The Free Thinker

Health Care as a Merit Good

By the way, it might be worth commenting on the idea that health care is a merit good.  As with any positive right, if we concede that a person has a right to health care, i.e., that they just ought to get the treatment they need to stay alive whether they can afford it or not, a corollary of that probably must be a right to coerce others to give up their property for ends which to which they would not rationally consent.  This is ethically problematic.  Still, the idea that it's just wrong for "society" (whatever that means) just to let a person whom medicine could save die because the person can't pay for the life-saving treatment does seem to have a certain force.  If that were the question we're faced with, I would be ambivalent.  I would have at least some qualms about rejecting the idea.

But that's not the question we're faced with.  For if health care is a merit good, i.e., if people just should get it, that moral imperative presumably applies to all mankind.  Not only Americans and West Europeans but Indians and Chinese and sub-Saharan Africans just should get the treatment they need.  But it's clearly infeasible for us to guarantee a level of health care to all of humanity that is even close to that enjoyed by middle-class Americans.  So treating health care as a merit good is not an option (unless we subscribe de facto to a wicked belief that Americans are some kind of superior race).  The real conclusion of this argument is that there is a moral imperative to shrink government and open up trade and do everything we possibly can to achieve maximum growth in the world economy, so that in some not-too-distant future there will be enough resources that everyone's basic needs can be satisfied.  Above all, we must open the borders, by far the most beneficent economic policy within the realm of possibility, compared to which the moral importance of all other economic policies put together is negligible.  In the meantime, the more ruthlessly utilitarian we are in health care policy, the better.  A person's life should be saved by medical processes if and only if the present value of the person's labor services over their remaining lifetime, net of the present value of their consumption needs, as attainable by medical procedures is greater than the present value of the costs of treatment.  This should be the goal of policy as well as personal ethics (that is, if one can only be saved at exorbitant cost, one should go quietly and save African orphans with the money you save).

I recently requested a credit report just to see if I've succeeded in keeping track of all my various bills and debts. I really wanted to know, and would have done so earlier, but I have heard that it actually hurts your credit score to request a report. This seems perverse-- shouldn't we want to encourage people to keep looking at their credit reports, so that they can plan their futures better, and recognize problems of personal financial irresponsibility early so they can try to mend their ways?

It might make sense, however, if a person asking for his credit report is a statistical predictor of credit problems, even if it's also a remedy for credit problems. That is, suppose there are two kinds of people, those who always pay their debts immediately, and those who are more forgetful and hand-to-mouth and sometimes leave bills and debts unpaid. The former never bother to think about their credit, knowing it's good, while the latter will sometimes check credit reports, either when they're planning to go into some more debt, or else in sporadic efforts at self-reform that sometimes help but rarely convert the shiftless entirely to responsibility. In that case, requesting a report may be an indicator of a higher likelihood of credit problems, before any other signs of these show up in the data.

So here's my question.  Suppose a law were passed which prohibits credit scoring agencies from penalizing a person's credit for requesting a report.  Would this law be inefficient?  On the one hand, the information effect of it would be negative: some creditworthy people would be pooled with some less-creditworthy people; there would be more non-payment of bills, and some good loan contracts would fail to be arranged because banks would be deprived of the positive credit information "this person never checks his credit score."  On the other hand, the incentive effect might be positive: people would check their credit reports more frequently, and would recognize their own financial irresponsibility more easily.

Hmm.  How would you model this?

This is an interesting hypothesis ("Why Productivity Boost is Needed to End the Recession")...

What's it going to take to get the economy out of its rut? Tax cuts, says the right. Public investments, says the left. Some of both, says the center. But after listening to a recent discussion about the recent and distant history of innovation and growth between White House economic adviser Lawrence Summers, former Fed chief Alan Greenspan, and Harold Evans, author of They Made America: From the Steam Engine to the Search Engine, I began to think that tax cuts and stimulus spending may be secondary. If history is any guide, in order to get the economy back to the level of growth that we'd all like to see, we're going to need a substantial boost in productivity. And prolonged periods of high growth have always been spurred by a game-changing megatrend that ultimately touched every segment of the economy: the steam engine, electricity, railroads, the availability of credit, the microchip, and most recently, the Internet, globalization, and cheap money. Finally, when you're dealing with an economy the size of the United States, you need a pretty powerful lever to create meaningful growth. Having a boom in a few sectors likely won't be enough.

