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Monday, May 04, 2009

Obama gets it part right

I actually agree with aspects of his broad diagnosis of the Wall Street problem:

Wall Street is not going to play as dominant a role in the economy as regulations reduce "some of the massive leveraging and the massive risk-taking that had become so common," President Barack Obama says. The changes in the role of Wall Street and the huge profits that came from that risk-taking could mean other adjustments as well, Obama said in an interview in this week's New York Times Magazine.

"That means that more talent, more resources will be going to other sectors of the economy," he said. "I actually think that's healthy. We don't want every single college grad with mathematical aptitude to become a derivatives trader. We want some of them to go into engineering, and we want some of them to be going into computer design.... I think it's important to understand that some of that wealth was illusory in the first place," he said."

Where Obama goes awry is that his plan is to attack the symptoms and not the disease. So long as the paper money system exists, the easiest and fastest way to obtain more of it is to play paper games. And some of the policies he is contemplating are certifiably insane, such as his plan to attack tax havens and overseas profits. As the British are learning, all that does is cause your best entrepreneurs to leave the country entirely. Preventing companies from writing off domestic expenses for overseas profits isn't going to reduce the incentive for U.S. companies to base part of their operations in other countries, it's going to increase their incentive to move ALL of their operations elsewhere.

It's also amusing how the US media inevitably mentions places like the Cayman Islands in articles like these, when the real problem is that in comparison with US corporate rates, about half the world, including many European countries, look like tax havens.

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