- Everybody is a fiscal conservative... until they try to change Social Security and Medicare.
- Everybody is socially liberal... until someone does something they find repugnant.
- Everybody is a dedicated capitalist... until they lose all of their savings to their houses.
- Nobody is a socialist... until they join the military or turn 65.
- Nobody drinks too much... until everybody drinks too much.
- Nobody smokes... until the one guy who does lights up.
- Nobody is a bigot... until their daughter comes home with one of "them."
- Everybody is pro-life... until that daughter comes home pregnant.
- Nobody forgets to wash their hands after they use the toilet, except for sometimes.
- Everybody is a patriot... until tax day.
- Everybody recycles... unless they make you sort it yourself.
- Everybody believes in God... or some higher power, or something... right?
- Nobody farts, especially women.
- Everybody sticks to their diets... until they smell the french fries.
- Nobody likes the rain... until there's a drought.
- Everybody is a fan of freedom... until they discover they're free to starve too.
- Everybody hates the government... until there's something they need from it, like roads and schools.
- Nobody has any dirty secrets... until the evidence emerges and they're under oath.
- Everybody loves diversity... until "they" move in next door.
- Nobody picks their nose. Ok, not really.
- Everybody roots for the home team... until they fall below .500
- Everybody feels ripped off by their insurance policies... until they have a big claim.
Nobody litters... until there's no trash can and no one else around. - Everybody invests according to their conscience... until they see the returns on oil company stock.
- Nobody watches much TV, except for Game of Thrones, House, Glee, Antiques Roadshow, Survivor, True Blood, Fringe, Dancing with the Stars, and Battlestar Galactica reruns.
Sunday, June 26, 2011
Accepting the Exceptions
Let's be clear:
Monday, June 20, 2011
Economic Problems are Political Problems
In around April of 2000, I was in an undergraduate seminar on political economy at University of Buenos Aires. The class was for study-abroad students, intended to help us get a grasp on the turmoil surrounding one of the world's most severe and desperate debt restructuring and austerity plans the world had ever seen. It was also one of the most boring classes I'd ever sat through, way over my half-interested, over-partied head, a lecture full of jargon and misunderstood controversies. The professor, a stoic and debonaire Argentine surveyed the sea of glazed eyeballs, closed his notebook, and said, "let's go for a walk."
Living in Buenos Aires, we had all walked by the lines of people in suits outside retail stores, clutching resumes with a look of resignation. We'd each individually found ourselves caught up in abstruse political conversations about our nation's role in South America's misfortunes. Even without much explanation, it was obvious that something was wrong with a place where a professional might earn $20 thousand a year, and expect to make ends meet in a city as expensive as New York. It was impossible to miss the anti-IMF, anti-American, pro-Vague-Collectiveness slogans and graffitti, the kids our age, educated like we were, who were screaming for something better than their lives were providing. We all knew something bad was going on around us. For my part, what it was, its causes and effects, were a mystery explainable only by anecdote, like a fearful primative explaining the pox on his village.
The Argentine professor led us to the nearest subway stop, down the stairs to the downtown side of the tracks. He told us to keep our eyes open and not to speak a word of English. A few stops later we arrived at the city center, a sprawling plaza surrounded by the nation's legislative and executive offices. Coming out of the station we could already hear the mob. Down side streets and alleys, on balconies, rooftops, atop light poles and parked cars were young people yelling, redfaced. Smoke billowed out from around puckered groups of men in the crowds. Signs called for revolution and the end of the "Washington Consensus" that was seen as the root of it all. Angry, suspicious looks flashed our direction. Glass shattered somewhere. We were in the middle of a national crisis that everybody blamed on us.
One guy on my program nodded his head and smiled. He was the son of a powerful investment banker, a Georgetown University athlete, all-star advanced-placement academic from Westchester County, New York, and all around nice guy with perfect white teeth. "These guys don't know what they're talking about," he said Spanish, which he always spoke even to English speakers, even when nobody was looking for a scapegoat, just to better immerse himself with the locals. "They just don't know how they got into this mess." I hated this guy, even if he was probably right.