So it looks like we're in trouble. Right now, it's difficult to sense the Next Big Thing. (Of course, that's usually how it goes. Back in 1992, when the economy seemed mired in the mud, President-elect Clinton summoned the nation's best economic minds to a summit in Little Rock, Ark. In the voluminous briefing papers prepared for the event, the words the Internet likely appeared rarely, if at all.)

... but how can it be right?  How can something new be needed to get us back to the full unemployment we had just a couple of years ago?  One explanation is that we may have been "living off our capital," failing to do the business investment needed to keep our economy at the level we were at, incurring too many debts to foreigners, while doing things we thought were investment-- building homes, getting educations-- but that were really a waste.  But it's hard to quite believe that.

I have my idea for what the Next Big Thing will, or at least could, be: giant cargo airships.  Of course most people who think they know the Next Big Thing are wrong, but I could make the case for it.  I won't do so as well as I could in this space, for lack of time and also because of some lingering proprietariness associated with the work I did on this in the summer of 2007.  But the idea is that giant cargo airships could, among many other functions, carry people and goods long distances, and particularly over oceans, a lot more cheaply than airplanes, and a lot faster than ships.  A "roadless revolution" in transportation could accelerate the international division of labor, while reducing pressure on energy supplies, since airships are fuel-efficient because they use fuel only for propulsion and not for lift.  They could open up a new, cheaper "Greyhound of the Skies" alternative in international travel, too.

To do all this would require mobilizing huge amounts of capital.  Which, in a way, makes it even more timely, considering trends like this:

A Time magazine cover this spring featured a glass jar partially filled with coins labeled "The New Frugality."

Months earlier, BusinessWeek featured a red cover cinched by a black belt. It declared the recession had pushed us into "The New Frugality" age.

A new survey by the Pew Research Center's project on social and demographic trends found that 60 percent of all younger and middle-aged adults say they are doing more shopping at discount stores or avoiding more expensive brands.

Pew said nearly a quarter of younger adults say they plan to plant a "recession garden" to trim their food bills.

Another Pew study released in April found that from the kitchen to the laundry room to home entertainment, consumers are paring down the list of things they can't live without. I loved the title of that report: "Luxury or Necessity? The Public Makes a U-Turn."

Is this dawning age of frugality here to stay?

I'm not so sure. Frugality isn't like your basic black dress that is always in vogue. Frugality is a foul-weather trend quickly replaced by rampant consumerism the moment the economy begins to pick up.

I'll be counting the number of months it will take before people forget this recession and return to their wasteful ways.

I doubt that.  I think people have gotten a deep scare about their economic security, which will alter behavior for a generation.  People thought they could count on the US economy to buoy them up.  Now they want much bigger cushions of what economists call "precautionary saving."  Policymakers, still caught in the errors of Keynes, think saving is the enemy:

Betting on a quick global recovery? Think again. Yes, the Federal Reserve saw recent signs of organic economic growth in the U.S. economy—"tentative signs of improvement," as the Washington Post phrases it this morning—in deciding last month to hold off on dramatic interventionist measures. But the global picture looks much more bleak. As the Wall Street Journal reports, Germany, Japan, and Mexico—three of America's largest trading partners—have reported "steep declines" in economic output in recent days with Mexico reporting yesterday a staggering 21.5 percent first quarter GDP drop. You can add Singapore to that list, too; it reports this morning a whopping 15 percent plunge in GDP in Q1, the Associated Press says. These are some of the worst economic performances in generations. For Japan, a country that's experienced very little growth in the past decade, you have to go back to 1955 to match such a poor performance.

