Elizabeth Warren Gives an Acceptance Speech?

Elizabeth Warren recently delivered a  speech at Netroots Nation 2010. Although President Obama has not publicly named his nominee to head the Consumer Financial Protection Board, Warren's speech sure sounded like an acceptance speech.

Not surprisingly, given her track record, the speech was filled with absurdities and an ignorance of basic economics and economic history.

She said:

...coming out of the Great Depression, just three laws fundamentally altered the course of America's history.


The first one, FDIC insurance, made it safe to put money in banks. The second one, Glass-Steagal, tried to separate the risk-taking on Wall Street from your local community bank. And the third one, SEC regulations, provide some cops to watch the robbers. And so, out of that, what we got was 50 years of economic peace. No financial panics, no meltdowns. And during that 50 years, we built a strong and prosperous middle class in America.

This so-called period of  50 years of "economic peace" (1933 to 1983), according to the BLS inflation calculator, was a period when the dollar lost 87% of its value and  Nixon took the dollar off the gold standard. Inflation was so bad that the Treasury had to stop making dimes and quarters with silver, and now even pennies are mostly zinc rather than copper.

She then correctly states:.

.while incomes flatten out, so that today a fully employed male makes less money than his father made a generation ago, once we adjust for inflation.


On the income side, they're flat, but on the expense side, these families are not. The core expenses for the middle class--housing, health insurance, day care, college, the things that make a family safer, the things that make a family middle class, the things that let them invest in their children and the future--those went up, adjusted for inflation, by more than 100 percent. Families spent more, but they had flat incomes.

But she fails to point out that all these sectors are heavily regulated and subsidized by government, which resulted in a structure that set prices soaring while the price of calculators, televisions etc. continue to drop. Instead, she rants:

Now, anyone here can figure out what happens next. And that is, savings begin to decline, families who had put money away could no longer do it, and debt begins to rise. And families end up with more mortgage debt, more credit card debt, more car loan debt, more debt of every form. The credit industry then smells an opportunity. It says, "Wait a minute. The old regulations are gone, and middle-class families are under a lot of economic stress. There's money to be made in this situation." And indeed there was.

People actually started to borrow on their credit cards because of inflation. It's another part of economic history Warren isn't aware of. Inflation always rewards the borrower and teaches people to borrow rather than to save. Further, there were caps on interest rates in the 1970's and consumers took advantage of the banking sector which didn't completely get what was going on. I know a stock broker who told me she maxed out her credit cards because she could get more money off her bank CD's then she was paying in credit card interest. It was enough of a difference that she took the credit card money and put in into the CD's.  Bank's lost billions.

Warren doesn't mention any of this. You see, the banks are always the bad guys in her world. Their micro printed agreements are banker schemes. However, if you pull apart the micro printing on these credit agreements, you realize it is all legal gobbledygook to cover all bases with the multitude of regulations in various states. Go ahead, pull out a credit agreement and read it. It's all about this applies in state X, this applies in state Z and none of this applies if you live in state Y. All this, of course, Warren doesn't mention.

And this is what she thinks about the bureau she may head:

So that's where the market stood, and now we are here at an historic moment. President Obama signed into law the strongest financial reforms in three generations. And in my view, the strongest of those financial reforms is the Consumer Financial Protection Bureau. It's tough.

And, as she did in 2006, she disses economic logic: (See Ebeling on the importance of deductive economic logic)

...a second thing I think is really critical about this agency is it must be reality-based. It's not good enough to have a great theory.

 And here is where she gets pretty damn close to giving an acceptance speech:

I think of this as a real opportunity, as we build this agency, not to replicate what was built last time when we had a consumer agency in the 1970s, but to try a whole new model. To think about this agency from a different perspective. That's why I came here today. I bought a plane ticket and showed up here because I have a specific task.


I wanted to talk to people who have a voice, and that's why I came to talk to you. There are three things I want to ask you to do with your voice. I want to ask you to use your voice on behalf of economic security for middle-class Americans. In a world in which so many people face so much insecurity, I want you to give them voice. I also want to ask you to use your voice for ideas. This is the place to let ideas be born, to let them bounce around, to let them get tougher, to let the bad ones die out and the good ones advance. This is where ideas should come from. And the third is, I'm going to ask you to use your voice as a voice of conscience in a world that sorely needs more conscience. You are our collective conversation on conscience.

I'm going to wrap this up by saying we have an opportunity now to pick up the tools that were laid out in this new Consumer Financial Protection Bureau. Unused tools don't do anyone any good. The point is to pick them up and use them...

So what I want to think about is what we do from this moment going forward. If you have any doubts about where we're headed and how much change we can make, I ask you for just one second to glance back over your shoulder at where we have traveled over the last year...So let me wrap this back around. Is this going to save the middle class by itself--the consumer agency? I've written about the middle class now for two decades--and if you want to give me another couple of hours I could bend your ear about all that's happened here--and the answer is no. There's frankly too much that's broken. We've got to have change in labor policy, we've got to have change in health policy, we've got to have changes in education policy. That's what it will take to restore a middle class. But we also have to have changes in consumer credit policy. And the new bill is a big step in that direction.

So, here's what I want to say: One way or another, I'll keep pushing for the middle class. I hope you will too. 

Bottom line: Warren is ignorant of financial and economic history. She is ignorant about economic theory, but she his damn certain she can ignore Hayek's warning about the fatal consceit of people who believe they can micro-manage huge sectors of the economy. Warren has the disease really bad.