I never did acquire a particularly deep understanding of what was going on in Argentina in 2000. I knew that everything was expensive, that people were unhappy, and that it didn't seem to be their fault. I knew that smart people who I didn't like much seemed to have all the answers I didn't want to hear. But I did gain an appreciation for what an economic crisis means to everyday people.
Economic crises, like any Greek tragedy, are not forces of nature that cannot be prevented or undersood. Such crises are the product of human decision-making; decisions that ingratiate the public to their leaders. Debt crises, like the one in Argentina, Greece, or here at home, are the fruit of politics without tradeoffs-- low taxes combined with endless warfare, generous pensions, or free education. Everybody wants service, nobody wants to pay for it, and the bill is unlikely to come due before any particular election cycle. The same politicians who kept taxes low and expanded their government's offerings will take cover under the spectre of the IMF, Germany, China, or anyone else who comes calling for their due.
We can argue about the role of the state, but America's debt crisis is not the result of government largesse. Like all debt crises, it's solveable. It's just that nobody likes the solutions. Either we pay our bills or we cut back. Either we raise the cash or we hold off on a spending spree. Like everywhere else, it's a political failure; a design flaw in a system that's engineered to give people what they want most of the time, it is a common side-effect of democracy.
Later that same week back in Argentina the president came on the TV during primetime to implore his countrymen to pay their income taxes. From where I sat, coming from a prosperous time in a disciplined land where the IRS was monolithic, this seemed utterly absurd. But Argentine revenue collection mechanisms were corrupt and ineffective. Only the tiny demographic sliver of suckers paid up voluntarily. Whether borrowed or raised, money that did get spent was often wasted, even as people demanded that the power stay on and the trains arrive. But there and then, as here today, the problems are political. Economic crisis is a symptom of political dysfunction and bad decisions, not some bogeyman or natural disaster. Mr. Georgetown was right, even if he was utterly lacking in empathy and oblivious to his educational advantages.
Don't believe the hype. Like everywhere else, we really can cut our way out of this. We really can tax our way out too. What we can't do is nothing. Either we grow up and pay the bills for the things we demand, or we default and let the bank decide. We've all been burned by this economic crisis. There is real blame to go around, and there are far more real victims. But we need to be better than our leaders. They have an election to win. We have a government to run.
Living in Buenos Aires, we had all walked by the lines of people in suits outside retail stores, clutching resumes with a look of resignation. We'd each individually found ourselves caught up in abstruse political conversations about our nation's role in South America's misfortunes. Even without much explanation, it was obvious that something was wrong with a place where a professional might earn $20 thousand a year, and expect to make ends meet in a city as expensive as New York. It was impossible to miss the anti-IMF, anti-American, pro-Vague-Collectiveness slogans and graffitti, the kids our age, educated like we were, who were screaming for something better than their lives were providing. We all knew something bad was going on around us. For my part, what it was, its causes and effects, were a mystery explainable only by anecdote, like a fearful primative explaining the pox on his village.
The Argentine professor led us to the nearest subway stop, down the stairs to the downtown side of the tracks. He told us to keep our eyes open and not to speak a word of English. A few stops later we arrived at the city center, a sprawling plaza surrounded by the nation's legislative and executive offices. Coming out of the station we could already hear the mob. Down side streets and alleys, on balconies, rooftops, atop light poles and parked cars were young people yelling, redfaced. Smoke billowed out from around puckered groups of men in the crowds. Signs called for revolution and the end of the "Washington Consensus" that was seen as the root of it all. Angry, suspicious looks flashed our direction. Glass shattered somewhere. We were in the middle of a national crisis that everybody blamed on us.
One guy on my program nodded his head and smiled. He was the son of a powerful investment banker, a Georgetown University athlete, all-star advanced-placement academic from Westchester County, New York, and all around nice guy with perfect white teeth. "These guys don't know what they're talking about," he said Spanish, which he always spoke even to English speakers, even when nobody was looking for a scapegoat, just to better immerse himself with the locals. "They just don't know how they got into this mess." I hated this guy, even if he was probably right.
