Posts Tagged ‘Economy’

Our Intelligent Discourse

I was all ready to write a post about how fun, content-free issues like how Obama is “slashing Medicare and using the money to pay for Obamacare!” are taking over this election cycle, while truly important issues are being forgotten. For example, the fact that MF Global is likely going to evade criminal charges for stealing customer money. Which, when you think about it, is truly, truly scary. If I go into a 7-11 and take a hundred bucks from the till, I’m going to jail. If an investment banks steals hundreds of millions of dollars and blames “chaos and porous risk controls”, they get of scot-free! Gee, I wonder what the incentive is in these cases: investing money to get a return is hard, stealing is easy. Decisions, decisions.

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…And All That

There’s a lot going on right now. Too much, in fact, what with Europe teetering on the edge, Romney flying around the world with both feet in his mouth, half of India dark, and something fun going on in London. All of that is too much to comment on individually. But it all ties together, with a rather simple story.

Imagine that there’s an economic bubble. Imagine that people take out loans to pay for things in this bubble. Now the bubble pops, and the people can’t pay back their loans. As a result, banks suffer.

There are two things you can do about this (if you ignore the non-action approach): you can give people money. They take that money to pay off their debts. The people have more money in their pockets with the debts gone or reduced, and the banks have money due to loans getting paid back. Things go back to normal.

Or, you can give the banks money. This temporarily tides the banks over. However, since the people don’t have any more money than before, and the banks didn’t actually do any loan forgiveness or anything, people still can’t pay their loans. The banks return to doing poorly, and in the end, nothing improves much. All you’ve done is temporarily give bankers fat paychecks.

Is this an over-simplification? No, it isn’t. This is how things are. Especially if you add governments to the banks, and substitute tax revenue for loans. All tied up together.

So please explain to me why action #1, the one that would actually work, is denounced as “moral hazard”, while we blindly and persistently pursue action #2 over and over and over, to the same result? It’s so perverse that people are screaming against disability payments and food stamps. Food stamps. Six million people in this country have no income other than the roughly $6,000 you get annually in food stamps.

Seriously.

Different Rules

If there is one thing that is evident this election cycle (and, more broadly, throughout the ongoing financial meltdown that has been going on for years now), it’s that the wealthy play by a very different set of rules from the rest of us. Sometimes, the things they do are technically illegal, but end up not being prosecuted or simply brushed under the rug. Some of them are perfectly legal and simply represent the very different set of tools that the wealthy are able to take advantage of. Regardless of legality, though, the increasing chasm between the 1% and the 99% threatens to create permanent economy instability and a complete collapse of public trust in banking and government, neither of which are good for the economy or democracy. It’s not much of an exaggeration to say that this election provides a very clear choice between redoubling the creation of a different set of rules for the wealthy, and (maybe) dialing it back a little bit.

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One More Thing

One more thing to add to my rant from yesterday: Congress has been debating whether or not to keep the interest rate on student loans at 3.4%, or to increase it to 6.8%. The standard student loan payoff period is 10 years. Currently, the interest rate the U.S. pays on a 10-year Treasury note is around 1.5%, or near historical lows.

You know, if the U.S. borrowed money at that low interest rate, and then turned around and lent that money out to students at something near that low interest rate, that would put a lot of extra money in people’s pockets due to lower monthly payments. Money that, you know, would get spent. But I guess acting like a giant bank and charging students a 500 basis point markup is also great for the economy.

Stupid or Evil?

It’s rather hard to be optimistic about the economy these days, since the common consensus around the world is that the best way to cure the economy is to drain it of blood until it has none left. Lots of people have been harping on this for years now, but it’s not getting better. In fact, it’s getting worse (whoever would have thought that selling off your country would destroy your economy and lead to extremist parties gaining power? Anybody?)