Simply put, America's main trading partners are tanking because Americans are cutting back on purchases of autos, software, and other goods made abroad. "For the first three months of 2009, U.S. merchandise imports declined about 30% to $352.5 billion compared with the same period a year earlier," the WSJ reports. And the boomerang effect will hurt here, too. "The decline in output overseas reduces the market for U.S. exports and opportunities for investment," the newspaper adds. Even the same Fed officials who were making hopeful remarks about "stabilization" at home have reason to think we're a long way from recovery, speaking of the global financial system as being still "vulnerable to further shocks," Bloomberg reports.

But savings need not slow the economy if they are converted into investment.  Investment looks for a payoff in the future, short-run or long-run depending on the nature of the investment.  Short-run investment is unlikely to revive amidst so much volatility.  This would be a good-time for long-run investment, but for political risk.  Suppose you pitch the idea of building giant cargo airships to a multi-billionaire investor right now.  I suspect he'll be thinking, But how do I know all my profits won't just get confiscated, with the US government prospectively so desperate for revenues?

The Road to Serfdom

"White House Puts UAW Ahead of Property Rights" (Michael Barone)":

Lauria represented one of the bondholder firms, Perella Weinberg, which initially rejected the Obama deal that would give the bondholders about 33 cents on the dollar for their secured debts while giving the United Auto Workers retirees about 50 cents on the dollar for their unsecured debts.

This of course is a violation of one of the basic principles of bankruptcy law, which is that secured creditors — those who lended money only on the contractual promise that if the debt was unpaid they’d get specific property back — get paid off in full before unsecured creditors get anything. Perella Weinberg withdrew its objection to the settlement, but other bondholders did not, which triggered the bankruptcy filing.

After that came a denunciation of the objecting bondholders as “speculators” by Barack Obama in his news conference last Thursday. And then death threats to bondholders from parties unknown.

The White House denied that it strong-armed Perella Weinberg. The firm issued a statement saying it decided to accept the settlement, but it pointedly did not deny that it had been threatened by the White House. Which is to say, the threat worked.

The same goes for big banks that have received billions in government Troubled Asset Relief Program money. Many of them want to give back the money, but the government won’t let them. They also voted to accept the Chrysler settlement. Nice little bank ya got there, wouldn’t want anything to happen to it...

Think carefully about what’s happening here. The White House, presumably car czar Steven Rattner and deputy Ron Bloom, is seeking to transfer the property of one group of people to another group that is politically favored. In the process, it is setting aside basic property rights in favor of rewarding the United Auto Workers for the support the union has given the Democratic Party. The only possible limit on the White House’s power is the bankruptcy judge, who might not go along.

Michigan politicians of both parties joined Obama in denouncing the holdout bondholders. They point to the sad plight of UAW retirees not getting full payment of the health care benefits the union negotiated with Chrysler. But the plight of the beneficiaries of the pension funds represented by the bondholders is sad too. Ordinarily you would expect these claims to be weighed and determined by the rule of law. But not apparently in this administration.

Obama’s attitude toward the rule of law is apparent in the words he used to describe what he is looking for in a nominee to replace Justice David Souter. He wants “someone who understands justice is not just about some abstract legal theory,” he said, but someone who has “empathy.” In other words, judges should decide cases so that the right people win, not according to the rule of law.

The Chrysler negotiations will not be the last occasion for this administration to engage in bailout favoritism and crony capitalism. There’s a May 31 deadline to come up with a settlement for General Motors. And there will be others. In the meantime, who is going to buy bonds from unionized companies if the government is going to take their money away and give it to the union? We have just seen an episode of Gangster Government. It is likely to be part of a continuing series.

Question: Who puts the Humpty-Dumpty capitalism together again when Obama is through with it? (To be fair, Hank Paulson deserves some of the blame too.)

The Economics of Monasticism

Just turned this in...

Why are there monks and nuns?  Why do some men and women under the influence of this motive take vows of poverty, chastity (celibacy) and obedience?  Why do communities of such people adopt peculiar economic arrangements which prohibit individual private property?  And why have such institutions been so successful historically, lasting for generations, sometimes under such adverse circumstances that few or no other institutions have been able to survive, and made wide-ranging contributions to learning and law, agriculture and architecture, and technology?  Clearly, the quintessential motive for a monk or nun is to worship God.  But simply to say monks and nuns exist because people want to worship God is an incomplete explanation, for two reasons. 

