There is a lot of clamor about dire economic conditions these days and now it's even spreading beyond the White House. Peoples' ability to pay for things has been seriously curtailed and in a consumer economy that is a painful situation.
I do not want to deny the danger of a falling economy or belittle the struggles of many people who will be hurt by it, but I do want us to give this situation some perspective on the true crisis we face. If we will just look up from our navel-gazing for a moment to look forward and backward, we may realize a few things:
1. Our situation is not that bad. Consider our situation in comparison with that large trial that the President loves to liken ours' to - the Great Depression. First of all, we have way more stuff than they did back then. Life is dramatically easier and more comfortable while at a relatively low price. We have TVs, microwaves, highly advanced vehicles, computers, too much food, the internet. Heck, even electricity is really quite cheap, for now.
No, technology cannot save us and continues to threaten us in some ways, but the fact is that we are very well off. You ask someone who lived through the Great Depression what it was like and then count your many comfortable blessings.
2. Our economy will recover if given a chance; it always does. I refer you here to Kondratieff's Long Wave Theory about economic cycles, not surfing. Go ahead and look it up or check out this very helpful link: http://www.kwaves.com/kond_overview.htm
The gist of it is that our economy moves in waves over many years based not on complicated mechanisms or calculations, but essentially on human behavior. Things begin going well as we find a winning solution to grow the economy. Out of these roots we grow robustly and reap the rich fruits of our growth. Then we become greedy and shift our focus from growth to consumption. Once production is overrun by consumption, we fall until we begin to learn how to grow again.
The problem right now is that our mechanisms for saving for the fall and winter times are unsteady. In the Great Depression they completely failed. Ours are not beyond saving. This more than anything right now is the problem we must be addressing, but still are not getting our Geithner in gear.
3. Once we recognize the core of the issue, we also realize that we as well as our government are all complicit in this affair. Our economy's contraction is a natural response to careless consumption on every level of society. We did it, our neighbors did it, the investors ("fat cats" to you populists) did it, the government did it. I am sick and tired of all the finger-pointing going on over this "economic crisis." Wall Street/Main Street, fat cats, golden parachutes. It's like children calling each other names on a playground.
Once all of us pots and kettles realize they we all have a bit of a charcoal tint, we can get on with the task ahead of us - planting seeds and growing. Anyone who assigns the blame for our situation to any person, group, or class has an agenda to sell.
4. Considering how we got here also illuminates that this is not really an economic crisis so much as it is a return to economic reality. We have been living in a bubble for many years now. In fact, you could almost say that we have been in something like a giant Ponzi scheme where as long as we kept buying into it, we got payoffs. Now we're out of cash and we need to go back to work.
Reality came calling and caught us with our pants down. The temptation now is to say that our pants are not down and we are actually dressed in the finest new clothes, because we are the emperor of the world, right?
Recently on Glenn Beck's TV show, he showed a graph charting average home prices over the years. Home prices had fluctuated based on various economic times, but the average and most stable home price over the decades was around $100,000 (inflation adjusted). The graph showed average home prices rising rapidly over the 90s and into the 2000s to almost $200,000, and we have only just begun the drop down to normal prices.
The graph was skewed to emphasize the bubble, but the fact is that the housing industry was at an unrealistic and unsustainable level. This led to unrealistic and unsustainable equity which led to unrealistic and unsustainable consumption. Policy-makers helped create the boom by setting interest rates extra low at the Fed to make borrowing easy and by creating programs and "government sponsored enterprises" to make borrowing even easier for people who could not afford to pay.
This is why I say this is not really an economic crisis. This is just reality. So don't let anyone tell you that times are really unfairly bad for us, that we deserve better, or that we can return to the same levels of ease and consumption we enjoyed for many years. We have to return to real life, which is not very comfortable. As the Dread Pirate Roberts said, "Life is pain, highness. Anyone who says differently is selling something." Like a stimulus bill.
5. Once we realize all this, we can address our problems with clearer vision. Unfortunately, our government has not made the step past the bubble. The whole "stimulus" plan was built on bubble ideas. "If we spend, no, reinvest more, then we'll keep prospering like we did before." That is just part of the Ponzi scheme lie that got us here. That's like trying to make a mound bigger by scooping dirt from the bottom of the mound to put on the top. It doesn't make the mound bigger, only less stable.