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The Fundamental Role of Reality

If you listen to the pundits, the 2012 election represents a referendum on “the fundamental role of government” (see this from one of my more favorite conservative publications, for example; Google the phrase itself and you will get thousands of hits). On one side, we have the Obama administration, which wants more taxes, more spending, more regulation, and more government interference in every aspect of your life. On the other side, we have Republicans who espouse less government, less taxes, less spending, fewer regulations, and a return to the good old days of what made America great. It’s a neat little narrative, all tied up in a bow, that’s easy for people to understand.

Except that’s not quite how would put it. This election is important (every one is, of course), but I wouldn’t say that it represents competing visions of the government’s role in our lives. Instead, this election is about different views of reality. On one side, we have a team that tries to work within the framework of the possible and the realistic, making hard decisions that sometimes make people mad, but have some greater goal in mind. On the other side, we have a team that sells empty platitudes that have little bearing on reality, that simply endeavor to tell voters what they think they want to hear without having a plan to back it up. Truly, we have a difference not based on the fundamental role of government, but the fundamental role of reality.

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Get A Job

A few days ago, the New York Times had a story about who really makes up the 1%. It’s a wide variety of people, making a wide variety of incomes depending on where exactly they live (unsurprisingly, the top 1% in Connecticut looks a bit different than the top 1% in Alabama). Of course, not all of them, nor even a majority, are the kinds of investment bankers and hedge fund managers that many people are upset at for ruining the economy. The NYT story about the top 1% is about the top 1% by income; the top 1% by wealth is a different group, arguably more removed from the middle class than the top 1% in income earners. That certainly makes sense: a surgeon that is in the top 1% in income may only be one generation removed from a middle-class upbringing, while a top 1% wealth-accumulator has probably only known luxury.

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Policy and politics

One of the many wonderful things they teach you in a Master’s program such as MSST is policy analysis. Part of that analysis is looking at a politics versus policy matrix. Whether a certain course of action is good policy versus good politics is largely orthogonal, so you really have four different boxes that an idea can fall into: good policy and good politics, good policy but bad politics, bad policy but good politics, and the box where you never want to end up, both bad policy and bad politics.

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The travails of Cassandra

Never have the policies and politics of this country been more frustrating. Not only to myself, but to everybody: approval ratings for the president, Congress, and both political parties are cratering. Is it any surprise? Nothing is getting done. The American house is on fire, Republican leadership is arguing whether now is a good time to finally hold that garage sail, and Obama, meekly pointing to the flames on the roof, capitulates and sells the water hose to the guy across the street. One side is locked into a worldview that is increasingly distanced from reality (the leading Republican candidate for president is campaigning on chain emails, apparently never hearing of Snopes). The other side has thrown up its hands and bothers less and less to fight. The winners are pundits and inside-the-Beltway types who get paid to spill ink and electrons talking about what ails us. The losers are the people who are still unemployed because the U.S. can’t bother fixing its own problems.

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Are we doomed?

The economy is in terrible shape these days, not only in the U.S., but around the globe. And there doesn’t seem to be any way out of it. In Europe, the debt crisis clearly calls out for two solutions, default and inflation. Unfortunately, these are anathema to the ECB, leaving the continent to muddle along until the zombie banks simply run out of brains to ingest and it all falls apart. Here, consumer spending is going nowhere (although luxury spending is just fine), while corporations sit on mounds of cash they aren’t spending. It’s hard to see how the market is efficiently allocating capital right now. It’s almost as if the tragedy of the commons is real and requires government intervention to take some of that capital and redirect it to projects that benefit everybody, like infrastructure.

I don’t see how we are going to get out of this slump anytime soon, so we may as well shoot for the moon. Why not a goal to make the country carbon-neutral by 2050? Sure, it would be a monumental undertaking, with no guarantee of success. But it would put us on the forefront of technology that is going to happen sooner or later, and what we are doing at present clearly isn’t working. Is there anybody who can provide the leadership to arouse the public support for a project like this comparable to the Apollo Program? Our country’s future may depend on it.

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