First, that human beings desire to worship is not a phenomenon that can be readily explained in terms of biological motives, as for example, human desires for food, sex, or shelter, can be.  So one might ask: Why do humans want to worship God?  That, however, is not a question for an economist.  Economists generally treat what people want as an exogenous factor.  Since the desire to worship God, or some other supernatural entity or entities, is not limited to monks and nuns but is felt (applying the method of “revealed preference”) by most human beings, we may take it as a given part of the human “utility function.”  Following Becker and Stigler (1977), differences in taste for worship can be accounted for in terms of different endowments of a special kind of “capital,” which can be called “spiritual capital.” 

The second problem is that, granting that people want to worship God, it is far from obvious what connection there might be between the worship motive and the monastic lifestyle.  Why do some adopt celibacy for God’s sake, while other people, in some cases probably just as devout, choose to marry instead?  Why is celibacy correlated with the practice of eschewing worldly occupations, even as devout religious householders pursue them?  And why do celibate religious communities adopt economic constitutions which internally abolish private property?  Questions like these deal with the links between “micro-motives and macro-behavior,” and thus seem especially suited to economic analysis.

Some readers may think there is an obvious non-economic explanation of monasticism: religious authority.  People adopt the monastic lifestyle because the Church tells them that God wants them to.  By this account, monasticism would have its origins in the religious doctrines and hierarchies that tell the faithful what God wants, and the individual’s role would consist not so much of choice but obedience.  The appropriate mode of explanation would consist of an examination of the theology and doctrine of the Church to see why the monastic lifestyle was adopted as an ideal, and/or a psychological study of why people believe in and submit to religious authority.  By this account, to treat monks and nuns as rational agents, faced with choices, maximizing utility, subject to cost and opportunity constraints, like consumers in a market, would be to misconceive the problem.

There are (at least) two problems with a theory of this kind.  First, religious people often fail to do what the Church tells them, and they (say they) believe, is God’s will, when faced with incentives to do otherwise.  There are Mormons who drink alcohol, Amish who drive cars, Hindus who eat beef, Muslims who eat pork, and Catholics who divorce or abort babies.  Given the infinite promises (Heaven) and threats (Hell) that religions offer to motivate believers, one might expect believers to have what economists call ‘alphabetic preferences’ for doing God’s will, but it appears that at least many of them do not.  And given that religious people sometimes break the rules, it seems legitimate to take into account normal economic factors of cost and benefit as potential influences on whether and when they do so.  A man who believes God forbids him to hire a prostitute may still be more likely to hire her if her price is low than otherwise.  Likewise, a man who believes that entering a monastery is his surest way to salvation may still be more likely to do so if by doing so he gets some of the things that ordinary men value in life: adequate food, music, study, sleep, economic security, and easy labor. 

Second, at least if we focus on the Christian case, the monastic way of life was not originally imposed by Church authorities or present ab initio in sacred scripture.  Nothing like a plan for a monastery appears in the Bible, although monasticism did emerge from the efforts of devout people to live by Gospel teachings.  Nor did popes or bishops invent the monastic life and prescribe it to their flock.  Odd as it may sound, given monks’ reputation for hierarchical organization and rigid discipline, monasticism is a case of what the Austrian school of economics calls spontaneous order.  It emerged in Egypt in the 3^rd century B.C. when hermits like St. Anthony fled to the desert and attracted followers, then it evolved and spread throughout the Christian world and beyond.  Monasticism was first lived, then codified, most famously but not only in the Rule of St. Benedict, and thereafter remained dynamic, with new monastic orders appearing and competing with each other.  No one planned monasticism.  It was a pattern emerging without design from individual choices, as a price emerges in the marketplace.

Some features of monastic life, especially the absence of internal private property, resemble the ideas of modern socialism.  That is not to say that monasteries resemble Communist states like the Soviet Union, but rather that they bear some resemblance to small, voluntary socialist communes, like the utopian experiments at Brook Farm and New Harmony in the United States, or the Israeli kibbutzim.  This similarity is puzzling, because secular socialist communal experiments have generally been transient, dissolving within a few years or at most after a generation.  Monasteries, by contrast, have exhibited a durability which virtually no other human institution, apart from the Christian Church itself, can match, often lasting for centuries, with some stretching back more than a millennium. 

