26 set in 1962-63 (26-3). ASU also won 24 games in 1980-81 (24-4). That 1980-81 team had three starters become NBA first round draft picks in Fat Lever (21st pick in 1981), Fat Lever (11th pick in 1982) and Byron">">Byron Scott (fourth pick in 1983).

1. 26 - 1963
2. 25 - 2009; 1975
4. 24 - 1995; 1981
6. 23 - 1962; 1961
8. 22 - 1980
9. 21 - 2008
10. 20 - 2003; 1991

THE LONE SENIOR: Jeff"> Pendergraph, who earned his B.S. in Economics in December in just three and a half years, posted a school-record 126 games played and 120 starts (topping current NBA world champion Eddie">">Eddie House's 124 games and 114 starts) and led the nation in field goal percentage at 66.0 percent (also an ASU record)...shot .764 from the free throw line in his career (366-of-479) and 113-of-145 (.779) on the year...finished career with 29 double-doubles (11 in 2008-2009), fourth-most in ASU history...averaged 16.3 points and 8.8 boards in his final 11 games...averaged 16.1 points and nine boards in his final 15 games...while shooting 65.9 percent from the floor (91-of-138) and 77.9 percent (60-of-77) from the free throw line...ended his career as the sixth-leading scorer in ASU history with 1,588 points and the sixth-leading shot blocker with 131...second leading rebounder in ASU history with 942 caroms in his career...a first-team All-Pac-10 pick in 2008-09, a third-team pick in 2007-08 and an All-Freshman selection in 2006-07.

1. Joe Caldwell, 1962-64, 38
2. Art Becker, 1962-64, 31
3. Ike">">Ike Diogu, 2002-05, 30
4. Jeff"> Pendergraph, 2005-present, 29
5. Alton">">Alton Lister, 1978-81, 27
5. Tony Zeno, 1975-79, 27
7. Mario Bennett, 1991-95, 25

1. 66.0 - Jeff"> Pendergraph, 2009
2. 63.0 - Trent Edwards, 1989
3. 60.9 - Kurt Nimphius, 1980
4. 60.8 - Ike">">Ike Diogu, 2003
5. 59.3 - Jeff"> Pendergraph, 2008
5. 59.3 - Mario Bennett, 1994
7. 59.2 - Mario Bennett, 1995
8. 58.3 - Sam Williams, 1980
8. 58.3 - Kurt Nimphius, 1979
10. 57.5 - Ike">">Ike Diogu, 2005

1. 415 - Tony Cerkvenik, 1961
2. 359 - Mark Landsberger, 1977
3. 351 - Paul Stovall, 1972
4. 330 - Joe Caldwell, 1964
5. 325 - Art Becker, 1963
6. 314 - Joe Caldwell, 1963
7. 312 - Ike">">Ike Diogu, 2005
7. 312 - Tony Cerkvenik, 1962
7. 312 - Jerry Hahn, 1961
10. 296 - Paul Stovall, 1971
11. 295 - Tony Cerkvenik, 1963
12. 292 - Gerhard Schreur, 1970
13. 287 - Jeff"> Pendergraph, 2009

1. 120 - Jeff"> Pendergraph, '05-09
2. 114 - Eddie">">Eddie House, '96-2000

1. 126 - Jeff"> Pendergraph, '05-09
2. 124 - Eddie">">Eddie House, '96-2000

1. 2,044 - Eddie">">Eddie House '96-2000
2. 1,984 - Jeremy">">Jeremy Veal, '94-98
3. 1,946 - Ike">">Ike Diogu, '02-05
4. 1,834 - Ron Riley, '92-96
5. 1,673 - Stevin Smith, '90-94
6. 1,588 - Jeff"> Pendergraph, '05-09
7. 1,572 - Byron">">Byron Scott, '79-83

1. 191 - Mario Bennett, '91-95
2. 167 - Tommy">">Tommy Smith, '99-03
3. 160 - Rodger Farrington, '95-97
4. 153 - Ike">">Ike Diogu, '02-05
5. 148 - Alton">">Alton Lister, '78-82
6. 131 - Jeff"> Pendergraph, '05-09
7. 93 - Kurt Nimphius, '76-80
8. 83 - Sam Williams, '78-8183 - Mike Batiste, '96-99
10. 78 - Ike">">Ike Diogu, '02-05

