Feeds:
Posts
Comments

Archive for the ‘Business and the Economy’ Category

Stephanie and I get asked all the time when we’re going to buy a house. Of course, one should never say never. But I never want to buy a house. It’s probably subjective on my part, since I’ve had close family members struggle with the issue.

But then again, maybe it’s not so subjective. Here is a story I wrote on the problem in my Clark Kent day job as a financial writer.

Advertisements

Read Full Post »

I sat helplessly last weekend on my couch holding my baby in awful anticipation of the carnage that would surely be wrought in the stock markets Monday. Sometimes I knock capitalism, but I do so as a grudging participant. Full disclosure: I own mutual funds and get sick when I see my savings plummet in a couple of days of panicked selling.

My Clark Kent job during the day is financial reporting, and I’ve gained some perspectives over the years about economics. But what I’ve learned mostly is that it’s a difficult subject that one wants to approach with curious humility. As Jesus said in “Paradise Regained,” the wisest of us admit we don’t know anything, and although he was likely not talking about U.S. Treasury bonds, he could well have been. Why? Because the financial experts with the Ph.D.s also didn’t know what would happen if the U.S. were downgraded; the best of them admit that they can only guess based on their experience and incomplete data and pure prognostication. No two experts will agree about what the sovereign debt going from the holy AAA to AA+ really means.

So let’s go over what we do know.

1) Monday, panicked investors, scared of downgraded government bonds, fled the stock market … to invest in downgraded government bonds. That’s a bit like burning a village to save it.

A bit of finance 101: There are two values to a company–its stock price and then its intrinsic value based on what the value of all its inventories, cash flows, etc. are. Everybody panicked not based on the intrinsic value of the companies they held but because they knew other people would freak out. Not knowing the price of catastrophe, they created one. They decided out of pure fear to abandon stock holdings regardless of whether these companies actually held bad government debt on their books.

In actuality, the credit of many U.S. corporations is probably better than that of America right now. Chances are, a lot of these companies we fled Monday had good balance sheets, growing sales and less debt than they did a couple of years ago. But the one thing that ties liberals and conservatives together, evidently, is an adrenal gland. Monday, we all turned into rats in a burning building and cleared out. After buying high, we sold low. Some investors figured it out Tuesday and went back. But it was likely rich people taking advantage of suckers, getting deals, and getting richer.

Government debt will indeed become more expensive–for the government that is. It will now cost more for the United States (i.e., you and me) to borrow, which could indeed chill the economy at a crucial time. But most of the world hums along assuming that the mighty U.S., the biggest economy in the world, can still pay its bills. Double AA is still a far cry from deadbeat dad. Sure, more expensive debt could mean money doesn’t flow around as much. But there are a lot of economists who say that’s not such a bad thing. Having a world awash in cheap money forever, the way we have in the past few years, is not possible or desirable. In  fact, it’s one of the reasons we are in our current economic crisis, because we can’t use interest rates already at zero as an incentive anymore by lowering them. A weak dollar means that everybody is looking for better places to park their money. Could be stocks. Could be gold. In any case, those assets will become inflated again–priced at something beyond what they are really worth, exhorting suckers to buy in and create, to wit, a new recession scenario.

2) Standard & Poor’s cannot be entirely trusted when it downgrades U.S. debt.  The company made not merely an analytical decision to downgrade on Friday, but a political one–and I’m talking about the politics of S&P. I used to work at Standard & Poor’s, not as an analyst but as an editor, and though I wouldn’t dare create my own credit analysis of the United States, I did read the company’s press release, and I do know a few things about the culture there and the hurt pride in its ranks when it was caught with its pants down in 2008. The company had before the financial meltdown given high ratings to mortgage backed securities that were not remotely deserved, and this echo chamber of positivity allowed a lot of shitty paper to be passed around like botulism to some of our biggest financial institutions. Standard & Poor’s, as well as the other credit agencies, are in a strange position. They can behave like quasi-government organizations, because they serve a quasi-regulatory function: U.S. corporations must by law have credit ratings if they want to borrow. For the same reason, it is assumed that S&P, Moody’s, etc., offer completely objective opinions on companies’ creditworthiness. But that myth was shattered in 2008. Standard & Poor’s is not a monastery; it is the single most profitable subsidiary of McGraw-Hill. And the public is not its main customer–the companies being rated are. I would never attack the integrity of my former colleagues or slight their intelligence and probity, but the whole process at the credit agencies is fraught with conflict of interest in the agency’s desire to please the corporations writing the checks. Since the credit crisis struck, obviously S&P has had to do a lot to improve its image. So it had something to prove two weeks ago when it slashed U.S. credit. The stakes were raised when the U.S. government (who, we find out, did get to review their own rating) found mistakes in the accounting and the agency had to backtrack. At the end of the day, S&P couldn’t look like the borrower was again dictating the terms, and so Standard & Poor’s practically admitted in its press release that Washington in-fighting had as much to do with the downgrade as the financial facts on their face. S&P said a pox on both your houses (of Congress). It sounds awfully superficial and defensive.

3) But hey, as long as we’re blaming politics, let’s finally admit: The Tea Party Republicans are psychos.