The perennial irony of monasticism is that monks are always fleeing the world, while the world is always following them.  Or, to state the point more tendentiously, monasticism is frequently corrupted by the prosperity which its piety creates, and then reformed from within by zealots who want to recover pristine ideals.  For example, the late medieval Cistercians, who sought agricultural self-sufficiency by fleeing ‘the world’ into the uncultivated wilderness, ended by acquiring large holdings of land, and became some of Europe’s leading sheep farmers, viticulturalists, and builders and operators of water-mills, the great power source of that time.  They engaged in international trade and even developed a reputation for wealth and greed.  To an economist, this is a record to inspire admiration.  To historians sympathetic to the pristine ideals to which the early Cistercians aspired, as well as to some later monastics in the Cistercian and other orders, the same process may seem like a sad story of decline.  However it is evaluated, monasticism’s capacity both to endure, to achieve success in almost every field of human endeavor, to preserve and advance civilization in manifold ways, calls for explanation.

A further characteristic of monasticism is of special interest.  Political philosophers for centuries, especially John Locke, Thomas Jefferson, and James Buchanan, have imagined a “social contract” as the basis for the legitimacy of government, and the virtue of “consensual” government is habitually acknowledged by modern liberalism.  Yet no modern democracy actually asks the consent of its subjects (individually, that is) to govern them; no one really signs a social contract.  Citizenship in a modern democracy, and subordination to its laws, is not based on consent; but membership in a monastery, and subordination to its rules, is, being a result of an explicit vow made by a consenting adult.  It is interesting, therefore, to contrast the real social contracts of monasticism with the fanciful ones of the philosophers.

That's the intro...

Community-Organizer in Chief?

Now this is curious: "Obama: Timing right for millions to refinance" (RealClearMarkets):

Declaring "good news" in the midst of an economic meltdown, President Barack Obama on Thursday urged families to take advantage of near-record low mortgage rates by refinancing their home loans.

"We are at a time where people can really take advantage of this," Obama said, seated with a handful of homeowners who have already lowered their bills.

But he also warned people to watch out for scam artists, cautioning, "If somebody is asking you for money up front before they help you with your refinancing, it's probably a scam."

Rates on 30-year mortgages inched upward this week but remain near the lowest level in decades, allowing borrowers with strong credit and stable jobs to save money if they refinance.

Obama has an odd conception of his job. Bush combined the presidency with world's #1 evangelist for the theory of the democratic peace. That makes some sense. But why would any of us take personal financial advice from some dude with no training in business, finance, or economics whose only professional experience is an adjunct faculty position at UChicago law school, eight years in the Illinois state senate, a partial term in the US Senate, and-- seemingly his main qualification for his present office-- writing two autobiographies and running a campaign?

Answer: Because as an insider, he might know something we don't. Is Obama saying, "You better refinance now, because Bernanke and I are going to let inflation rip any minute now and you're not going to see interest rates this low for a long time"? Maybe he is. If so, he's giving us good advice. And he would also have invented an odd policy instrument of sorts. Do what the president says, we'll make it worth your while. Hmm.

Isn't Liddy's $1-A-Year Salary Illegal?

On Liddy:

Edward M. Liddy, the would-be rescuer of American International Group (AIG) who has become a target of wrath over Wall Street excesses and the ravages of the recession, knows all too well what is driving that anger. "There's fear in America," says Liddy, who came out of retirement last September to run AIG for the government for $1 a year. "People are very concerned about their jobs, their homes, their pensions."