1. 12.3 - Tony Cerkvenik, '60-63
2. 10.3 - Al Nealey, '57-60
3. 10.2 - Joe Caldwell, '61-64
4. 9.1 - Gerhard Schreur, '67-70
5. 9.0 - Art Becker, '61-64
6. 8.8 - Ike">">Ike Diogu, '02-05
7. 8.3 - Bobby">">Bobby Lazor '97-99
8. 8.2 - Jeff"> Pendergraph, '05-09
8.2 - Alton">">Alton Lister, '78-81
8.2 - Lester Neal, '91-93

1. 1,022 - Tony Cerkvenik, '60-63
2. 942 - Jeff"> Pendergraph, '05-09
3. 929 - Joe Caldwell, '61-64
4. 836 - Tony Zeno, '76-79
5. 802 - Ike">">Ike Diogu, '02-05
6. 780 - Al Nealey, '57-60
7. 776 - Alton">">Alton Lister, '78-81
8. 724 - Art Becker, '61-64
9. 700 - Gerhard Schreur, '67-70
10. 675 - Mario Bennett, '91-95

EVERYONE'S ALL-AMERICAN: Pac-10 Player of the Year James">">James Harden, a first-team All-American by Sporting News, and, averaged 20.1 points per game, 5.6 rebounds and 4.2 assists...ASU went 27-7 when he scored 20, including 14-4 this year...20.1 points per game led the Pac-10...since stepping onto campus last fall, all James">">James Harden has done for Arizona State basketball is help lead it to back-to-back 20-win seasons for the first time since Jimmy Carter gave up his seat to Ronald Reagan (Reagan took office on Jan. 20, 1981) as ASU was 24-4 in 1980-81 and 22-7 in 1979-80), go 5-0 against Arizona (best effort against the Wildcats since ASU won nine straight from 1979-83), sweep UCLA this year for just the third time in school history, lead ASU to its largest win over a ranked opponent in school history with 22-point win over #17 Xavier on Dec. 17, 2007, lead ASU to its first top-10 road win since 1998 when it won at #9 UCLA this year and lead ASU to four straight Pac-10 road wins for the first time since 1980-81.

61-Eddie House at California (2 OT), Jan. 8, 2000
46-Eddie House vs. San Diego State, Dec. 18, 1999
45-Paul Williams at USC, Mar. 10, 1983
42-Eddie House vs. Penn State, Dec. 29, 1999
40-James Harden vs. UTEP, Nov. 30, 2008
40-Eddie House vs. UCLA, Feb. 17, 2000

23-Ike Diogu vs. Western Michigan, Dec., 30, 2003
23-Mario Bennett vs. Washington St., Feb. 5, 1995
22-Ike Diogu vs. Oregon State, Jan. 24, 2004
21-James Harden vs. BYU, Dec. 20, 2008
21-Ike Diogu vs. Delaware State, Nov. 23, 2004
21-Dave Graybill vs. San Jose St., Dec. 17, 1955

1. 258 - Eddie">">Eddie House, '96-2000
2. 246 - Stevin Smith, '90-94
3. 236 - Lafayette"> Lever, '78-82
4. 202 - Ron Riley, '92-96
5. 158 - Jeremy">">Jeremy Veal, '94-98
6. 153 - Alton">">Alton Mason, '98-01
7. 150 - Byron">">Byron Scott, '79-83
8. 141 - Marcell Capers, '92-95
9. 136 - Steve Beck, '83-87
10. 132 - James">">James Harden, '07-09

1. 736 - Eddie">">Eddie House, 2000
2. 724 - Ike">">Ike Diogu, 2005
3. 713 - Byron">">Byron Scott, 1983
4. 704 - James">">James Harden, 2009
5. 666 - Jeremy">">Jeremy Veal, 1998

1. 248 - Ike">">Ike Diogu, 2005
2. 243 - Ike">">Ike Diogu, 2004
3. 204 - James">">James Harden, 2009
4. 180 - Ike">">Ike Diogu, 2003
5. 173 - Freddie Lewis, 1966
6. 169 - James">">James Harden, 2008

1. 311 - Ike">">Ike Diogu, 2005
2. 298 - Ike">">Ike Diogu, 2004
3. 270 - James">">James Harden, 2009
4. 245 - Ike">">Ike Diogu, 2003
5. 234 - Mario Bennett, 1995
6. 224 - James">">James Harden, 2008