I never did acquire a particularly deep understanding of what was going on in Argentina in 2000. I knew that everything was expensive, that people were unhappy, and that it didn't seem to be their fault. I knew that smart people who I didn't like much seemed to have all the answers I didn't want to hear. But I did gain an appreciation for what an economic crisis means to everyday people.
Economic crises, like any Greek tragedy, are not forces of nature that cannot be prevented or undersood. Such crises are the product of human decision-making; decisions that ingratiate the public to their leaders. Debt crises, like the one in Argentina, Greece, or here at home, are the fruit of politics without tradeoffs-- low taxes combined with endless warfare, generous pensions, or free education. Everybody wants service, nobody wants to pay for it, and the bill is unlikely to come due before any particular election cycle. The same politicians who kept taxes low and expanded their government's offerings will take cover under the spectre of the IMF, Germany, China, or anyone else who comes calling for their due.
We can argue about the role of the state, but America's debt crisis is not the result of government largesse. Like all debt crises, it's solveable. It's just that nobody likes the solutions. Either we pay our bills or we cut back. Either we raise the cash or we hold off on a spending spree. Like everywhere else, it's a political failure; a design flaw in a system that's engineered to give people what they want most of the time, it is a common side-effect of democracy.
Later that same week back in Argentina the president came on the TV during primetime to implore his countrymen to pay their income taxes. From where I sat, coming from a prosperous time in a disciplined land where the IRS was monolithic, this seemed utterly absurd. But Argentine revenue collection mechanisms were corrupt and ineffective. Only the tiny demographic sliver of suckers paid up voluntarily. Whether borrowed or raised, money that did get spent was often wasted, even as people demanded that the power stay on and the trains arrive. But there and then, as here today, the problems are political. Economic crisis is a symptom of political dysfunction and bad decisions, not some bogeyman or natural disaster. Mr. Georgetown was right, even if he was utterly lacking in empathy and oblivious to his educational advantages.
Don't believe the hype. Like everywhere else, we really can cut our way out of this. We really can tax our way out too. What we can't do is nothing. Either we grow up and pay the bills for the things we demand, or we default and let the bank decide. We've all been burned by this economic crisis. There is real blame to go around, and there are far more real victims. But we need to be better than our leaders. They have an election to win. We have a government to run.
Thursday, June 16, 2011
A Human Flash Crash
On May 6, 2010, the Dow Jones was having a bad day. Poor domestic economic news and the latest Sisyphean downhill trend of investor confidence stemming from the Greek debt crisis had dragged the average down 300 points by the afternoon. Then, at 2:42 pm, the Dow fell off a cliff, plummeting for the next five minutes into a nearly 1000 point deficit for the day. Twenty minutes later, the average had clawed its way back up about 600 points, going from bad to apocalyptic to bad again in less than a half hour of trading.
Analysts, talking heads, pundits, traders, and academics all took a step back. Did Warren Buffett just liquidate his holdings? Did China decide it didn't like US Treasury bonds anymore? No. It was computers moving shares by the millisecond, faithfully following orders to buy under some conditions and sell under others. Some fearful symmetry in the traders' bets represented in the code of dozens of servers created the perfect condition for everyone to sell. Investors' cold theories of arbitrage played out automatically, touching off a panic, alleviated only thanks to "automatic stabilizers" that halt trading for 5 seconds. This action arrested the cascading effects of the sell-off and life went on.
The point here isn't to talk about the logical intricacies of profit maximization. It's about panic. The rules that led to this crash were encoded by humans with a human understanding of the game, complete with the standard human obliviousness to other people's own understanding of the rules. People knew what they knew and it made sense to them. The problem is that they didn't know what the other guy knew. What's rational for the individual can be disastrous for all, and there are no "automatic stabilizers" to stop people from running to the exits. We need to do better.
Most of the time, the economic effects of our navel-gazing natures cancel one another out. One man's crisis is another's opportunity. We all know the cliches. Creative destruction, supply meets demand, no light without darkness, etc. But sometimes, when the signals are just right, it's all destruction. Sometimes there's no buyer for what you're selling. On rare occasions, it's dark as far as anyone can see.