I don't know about you, but I'm sick and tired of these bigwigs who think they're above the law.  We have a minimum wage of $6+ per hour in this country, as far as I know, and if Liddy is planning to spend more than ten minutes per year at his AIG job, I think he's violating it.  There are a lot of people out there, maybe hundreds of thousands, maybe millions, who are out of work and might be able to find jobs if they could offer their services for lower wages, or who would like to take a pay cut in order to accept a job where they could build skills but where they can't yet create enough value to justify earning minimum wage.  If the rest of us have to sacrifice opportunities to obey the law, Liddy should, too.  Alternatively, the Democrats could restore to all of us, not just political favorites, our natural right to work for any wage that a willing worker and a willing employer mutually consent to.

The Delegitimization of Business

"Has a 'Katrina Moment' Arrived?" (Frank Rich, NY Times)

Bob Schieffer of CBS asked Summers the simple question that has haunted the American public since the bailouts began last fall: “Do you know, Dr. Summers, what the banks have done with all of this money that has been funneled to them through these bailouts?” What followed was a monologue of evasion that, translated into English, amounted to: Not really, but you little folk needn’t worry about it.

Yet even as Summers spoke, A.I.G. was belatedly confirming what he would not. It has, in essence, been laundering its $170 billion in taxpayers’ money by paying off its reckless partners in gambling and greed, from Goldman Sachs and Citigroup on Wall Street to Société Générale and Deutsche Bank abroad.

So for AIG to fulfill its contract obligations to counter-parties is "paying off its reckless partners in gambling and greed?"

Capital Gains Taxes and Risk

I'm not an expert in taxes (!) but I think it would be true to say that the tax treatment of capital gains and capital losses is asymmetric.  Though there are some exceptions (e.g., when gains and losses can be counter-posed to offset each other), generally speaking, if you get a 50% return on your investment, you have to pay taxes on that, but if you take a 50% loss, you don't get a reverse tax from the government to offset that (unless you get a bailout, but that takes special political intervention rather than the normal operation of the tax code).

This has an effect on risk.  For example, suppose you have a choice between two investments.  Investment A experiences a capital gain of 100% in the Good Scenario, but -50% in the Bad Scenario.  Each scenario occurs with a 50% probability.  Investment B pays a 10% return.  The investor is risk-neutral.

First, suppose there are no capital gains taxes.  The expected return on investment is the average of 100% and -50%, or 25%.  This is more than 10%, so the investor prefers Investment A.

Now, suppose a capital gains tax of 50% is imposed.  If the investor chooses Investment A, in the Good Scenario, he will have to surrender half his gains.  So his expected after-tax return is 50% + (-50%) / 2 = 0%.  If he chooses Investment B, he has to surrender half his gains, too, so his expected return is 10% / 2 = 5%.  The investor now prefers Investment B.

Expected future capital gains taxes have surely risen in the past few months.  As the example shows, the effect of capital gains taxes is to induce quasi-risk-averse behavior (even if fundamental risk aversion in individual utility functions remains the same) and encourage a "flight to safety."  Of course, bailouts have the opposite effect: if the investor can look forward to the upside while the taxpayer takes the downside, investors, or at any rate those who are politically positioned so as to be likely beneficiaries of bailouts, have incentives to take more risk, as long as they can mask it enough to stay within whatever laws may be applicable.

The "Obama Market" Hypothesis

It seems like most commentators are either cocksure or dismissive about the hypothesis that recent political developments explain the drop in the stockmarket.  The wisest appraisal is surely somewhere in between.  Correlating specific day-to-day drops (or rises) with political announcements is often misleading.  I think a few moments in the stock market's slide seem attributable to political events.  The fall in the Dow on the day of Obama's election seems an obvious case: it was a huge event for the economy, making it implausible that something else bigger happened that day; the event was not known with certainty beforehand; and the magnitude of the drop was larger than the range of normal volatility in that period.  There were a couple of other cases. 

But these details don't really matter.  Financial economists often conduct "event studies," to try to determine how certain events impacted stock prices.  The events in question are usually the announcement of quarterly profits or of a merger, events specific to one corporation with little impact on broader markets.  Obama's 2008 victory, or the announcement of the stimulus bill, are not, as far as I understand, the kind of events that could be subjected to an event study.  There's too much noise, and it's too hard to figure out what the market really knew, when.  The question of whether a decline in stock markets over a somewhat longer period of time, say, the entire drop since mid-2007, is due to political events, and to what extent, is both easier and harder.  On the one hand, the 'who knew what when?' question is less important, for there's obviously a huge amount that markets didn't know in mid-2007 that they know now.  On the other hand, so many things have happened that it's impossible to use the timing of market movements to tease out causation stories.  It has to depend on your model.