This is the real crisis. G. K. Chesterton said, "When men have come to the edge of a precipice, it is the lover of life who has the spirit to leap backwards, and only the pessimist who continues to believe in progress." We have brought ourselves to the edge economically by our accumulated mistakes and blindness. Our economy is responding by shedding the unnecessary fat and making the painful return to realism. It is our government now which may push us over the edge.
Our President and Congress' quixotic charge to "stimulate" our economy and maintain failing institutions could push us toward national bankruptcy. My last post outlined how this exact situation occurred in India and could happen to any country that spends more than the economy can sustain. Every dollar of deficit spending is another dollar of new growth that must be used to pay off the government's debts rather than build a new future.
The deficit "stimulus" spending is a lie. The money would have been spent, invested, or saved all on its own by the people who earned it. That "stimulus" was not the government's money. But now that the government committed to spend it, the government committed us (people) to give that money to it.
At our point of greatest exhaustion, the government may suck away the life on which we need to recover. This is why I am scared. This is why I am angry. This is why I criticize and dislike our new administration and Congress. They are painting a smile on a dead horse and beating it some more. They are using Depression-era ideas while pronouncing the death of the Reagan era.
Their actions do not encourage new growth of the people, by the people, and for the people in the economy, but only grow their own power, the burden of which must be carried by the people. This is why they will fail, politically, economically, and eventually electorally if they do not try some change. Let us hope they don't drag us with them.
Sunday, March 8, 2009
Saturday, February 28, 2009
Is nobody seeing the warning signs?
I opened my international political economy textbook from my basic college international political economy class and I found this. It's about developing countries, but the principles are clear. What are our political leaders reading?
"Economic crises emerged in the early 1980s in large part as a consequence of governments' decision to cover their budget and current-account deficits with foreign loans. Using foreign loans to finance budget and current-account deficits is not an inherently poor choice. But two factors made this decision a particularly bad one for developing countries in the 1970s. First, many of the funds that governments borrowed were used to pay for large infrastructure projects or domestic consumption, neither of which generated the export revenues needed to repay the loans. As a result, the amount that developing countries owed to foreign lenders rose, but their ability to repay the debt did not.
Second, between 1973 and 1982, developing countries were buffeted by three international shocks: an increase in the price of oil, a reduction in the terms of trade between primary commodities and manufactured goods, and higher interest rates on the foreign debt those countries accumulated. These shocks increased the amount of foreign debt that developing countries owed to foreign banks, raised the cost of paying that debt, and greatly reduced export earnings."
It goes on to explain how India of the 70s and 80s, at the time recognized as "one of the most regulated economies in the world," accumulated inefficiencies in state-run enterprises that dominated their manufacturing sector. "The government responded to flagging growth by expanding its expenditures sharply throughout the 1980s. The resulting budget deficit contributed to a persistent trade deficit, which the government financed by borrowing from abroad. By1990 India had become vulnerable to a balance of payments crisis."
Our government is currently embarking on a dramatic deficit spending spree. Deficit spending means the money they spend does not exist, yet. In order to spend, the government must either print money, which means assigning assumed future value to pieces of paper (think Dumb and Dumber, with Harry and Lloyd returning the briefcase of ransom money with IOUs. "We're good for it." Uuuh-huh). Otherwise, the government can get money through loans from foreign banks such as China. As you can see above, this is a dangerous cycle.
I guess my point here is that the redistribution of capital or incurring of foreign loans by the government is leading us into crisis. "Stimulus", social programs, or taxes on the wealthy do not change any of the fundamental problems with the economy, but may in fact exacerbate them.
*Oatley, Thomas. International Political Economy: Interests and Institutions in the Global Economy. 3rd. ed. New York: Pearson Education, Inc., 2008.
"Economic crises emerged in the early 1980s in large part as a consequence of governments' decision to cover their budget and current-account deficits with foreign loans. Using foreign loans to finance budget and current-account deficits is not an inherently poor choice. But two factors made this decision a particularly bad one for developing countries in the 1970s. First, many of the funds that governments borrowed were used to pay for large infrastructure projects or domestic consumption, neither of which generated the export revenues needed to repay the loans. As a result, the amount that developing countries owed to foreign lenders rose, but their ability to repay the debt did not.