The 2010 Flash Crash is a lesson we need to remember today. A bad month for unemployment, weak housing starts, and a little inflation should not induce panic. We panic when we don't want to be the last out the door, and we don't know the motivations of everyone else in the same position. A little faith in the market can be self-fulfilling. Let the news cycle work itself into a frenzy if it likes, but ignore it. Support some common-sense rules for all to obey; it might be less fun, but it will make life better for everyone involved, sort of like traffic lights.
Don't panic. Have some faith. Ignore the news; panic for you is ratings for them. Support regulation and the buying power of the American worker. Don't buy gold and keep your money in the mattress. People buy gold because cynics like Glenn Beck killed their faith in the system for a quick buck.
It does no good to believe that the world economy will collapse, and that we're all headed towards an anarchic run for the hills. If that happens, who will want your cash anyway? What good is gold when there's a gun to your head? Unless you're in a cult there really is no upside to the apocalypse, so you're better off believing that things will get better without one. The economy may be one big farce, but hey, physicists are thinking the same thing about matter and energy, yet I'm still typing away on the stuff.
Money is imaginary, yes. But out of imagination emerges real prosperity. No past civilization has come close to the standard of living most people enjoy today thanks to the fluidity of monetary policy and fiat currency. We did this on faith. A dollar means something because we all agree that it does, and the alternative was nowhere near as desirable. We all agree on what it means because we communicate with one another about what it will buy. We take this communication as truth because we trust in the law and the mutual benefit that arises out of maintaining these fantasies. Faith, communication, and trust are the basis of any human relationship more complex than a band of hunter-gatherers.
The economy will improve. There are obscene profits yet to be had, cushy office park jobs yet to be done poorly, newer, shinier products to become household essentials, blockbuster drugs, energy economies, consumer electronics, hydrogen cars, the latest tropical wonderfruit, rockets to space, Amazon Prime, health insurance, diet trends, and must-have action figures for the kids. We start with faith in these things. From there we grow.
Analysts, talking heads, pundits, traders, and academics all took a step back. Did Warren Buffett just liquidate his holdings? Did China decide it didn't like US Treasury bonds anymore? No. It was computers moving shares by the millisecond, faithfully following orders to buy under some conditions and sell under others. Some fearful symmetry in the traders' bets represented in the code of dozens of servers created the perfect condition for everyone to sell. Investors' cold theories of arbitrage played out automatically, touching off a panic, alleviated only thanks to "automatic stabilizers" that halt trading for 5 seconds. This action arrested the cascading effects of the sell-off and life went on.
The point here isn't to talk about the logical intricacies of profit maximization. It's about panic. The rules that led to this crash were encoded by humans with a human understanding of the game, complete with the standard human obliviousness to other people's own understanding of the rules. People knew what they knew and it made sense to them. The problem is that they didn't know what the other guy knew. What's rational for the individual can be disastrous for all, and there are no "automatic stabilizers" to stop people from running to the exits. We need to do better.
Most of the time, the economic effects of our navel-gazing natures cancel one another out. One man's crisis is another's opportunity. We all know the cliches. Creative destruction, supply meets demand, no light without darkness, etc. But sometimes, when the signals are just right, it's all destruction. Sometimes there's no buyer for what you're selling. On rare occasions, it's dark as far as anyone can see.
The 2010 Flash Crash is a lesson we need to remember today. A bad month for unemployment, weak housing starts, and a little inflation should not induce panic. We panic when we don't want to be the last out the door, and we don't know the motivations of everyone else in the same position. A little faith in the market can be self-fulfilling. Let the news cycle work itself into a frenzy if it likes, but ignore it. Support some common-sense rules for all to obey; it might be less fun, but it will make life better for everyone involved, sort of like traffic lights.
Don't panic. Have some faith. Ignore the news; panic for you is ratings for them. Support regulation and the buying power of the American worker. Don't buy gold and keep your money in the mattress. People buy gold because cynics like Glenn Beck killed their faith in the system for a quick buck.