Jon Chait is in the dismissive camp:

The one conservative talking point that has gotten the most traction since Barack Obama won the election is that he's killing the stock market with his big-government agenda. Conservatives pundits started saying this in November, and mainstream news implies it constantly. "Stocks are down almost 19 percent since the Obama administration took office," reported ABC News recently. MSNBC has been endlessly featuring a graph of the stock market's decline since Obama took office. While Obama's economic policies have gotten plenty of things wrong, the idea that they can be judged by the stock market is unbelievably fatuous.

"Unbelievably fatuous."  No, it is certainly not that.  The argument requires (a) that Obama, and/or the anticipation of Obama's victory, and/or the Democrats and their increased majorities in Congress, have caused, or contributed to, the fall, and or failure to rise (because the Dow might be back at 14,000 now under President McCain for all we know), of the stock market, and (b) that a strong stock market is important to the health of, and/or the best single predictor of the future prosperity of, the economy.  Both claims are extremely plausible.  Chait goes on:

To understand this ubiquitous notion, let us start at the bottom of the conservative intellectual food chain and work our way up. The crudest version of the Obama Bear Market hypothesis is put forward by the likes of Rush Limbaugh, Sean Hannity, and Fred Barnes. Their favorite data point is that the market tanked at several key moments: the day after the 2008 presidential election, the day of Obama's inauguration, and the day he signed the economic stimulus bill. Clearly the markets panicked in reaction to Obama's incipient big-government, wealth-confiscating agenda, right?

Sure, unless you realize that those events just might have been priced into the market already. Obama, in case you forgot, was considered a lock before Election Day. (On election eve, Intrade had given Obama a 92 percent chance of winning.) Likewise, the vote that made the stimulus bill a fait accompli took place several days before the bill's signing. The real market-driving news came even earlier, when Obama unveiled his plan. Contemporaneous reports on the market reaction-The New York Times, December 9: "WALL STREET SURGES ON STIMULUS HOPES"-dug up little evidence of fears about socialism.

You may not believe me that pundits are citing the market's drop on January 20 as an indictment of Obama. It's true! "The Dow fell 332.13 points on inauguration day," noted Barnes, holding this up as evidence that "The market's view is that an Obamanomics-driven economy looks grim." I'm trying to figure out the operating theory here. One possibility is that, before January 20, investors thought Obama would get cold feet, or that maybe President Bush would surround the White House with tanks and stay forever. Alternatively, the markets did know Obama would assume the presidency that day, but got really depressed when it actually happened. Neither of these possibilities speak well of the stock market as a rational gauge of the country's economic future.

On the last point, the hypothesis in question is surely that what Obama said (namely a real downer of a speech with a lot about "icy waters") that depressed the stock market.  In general, though, Chait is shooting at straw men here.  Specific events will naturally be taken as illustrative of a trend, but it's the trend that counts.  The Election-Day and Inauguration-Day would not be cited so often if they were aberrations from an upward sweep in the stock market since Obama's election.  Chait argues later:

American stocks are merely suffering the same drop as stocks in countries not subject to Obama's socialist agenda. While the Dow did fall by 25 percent over the first two months of 2009, the Global Dow fell by 26 percent. If Obama's agenda was the problem, then you'd think U.S. stocks would fall further and faster.

This is not valid because the movements of world stocks are highly correlated.  As far as I know, we don't have a really good understanding of why this is, but it implies that if "Obama's socialist agenda" is depressing stocks here, it will tend to do so throughout the world.  In fact, during the financial crisis last fall, almost all world stock markets fell more, in many cases substantially more, than Wall Street, even though Wall Street was clearly Ground Zero of the financial crisis.  Also, recent history suggests that this global capital-market interdependence is one-sided.  In the late 1990s, world stockmarkets were also crashing-- remember the Asian crisis? the Russian default? the Brazilian crisis? Argentina?-- but Wall Street was flying higher than ever.  So while the global drop in stockmarkets would seem to be a consequence of the US decline, the US could buck a global downtrend if the political/policy environment were pro-growth.