Second, between 1973 and 1982, developing countries were buffeted by three international shocks: an increase in the price of oil, a reduction in the terms of trade between primary commodities and manufactured goods, and higher interest rates on the foreign debt those countries accumulated. These shocks increased the amount of foreign debt that developing countries owed to foreign banks, raised the cost of paying that debt, and greatly reduced export earnings."
It goes on to explain how India of the 70s and 80s, at the time recognized as "one of the most regulated economies in the world," accumulated inefficiencies in state-run enterprises that dominated their manufacturing sector. "The government responded to flagging growth by expanding its expenditures sharply throughout the 1980s. The resulting budget deficit contributed to a persistent trade deficit, which the government financed by borrowing from abroad. By1990 India had become vulnerable to a balance of payments crisis."
Our government is currently embarking on a dramatic deficit spending spree. Deficit spending means the money they spend does not exist, yet. In order to spend, the government must either print money, which means assigning assumed future value to pieces of paper (think Dumb and Dumber, with Harry and Lloyd returning the briefcase of ransom money with IOUs. "We're good for it." Uuuh-huh). Otherwise, the government can get money through loans from foreign banks such as China. As you can see above, this is a dangerous cycle.
I guess my point here is that the redistribution of capital or incurring of foreign loans by the government is leading us into crisis. "Stimulus", social programs, or taxes on the wealthy do not change any of the fundamental problems with the economy, but may in fact exacerbate them.
*Oatley, Thomas. International Political Economy: Interests and Institutions in the Global Economy. 3rd. ed. New York: Pearson Education, Inc., 2008.
Thursday, February 12, 2009
Revenge of the Democrats
Yesterday, I watched some of the stimulus bill conference between House and Senate leaders. In that small portion of the stimulus bill proceedings I saw some of the reasons why this Democrat regime will fail and what the next two or four years will be like.
I am particularly referring to the point in the conference when Senator Chuck Grassley of Iowa (yes, a Republican providing input to the stimulus proceedings. Good news, right? Keep reading) admonished the Democratic leaders in the future to be more inclusive in forming major legislation. He was firm, but not antagonistic; conciliatory, by referencing how his own party had shut out Democrats in the past, citing certain incidents in the past involving Rep. Charles Rangel; traditional, by appealing to the history of major legislative work done in the Senate and its bipartisan character; and he was aspirational, not offering condemnation but supplication for a more cooperative future. He said, "I could talk about the substance of the bill, but the point is: we could have a better substance with more votes and got the job done better." It was fair and only about how the legislators work together, not any policy issues.
How did Harry Reid respond to his colleague of more than twenty years and his senior in terms of years served in the Senate? He murmured, "I appreciate you my Republican colleagues complaining about conferences. But you did all yours in secret. We haven't done that. This is an open conference." Reid also stated, "No one needs to lecture me on deficits, because you invented them. Republicans invented deficits." He answered with recriminations about how Republicans shut them out of conferences in the past and handled past legislation. He injected policy differences into the discussion. Not once did he acknowledge the goodwill and wisdom behind Sen. Grassley's comments or actually respond to this offer to work together better in the future. He tried to balance the vengefulness of this statement with empty platitudes and flattery for his colleagues ("One of my friends is Thad Cochran."), but it was clear what his point was. "WE won and you guys were jerks, so I don't really care what you think."
I don't know if there is a more clear indicator that the purpose of the Democrats is revenge. They are still reveling in the victory over the barbarian Republicans and taking every opportunity to reassert that victory. The mask of goodwill has already fallen off. This just reaffirms my last post that said that hubris would be the downfall of the Democrat Party. The lights have come up and the confetti has been swept off the floor, but the Democrats are still dancing.
People are beginning to realize this, too. Check out the open from the last Saturday Night Live:
Let's just hope the Democrats realize that it's time to move forward before it does serious damage to our country. Or is it too late now?
I am particularly referring to the point in the conference when Senator Chuck Grassley of Iowa (yes, a Republican providing input to the stimulus proceedings. Good news, right? Keep reading) admonished the Democratic leaders in the future to be more inclusive in forming major legislation. He was firm, but not antagonistic; conciliatory, by referencing how his own party had shut out Democrats in the past, citing certain incidents in the past involving Rep. Charles Rangel; traditional, by appealing to the history of major legislative work done in the Senate and its bipartisan character; and he was aspirational, not offering condemnation but supplication for a more cooperative future. He said, "I could talk about the substance of the bill, but the point is: we could have a better substance with more votes and got the job done better." It was fair and only about how the legislators work together, not any policy issues.