It does no good to believe that the world economy will collapse, and that we're all headed towards an anarchic run for the hills. If that happens, who will want your cash anyway? What good is gold when there's a gun to your head? Unless you're in a cult there really is no upside to the apocalypse, so you're better off believing that things will get better without one. The economy may be one big farce, but hey, physicists are thinking the same thing about matter and energy, yet I'm still typing away on the stuff.
Money is imaginary, yes. But out of imagination emerges real prosperity. No past civilization has come close to the standard of living most people enjoy today thanks to the fluidity of monetary policy and fiat currency. We did this on faith. A dollar means something because we all agree that it does, and the alternative was nowhere near as desirable. We all agree on what it means because we communicate with one another about what it will buy. We take this communication as truth because we trust in the law and the mutual benefit that arises out of maintaining these fantasies. Faith, communication, and trust are the basis of any human relationship more complex than a band of hunter-gatherers.
The economy will improve. There are obscene profits yet to be had, cushy office park jobs yet to be done poorly, newer, shinier products to become household essentials, blockbuster drugs, energy economies, consumer electronics, hydrogen cars, the latest tropical wonderfruit, rockets to space, Amazon Prime, health insurance, diet trends, and must-have action figures for the kids. We start with faith in these things. From there we grow.
Friday, June 03, 2011
The Business of Governing
If I have to listen to one more dapper businessman-turned-politician with perfect hair lecture me on his business experience and how it makes him the perfect leader of this superpower I call home, I'll, um, not vote for him.
For as long as I've been paying attention, there's been some millionaire, self-made or otherwise, telling the rest of us how their business accumen (and unmentioned good fortune) makes them better suited to the business of governing than the guys who were spending all those years actually running things. It's these same characters, with their uniformly gray temples topped with a minky pelt of combed black, who then lay out policies that would shutter a lemonade stand in an afternoon.
I understand that running a business isn't easy, but neither is running a government. To pretend that they're the same, and then to propose truly anti-business decisions on the taxpayer, is flat-out insulting, and takes a cynicism that can only come from a lifetime of VO5 oil treatments and scalp massages by underpaid employees. I don't know much about business, but a few things seem glaringly obvious:
1. Every ledger has two sides: revenue and spending. Businesses like revenue and want to spend as little as they need to in order to get more of it. Government uses revenue to buy things that the public wants or needs, like guns or butter (or hair gel). A business without revenue isn't a business. A government without revenue can't do the things the public wants or needs. If business is such a good analogy for government, then how does cutting taxes (revenue) and getting into three wars (spending) make sense?
2. Debt is bad, default is worse. Whoever you are, creditors want to know they'll get their money back. Most businesses need credit to make large investments, to get through a rough patch, or to shore up their cashflow. None of that can happen if we stop paying the monthly minimum on our nation's corporate Visa. America has a lot of debt, but it has an 800 FICO score. Stop paying for even a day, and that score will drop hundreds of points. Imagine the harassing calls from our lenders, the threats to seize our property, and even once a deal is reached, the 20% APR and restricted use thereafter. We need to pay down this debt, but a default will make it that much more difficult. What sort of businessman would even think of sending that signal to the people holding trillions of dollars in treasury notes? Who has a hairline like that? Really?
3. Debt is good, if it's for an investment, getting through a rough patch, or shoring up cashflow. Ford doesn't have the capital on-hand to open 12 new plants in Michigan and develop that new car that runs on coffee grinds and banana peels. Ford makes a business case to lenders and then borrows with the promise of a decent, reliable return on the lender's money. Roads, bridges, a healthy, educated workforce, and many other things, are the promises that America makes to its lenders. Give us credit and we'll grow. Keep that bald spot hidden so I can look good kissing babies and shaking hands, and I'll be able to pay you back with interest once I'm elected. That's the ancient promise of moneylending. We can't pay anyone if we stop taking credit during a rough patch, run into cashflow issues, and stop returning the calls from the bank. That's exactly what these businessmen propose.
In the future, once we start making money again, we'll pay this down. Once we have leadership who can make the hard choices on both sides of the ledger, to spend less (at least on dumb stuff), and raise more (in smart ways), we'll be able to start making a dent in this massive sum of IOUs. And we should.
