Major newspapers around the country including the Washington Post, the LA Times, and the Wall Street Journal are urging President-elect Barack Obama to pass the U.S.-Colombia Free Trade Agreement in the lame duck session. The Los Angeles Times said it bluntly, “It’s time to stop playing games with a trade pact whose economic and political benefits are good for both nations.”

Some reports of the meeting between the president-elect and President Bush said that the president had pushed for the trade agreement in exchange for support of the auto loan package, but that was denied.

CEI has strongly supported the passage of this agreement based on its own merits – it provides surety for continued liberalized trade for Colombia, it opens up Colombian markets to U.S. goods without high tariffs, and it helps cement the close relationship with a Latin American ally besieged by leftist neighboring governments.

The Wall Street Journal today has an insightful article by George Newman, “an economist and retired business executive.”

Newman brings up a new rationale for the steep drop in the stock market — that investors have already priced in a likely Obama victory.

The valuation of an individual stock reflects the collective expectation of investors about a company’s future profits, dividends and appreciation, and the same is true of the market as a whole. These profits, in turn, are greatly influenced by government policy on taxes, spending, subsidies, environmental and other regulations, labor laws, and the corporate legal climate. Investors have heard enough from both candidates in the last month or two to conclude that prospects for a flourishing, competitive, growing and reasonably free economy in a McCain administration are bad, and in an Obama administration far worse. (In fact, the market’s bearish behavior over the last couple of months pretty closely tracks Barack Obama’s gains.)

He provides some questions that investors may ask themselves as they make their decisions. Here are just a few:

- Have you thought of what a gradual doubling (and indexation) of the minimum wage, sailing through a veto-proof and filibuster-proof Congress, would do to inflation, unemployment and corporate profits? The market now has.. . .

- Have you thought of how a Treasury Secretary George Soros would engineer the double taxation of the multinationals’ world-wide profits, and what this would mean for investors (to say nothing of full-scale industrial flight from the U.S.)? The market now has.. . .

- Have you thought of how a Health and Human Services Secretary Hillary Clinton would fix drug prices (generously allowing 10% over the cost of raw materials), and what this would do to the financial health of the pharmaceutical industry (not to mention the nondiscovery of lifesaving drugs)? The market now has.. . .

- Have you thought of how the nationalization of health insurance, the mandated coverage of ever more — and more exotic — risks, the forced reimbursement for excluded events, and the diminished freedom to match premium to risk would affect the insurance industry? The market now has.

- Have you thought of Energy Czar Al Gore’s five million new green jobs — high-paying, unionized and subsidized — to replace, at five times the cost, what we are now producing without those five million workers, and what this will do to our productivity, deficit and competitiveness? The market now has.

Great questions, all. Read the whole article for the complete catalog.

I’m not sure why Matthew Yglesias chose to adopt the unpleasant leftist tactic of beginning an argument with insult (”conservatives don’t know anything about anything”) in response to a recent Corner post of mine. Yglesias also engages in shifting the goalposts, because my “enthusiastic recommendation” of a Wall Street Journal leader column was not enthusiastic for the argument he chooses to highlight, but for its expose of the tactics Sen. Dodd and co are employing in the current debate.

Let’s leave all that irrelevance aside, however, and concentrate on Yglesias’ supposed killer point, which is his characterization of the “conservative position” on Fannie and Freddie:

[T]he implied government guarantee to Fannie and Freddie might cause them to take unduly large risks, and … the very scale of those risks would mean that in the event of a crash we actually would need to bail them out despite the lack of explicit guarantee. Thus, the idea of limiting the size of the Fannie/Freddie portfolios. The point was that if the Fannie/Freddie portfolios could be kept small, then perhaps the GSEs wouldn’t be “too big to fail” and we could afford to avoid bailing them out. And if we did wind up needing to bail them out, we wouldn’t be on the hook for such an enormous amount of money.

Yglesias concedes that this concern was valid, but further argues that: Read the full story

While conservatives are angry about a number of things at the moment, they should be at least as angry that the Congressional Democrats who helped stoke the mortgage crisis are getting away with blaming everyone else for it. Today, Senator Chris Dodd, the prime recipient of GSE lobbying funds and proud holder of a sweetheart mortgage from Countrywide, is holding hearings where the witnesses will blame everyone but Dodd, Barney Frank and their cronies. Republicans asked to invite witnesses but were barred from doing so. The Wall Street Journal has more:

In February 2004, while Republican colleagues warned of the systemic risks posed by Fannie Mae and Freddie Mac, Mr. Dodd pronounced the mortgage market “one of the great success stories of all time.” A year later, the Connecticut Democrat voted against a reform that would have limited the size of Fan and Fred’s mortgage portfolios…At today’s hearing, his mission is to weave a tale that somehow manages to avoid mentioning his own role in this debacle. That won’t be easy, but Mr. Dodd has shrewdly selected a series of witnesses who, like him, contributed to the mess, and have every incentive to point fingers elsewhere.

Read the whole thing for details of the ridiculous witnesses and a strong suggestion for who should be called. Meanwhile, in The Washington Post, Peter Schiff has a good outline of how government - and the actions of Bill Clinton - really did help cause this mess and is probably now making it worse:

Yes, many Wall Street leaders were irresponsible, and they should pay. But they were playing the distorted hand dealt them by government policies. Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets…By refusing to allow market forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is resisting the cure while exacerbating the disease.

There’s actually a school of thought that this decade is paralleling the 1930s quite closely (see the Oct 7 edition of The Short View, about 2 minutes in) and that we’re in the thick of something that actually began in 2000 or so. Over in Britain, Gordon Brown has apparently decided that increased public spending is necessary. The 1930s all over again, indeed. We need to get angry about the wool Chris Dodd and co are pulling over our eyes.

There are all sorts of people today who normally talk about free markets but who have got themselves into a tizzy over the failed bailout. We need to get one thing straight - the bailout was the wrong answer to the wrong question. To begin with, the plan was merely postponing the inevitable, as a letter in the Wall Street Journal pointed out this morning:

The lesson of past financial inflection points is that we must let the markets reallocate capital from less efficient to more efficient uses. The sad fact is that we need to go through a brutal process of resizing down our financial and real-estate industries. Actions to try to recapitalize doomed financial companies only postpone the day of reckoning, which will make matters worse as the Japanese learned in the 1990s.

Secondly, we have to ask how to protect future viable assets and investments, not just what we should do about past failed assets and investments. The bailout plan is exactly the wrong approach. It puts in them in jeopardy because not only does it tread down the policy road that led to the Great Depression, as Martin Hutchinson powerfully argues, but because real capitalism provides strict disciplines that actually provide better protection than government regulation. We will not succeed in protecting our children from a future financial meltdown if we merely put in place the exact parameters for it to happen again.

Markets are all about the efficient allocation of capital. As has been demonstrated on this page repeatedly, government caused the market to misallocate badly. If we go further and have government misallocate the capital by design, then we will have made one of the biggest missteps in economic history, worse than FDR and co, because we will have completely ignored the lessons of the great depression. A market correction is, in a very real sense, necessary. Government cannot bring that about.