How did Harry Reid respond to his colleague of more than twenty years and his senior in terms of years served in the Senate? He murmured, "I appreciate you my Republican colleagues complaining about conferences. But you did all yours in secret. We haven't done that. This is an open conference." Reid also stated, "No one needs to lecture me on deficits, because you invented them. Republicans invented deficits." He answered with recriminations about how Republicans shut them out of conferences in the past and handled past legislation. He injected policy differences into the discussion. Not once did he acknowledge the goodwill and wisdom behind Sen. Grassley's comments or actually respond to this offer to work together better in the future. He tried to balance the vengefulness of this statement with empty platitudes and flattery for his colleagues ("One of my friends is Thad Cochran."), but it was clear what his point was. "WE won and you guys were jerks, so I don't really care what you think."
I don't know if there is a more clear indicator that the purpose of the Democrats is revenge. They are still reveling in the victory over the barbarian Republicans and taking every opportunity to reassert that victory. The mask of goodwill has already fallen off. This just reaffirms my last post that said that hubris would be the downfall of the Democrat Party. The lights have come up and the confetti has been swept off the floor, but the Democrats are still dancing.
People are beginning to realize this, too. Check out the open from the last Saturday Night Live:
Let's just hope the Democrats realize that it's time to move forward before it does serious damage to our country. Or is it too late now?
Friday, January 30, 2009
Hubris
Hubris. Get to know that word. It's going to be a popular one in a few years for describing the Democrat party.
For several years, the Democrat party was in opposition. Republicans either held the legislative houses or the Presidency. However, the Democrat party has not been in opposition since 2006 and now are control both the executive and the legislative branch. The problem is that for the past few years they have continued to act as an opposition party, even after they gained Congress. Their main theme was not active government and leadership, but opposition. The 110th Congress was widely recognized for its inactivity, especially in the face of some dramatic difficulties in America. Yet their problems were always pinned on the Republican party, not the actual problems themselves. If only the Republicans weren't in the way, they could make things better. They should have been more careful about what they wished for.
The Democrats are now exceedingly in control and they must perform. There are no more excuses. However, they have not been acting as a governing party or practicing good governance. They are unschooled in the discipline of power. This is not the first time this has happened in politics. In 1979, Joe Clark and the Progressive Conservative Party of Canada rose quickly to power and gained control of the government for the first time in many years. Once in power, their actions were undisciplined and too drastic (slogan was "Short term pain for long term gain") and by 1980 were booted out and power firmly returned to the Liberal party for another four years. They were simply unprepared to actually govern as they were only prepared to oppose.
Today, in the Washington Post Eugene Robinson wrote about the backwardness of the Republican Party. He wrote,
"What I've been hearing from Republicans in both the House and Senate has been a kind of attenuated, distorted echo of the economic doctrine that the party has preached, if not always practiced, since the Reagan years. It's perfectly appropriate, of course, to ask whether a specific spending proposal would have the desired stimulative effect; indeed, some items were removed from the stimulus bill for that reason. But underlying the Republican criticism has been a familiar formula: more tax cuts, fewer spending initiatives.
But Americans know that this philosophy has already taken us as far as it could. Americans know that taxes can be cut by only so much before the federal government's effectiveness inevitably suffers."
He eventually concluded, "There is abundant evidence suggesting that we are in a new political era with new rules and a new lexicon." This is going to be the downfall of the Democrats.
Democrats have mistakenly identified their electoral victory as an absolute triumph of their ideas. They are not just the ones in power, they are morally, intellectually, and politically right. Republican ideas and criticisms are not to be heeded because they are from an entirely alien era.
In a January 17 article in the Washington Post, Peter Beinart wrote about how President Bush had been right about the surge and the Democrats needed to accept and acknowledge that for their own sakes. He wrote,
"Because Bush has been such an unusually bad president, an entire generation of Democrats now takes it for granted that on the big questions, the right is always wrong. Older liberals remember the Persian Gulf War, which most congressional Democrats opposed and most congressional Republicans supported -- and the Republicans were proven right. They also remember the welfare reform debate of the mid-1990s, when prominent liberals predicted disaster, and disaster didn't happen.