Future deficit spending should work more like a series of loans than a credit line. Give me thirty years and I'll pay back this mortgage. In exchange, I get to own this house and live in it. Give me five years and I'll pay this car loan. In exchange, I get to go places, like my job, where I'll get money to pay for that loan. Deficit spending is fine, but it would be better for it to be for specific purposes, and with a definite time to pay it back. Same goes for specific taxes. We want high speed rail? Issue rail bonds.We want a war? Enact a penny war tax. Or rail tax and war bonds, I don't care. The point is that we balance the books and we pay for what people need.
Enough with the pomade, false propriety, and pompous free-market piety. We have a country to run.
For as long as I've been paying attention, there's been some millionaire, self-made or otherwise, telling the rest of us how their business accumen (and unmentioned good fortune) makes them better suited to the business of governing than the guys who were spending all those years actually running things. It's these same characters, with their uniformly gray temples topped with a minky pelt of combed black, who then lay out policies that would shutter a lemonade stand in an afternoon.
I understand that running a business isn't easy, but neither is running a government. To pretend that they're the same, and then to propose truly anti-business decisions on the taxpayer, is flat-out insulting, and takes a cynicism that can only come from a lifetime of VO5 oil treatments and scalp massages by underpaid employees. I don't know much about business, but a few things seem glaringly obvious:
1. Every ledger has two sides: revenue and spending. Businesses like revenue and want to spend as little as they need to in order to get more of it. Government uses revenue to buy things that the public wants or needs, like guns or butter (or hair gel). A business without revenue isn't a business. A government without revenue can't do the things the public wants or needs. If business is such a good analogy for government, then how does cutting taxes (revenue) and getting into three wars (spending) make sense?
2. Debt is bad, default is worse. Whoever you are, creditors want to know they'll get their money back. Most businesses need credit to make large investments, to get through a rough patch, or to shore up their cashflow. None of that can happen if we stop paying the monthly minimum on our nation's corporate Visa. America has a lot of debt, but it has an 800 FICO score. Stop paying for even a day, and that score will drop hundreds of points. Imagine the harassing calls from our lenders, the threats to seize our property, and even once a deal is reached, the 20% APR and restricted use thereafter. We need to pay down this debt, but a default will make it that much more difficult. What sort of businessman would even think of sending that signal to the people holding trillions of dollars in treasury notes? Who has a hairline like that? Really?
3. Debt is good, if it's for an investment, getting through a rough patch, or shoring up cashflow. Ford doesn't have the capital on-hand to open 12 new plants in Michigan and develop that new car that runs on coffee grinds and banana peels. Ford makes a business case to lenders and then borrows with the promise of a decent, reliable return on the lender's money. Roads, bridges, a healthy, educated workforce, and many other things, are the promises that America makes to its lenders. Give us credit and we'll grow. Keep that bald spot hidden so I can look good kissing babies and shaking hands, and I'll be able to pay you back with interest once I'm elected. That's the ancient promise of moneylending. We can't pay anyone if we stop taking credit during a rough patch, run into cashflow issues, and stop returning the calls from the bank. That's exactly what these businessmen propose.
In the future, once we start making money again, we'll pay this down. Once we have leadership who can make the hard choices on both sides of the ledger, to spend less (at least on dumb stuff), and raise more (in smart ways), we'll be able to start making a dent in this massive sum of IOUs. And we should.
Future deficit spending should work more like a series of loans than a credit line. Give me thirty years and I'll pay back this mortgage. In exchange, I get to own this house and live in it. Give me five years and I'll pay this car loan. In exchange, I get to go places, like my job, where I'll get money to pay for that loan. Deficit spending is fine, but it would be better for it to be for specific purposes, and with a definite time to pay it back. Same goes for specific taxes. We want high speed rail? Issue rail bonds.We want a war? Enact a penny war tax. Or rail tax and war bonds, I don't care. The point is that we balance the books and we pay for what people need.
Enough with the pomade, false propriety, and pompous free-market piety. We have a country to run.
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