Chait has another argument:

The larger fallacy here is to assume that the stock market is a proxy for the entire economy. Many people realize that the stock market is an imperfect gauge. But it's not just an imperfect gauge of the economy-it doesn't even attempt to measure the economy. Stock prices represent the market's guess at the profitability of corporations. While that's related to the health of the overall economy, it's not the same thing, and sometimes the two diverge sharply. During the Bush administration, for instance, corporate profits soared while wages for most families flatlined.

Wages flatlined because of rising health care costs.  Rising compensation was taking the form of health benefits rather than wages.  And note that now, when corporate profits are falling, workers are getting hard hit too.  The 1930s were also bad for corporate profits, and for wages.  The idea that you'll reduce corporate profits while benefiting workers is probably a delusion, and it can certainly motivate a lot of destructive policies.  To the extent that a low stock market discourages capital investment it also reduces wages in the medium run, since labor is complementary with capital and is more productive, and therefore gets paid more, when capital is abundant.  There's really no such thing as "bad for capitalists, good for workers."

The other thing about the stock market is that it is forward-looking.  Wages are slow to adjust to news, good or bad, as are many prices.  So are investment and employment.  But the stock market spontaneously compiles the guesses of millions of people about the economic future.  The stock market is the canary in the mine shaft.

A falling stock market harms the economy on the demand side because it makes people poorer.  "Americans See 18% of Wealth Vanish" (WSJ):

The wealth of American families plunged nearly 18% in 2008, erasing years of sharp gains on housing and stocks and marking the biggest loss since the Federal Reserve began keeping track after World War II.

The Fed said Thursday that U.S. households' net worth tumbled by $11 trillion -- a decline in a single year that equals the combined annual output of Germany, Japan and the U.K. The data signal the end of an epoch defined by first and second homes, rising retirement funds and ever-fatter portfolios.

Past downturns have been mere blips compared with the losses Americans faced last year, which set them back to below 2004 levels. "In the postwar period, we've never had anything other than very modest declines. That life experience led many people to think that houses were a one-way bet," says Douglas Cliggott, the chief investment officer of Dover Management LLC.

The decline in Americans' net worth, which was the first in six years, follows an extraordinary boom. Not accounting for inflation, household wealth more than doubled from 1990 to 2000, and then, after a pause, rose nearly 50% before the bust of 2008.

While the value of their assets was falling, Americans' total debt remained roughly flat. Total household debt increased by half a percentage point in 2008 as families faced tighter lending standards and many started trying harder to live within their means. After years of splurging with an eye on their rising assets, that phenomenon, known as the wealth effect, now cuts the other way, spurring frugality.

The goal of Obama's "stimulus" measures is to encourage spending.  But if people try to smooth consumption over their lifetimes, as much evidence suggests that they do, then they will decide how much to consume by first estimating their lifetime income (including net worth minus intended bequests) and then consuming some share of it.  If their expected lifetime income falls, they will consume less.  So a stimulus bill that causes a decline in the stock market probably ipso facto fails.

Which brings us back to the question: Did the stimulus bill, and Obama's Big Deficit agenda generally, cause a decline in the stock market?  Nothing conclusive can be deduced from the mere stockmarket time series.  But the theoretical reasons to think that America's capital stock is worth less when the government is borrowing and spending a lot are strong.  First, if you think about capital markets, government bonds compete with stocks for investors' dollars, and a greater supply of the T-bills would seem to mean fewer dollars left to buy stock in Microsoft and Caterpillar.  Second, higher deficits presumably mean that future taxes will be higher than they would have been.  This need be of little concern to seniors who don't expect to be alive then, and may not much affect the behavior of credit-constrained people who spend whatever they can get.  But to people who are thinking about the future and planning projects that will incur costs now to create value later, it is hard to see how the fact that a large amount of that value-later is likelier to be confiscated could fail to effect their calculations.