Younger liberals, by contrast, have had no such chastening experiences. Watching the Bush administration flit from disaster to disaster, they have grown increasingly dismissive of conservatives in the process. They consume partisan media, where Republican malevolence is taken for granted. They laugh along with the "Colbert Report," the whole premise of which is that conservatives are bombastic, chauvinistic and dumb. They have never had the ideologically humbling experience of watching the people whose politics they loathe be proven right."
Democrats are mistaking popularity for moral rectitude. This hubris will lead them into trouble. They will be lucky if it doesn't take them down by 2012. Beyond that, the response will be decisive. Lets just hope their irresponsibility doesn't cost us all.
For your further contemplation, I'll add yet another block quote.
“It is just like the case of a man who learns by heart the angers and desires of a great, strong beast he is rearing, how it should be approached and how taken hold of, when – and as a result of what – it becomes most difficult or most gentle, and, particularly, under what conditions it is accustomed to utter its several sounds, and, in turn, what sort of sounds uttered by another make it tame and angry….Knowing nothing in truth about which of these convictions and desires is noble, or base, or good, or evil, or just, or unjust, he applies all these names following the great animal’s opinions – calling what delights it good and what vexes it bad. He has no argument about them but calls the necessary just and noble, neither having seen nor being able to show someone else how much the nature of the necessary and the good really differ….So, does this man seem any different from the man who believes it is wisdom to have figured out the anger and pleasures – whether in painting, music, or, particularly, in politics – of the multifarious many who assemble?” Plato, Republic
For several years, the Democrat party was in opposition. Republicans either held the legislative houses or the Presidency. However, the Democrat party has not been in opposition since 2006 and now are control both the executive and the legislative branch. The problem is that for the past few years they have continued to act as an opposition party, even after they gained Congress. Their main theme was not active government and leadership, but opposition. The 110th Congress was widely recognized for its inactivity, especially in the face of some dramatic difficulties in America. Yet their problems were always pinned on the Republican party, not the actual problems themselves. If only the Republicans weren't in the way, they could make things better. They should have been more careful about what they wished for.
The Democrats are now exceedingly in control and they must perform. There are no more excuses. However, they have not been acting as a governing party or practicing good governance. They are unschooled in the discipline of power. This is not the first time this has happened in politics. In 1979, Joe Clark and the Progressive Conservative Party of Canada rose quickly to power and gained control of the government for the first time in many years. Once in power, their actions were undisciplined and too drastic (slogan was "Short term pain for long term gain") and by 1980 were booted out and power firmly returned to the Liberal party for another four years. They were simply unprepared to actually govern as they were only prepared to oppose.
Today, in the Washington Post Eugene Robinson wrote about the backwardness of the Republican Party. He wrote,
"What I've been hearing from Republicans in both the House and Senate has been a kind of attenuated, distorted echo of the economic doctrine that the party has preached, if not always practiced, since the Reagan years. It's perfectly appropriate, of course, to ask whether a specific spending proposal would have the desired stimulative effect; indeed, some items were removed from the stimulus bill for that reason. But underlying the Republican criticism has been a familiar formula: more tax cuts, fewer spending initiatives.
But Americans know that this philosophy has already taken us as far as it could. Americans know that taxes can be cut by only so much before the federal government's effectiveness inevitably suffers."
He eventually concluded, "There is abundant evidence suggesting that we are in a new political era with new rules and a new lexicon." This is going to be the downfall of the Democrats.
Democrats have mistakenly identified their electoral victory as an absolute triumph of their ideas. They are not just the ones in power, they are morally, intellectually, and politically right. Republican ideas and criticisms are not to be heeded because they are from an entirely alien era.
In a January 17 article in the Washington Post, Peter Beinart wrote about how President Bush had been right about the surge and the Democrats needed to accept and acknowledge that for their own sakes. He wrote,
"Because Bush has been such an unusually bad president, an entire generation of Democrats now takes it for granted that on the big questions, the right is always wrong. Older liberals remember the Persian Gulf War, which most congressional Democrats opposed and most congressional Republicans supported -- and the Republicans were proven right. They also remember the welfare reform debate of the mid-1990s, when prominent liberals predicted disaster, and disaster didn't happen.
Younger liberals, by contrast, have had no such chastening experiences. Watching the Bush administration flit from disaster to disaster, they have grown increasingly dismissive of conservatives in the process. They consume partisan media, where Republican malevolence is taken for granted. They laugh along with the "Colbert Report," the whole premise of which is that conservatives are bombastic, chauvinistic and dumb. They have never had the ideologically humbling experience of watching the people whose politics they loathe be proven right."
Democrats are mistaking popularity for moral rectitude. This hubris will lead them into trouble. They will be lucky if it doesn't take them down by 2012. Beyond that, the response will be decisive. Lets just hope their irresponsibility doesn't cost us all.
For your further contemplation, I'll add yet another block quote.
“It is just like the case of a man who learns by heart the angers and desires of a great, strong beast he is rearing, how it should be approached and how taken hold of, when – and as a result of what – it becomes most difficult or most gentle, and, particularly, under what conditions it is accustomed to utter its several sounds, and, in turn, what sort of sounds uttered by another make it tame and angry….Knowing nothing in truth about which of these convictions and desires is noble, or base, or good, or evil, or just, or unjust, he applies all these names following the great animal’s opinions – calling what delights it good and what vexes it bad. He has no argument about them but calls the necessary just and noble, neither having seen nor being able to show someone else how much the nature of the necessary and the good really differ….So, does this man seem any different from the man who believes it is wisdom to have figured out the anger and pleasures – whether in painting, music, or, particularly, in politics – of the multifarious many who assemble?” Plato, Republic
A Change in the Wind
On Wednesday I felt a slight change in the wind. It was almost as if something deep within the earth's crust was shifting, but I noticed it. On Wednesday, the $819 billion stimulus was passed, but no Republicans voted for it. On Wednesday, the Republican party stood for principle again and stood up to the political-media establishment that does not want questions asked of their actions. This is the beginning of change to come.
This bill was a mistake and House Republicans had the wisdom to see it and the guts to stand against it. A stimulus plan is not a bad idea. THIS stimulus plan IS a bad idea. The way it is constructed and inspired is like an accumulation of pork barrel spending. Furthermore, there is no way that the government can retain any measure of satisfactory oversight on the spending. The government is not capable of spending money economically. It can only spend politically, meaning supporting some and freezing out others for political gain.
With debate, study, and discipline this bill could have been trimmed to a suitable size and a perhaps become more suitably targeted. However, the conduct of this bill has been highly polemicized by both the Democratic party and the media. The recovery of our nation's economy could have been a point of unification and a combined effort to carefully plan our steps forward. Instead, it has been turned into panic. The Democrats and the media have not stopped to question the bill, only to incite fear of it not passing. They worked up a scare and then demonized anyone who questioned them. This is not political leadership; this is mobocracy.
I think when 2012 comes around, Republicans will point back to this as one of their defining moments. They stood up against the scare tactics; they stood up against the demonization; they stood up against the establishment. Three years hence, this bill will be considered a mistake and will become an embarrassment to the Democrat party. The Republicans did the right thing and the American people will recognize that.
This bill was a mistake and House Republicans had the wisdom to see it and the guts to stand against it. A stimulus plan is not a bad idea. THIS stimulus plan IS a bad idea. The way it is constructed and inspired is like an accumulation of pork barrel spending. Furthermore, there is no way that the government can retain any measure of satisfactory oversight on the spending. The government is not capable of spending money economically. It can only spend politically, meaning supporting some and freezing out others for political gain.
With debate, study, and discipline this bill could have been trimmed to a suitable size and a perhaps become more suitably targeted. However, the conduct of this bill has been highly polemicized by both the Democratic party and the media. The recovery of our nation's economy could have been a point of unification and a combined effort to carefully plan our steps forward. Instead, it has been turned into panic. The Democrats and the media have not stopped to question the bill, only to incite fear of it not passing. They worked up a scare and then demonized anyone who questioned them. This is not political leadership; this is mobocracy.
I think when 2012 comes around, Republicans will point back to this as one of their defining moments. They stood up against the scare tactics; they stood up against the demonization; they stood up against the establishment. Three years hence, this bill will be considered a mistake and will become an embarrassment to the Democrat party. The Republicans did the right thing and the American people will recognize that.
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