Remember, the debate over the U.S. and its creditworthiness has to do not over whether the United States can pay its bills (it certainly can) but about whether it will. Lots of people, including the Congressional Budget Office, said very plainly last year that if you want U.S. debt as a percentage of GDP to skyrocket to 80% and beyond, all you have to do is keep George W. Bush’s odious tax cuts in place. People mistakenly think that the blame is equal here: Democrats spend, Republicans won’t tax. But only one side of the Congressional aisle showed its agenda so egregiously, using the threat of economic collapse to get its way: the GOP. Not hard to expect, since Republicans have not compromised on tax issues in, I don ‘t know … ever. Barack Obama (who, like Bill Clinton seems to draw bigger ire from crazy Republicans even as he does exactly what they want) has thus found himself trying to make medicine not with responsible, moderating budget balancers but with a Manson Family elected to office using the simplest, stupidest, most meretricious rhetoric there is on out of work American gulls. Michele Bachmann, et al., have now practically admitted they are willing to destroy the American economy for ideological reasons (protecting the rich with the absurd conviction that they are protecting all of us). Here’s news, Republicans: income taxes have not gone up in years and years and years. In fact, Barack Obama cut them in 2009 and extended Bush’s deep cuts at the end of 2010.

And it hasn’t helped at all. The economy does not care. What is needed is economic activity to create jobs, and the government spending you so despise IS economic activity.  Your piggish unwillingness to concede this fact, something understood by most business people and most economists (if you bothered to read one book or earnings call), has you teetering on a bizarre precipice between cognitive dissonance and schizophrenia. Many Republicans were outraged that Newsweek ran a picture of Michele Bachmann this week with crazy eyes. Well, the news, this week, is that professional pregnant woman harasser Michele Bachmann is crazy.

The New York Times is as confused as ever about the Tea Partiers and what they want. Two years ago, the paper wrote a piece on these scrappy town hall rebels and decided they were just honest libertarians disgusted with both parties and government overreach. Now, evidently, the paper or the Tea Partiers themselves have changed their mind. The movement is  just rock-ribbed Reaganites, who didn’t really care about spending that much, they really just wanted low taxes and a strong military. In other words, they don’t want the government to spend money unless it’s on things they want the government to spend money on. I’m not the New York Times, so I don’t have to patronize them: Tea Partiers are stupid. They are stupid down to the crust on their toenails and the slime on their outhouse doors. Libertarianism as they define it is anarchy. Socialism as they define it is 8 hour work days and child labor laws and affordable health care and banking regulations. They have no philosophy other than disgruntlement, no basis for the arguments they make other than faith. They demand Social Security and a strong military and refuse to pay for both. They demand entitlements for themselves but call any other form of government assistance “wealth redistribution.” It is likely that their aging parents, if still alive, are getting 50% of their income from Social Security, and their answer to that is: “Government is the problem.”

4) And so I come to the last point. Comedy works in 3s, but I’m adding a fourth because this is unfortunately not funny: Last week was your own fault, America. Blame Congress. Blame Barack Obama. It’s a waste of time. It’s you, America. You clearly wanted a war in Iraq you would not pay for, along with a prescription drug benefit you would not pay for, and these things are still source of most of our budgetary woes. (No, it’s not Barack Obama’s health care plan.) You wanted affordable health care but changed your mind when presented with the ugly details. You protect rich people because you think one day you could be Madonna. Yet you, as if your eyes were warped by an optical illusion as you stand under a skyscraper, don’t really understand how big it is–how much richer the rich are and how much they have the game stacked against you.

John Boehner is not the devil. He’s just an elected reflection of your confusion. Barack Obama is not the antichrist. He’s a man you ask to do everything, and whom you hate when he doesn’t accomplish it … and sometimes hate when he does. So stop griping, America. Own up to your own part in this and enjoy the second job you’re going to have to take at night to live the way your parents did.

Read Full Post »

Here’s a nice post by Megan McArdle at the Atlantic that will largely be disregarded because it’s a spit in the eye to a lot of people. Not only to supply-siders and free-market fundamentalist crazies, prolific as they are like mushrooms after the rain, but to people who consider themselves reasonable when they suggest that, of course, tax increases harm the economy. But what if that weren’t true?

“Ugh,” say those ultra-generous and altruistic supply siders, who only care for the common good and fairness. “How horribly mean and counterintuitive you are, Eric. ” This is where conservatives with fraternal patronizing smiles pull out the only mathematical graph many of them ever bothered to learn–the Laffer curve, which for them is more important than the Pythagoras theorem, the concept of pi or even 2+2 =4. The Laffer curve says that the lower taxes are, the greater the incentives for people to produce, which actually means more revenue. This graph has proved to be increasingly meaningless in the real world. It’s true in a very cramped perspective: Arthur Laffer, its namesake, originally explained that you can raise taxes and raise revenue, but only up to a certain point. That’s the “curve” part. After you reach this “inflection point,” for lack of a better phrase, then supposedly you kill incentive. But in the real world, tax cuts have never raised revenue and economists don’t take the idea seriously. The idea as practiced in the military-industrial idiom offered by the Ronald Reagan and George W. Bush administrations has proved a horrible failure as those two “conservatives” ran up massive deficits, one of which had to be cleaned up by “tax and spend liberal” Bill Clinton. And yet the supply-siders, possessed of a faith one can only call religious, still hang onto their silly idea that high taxes applied in the U.S., even those at their highest in the New Deal years, should naturally stop people from working.

I won’t step on Ms. McArdle’s glory  and repeat her argument as if it were my own, but the gist is this: at a certain point, rich people have enough that they don’t have a greater incentive to work, and they might trade the money by, let’s say, monetizing their leisure time. In other words–I’ve got mine, time to relax. In other words, greater tax breaks for them at some point equals less revenue. Meanwhile, there is another simple incentive–the one to hoard. Congressional Budget Office notes, in fact, that sometimes tax cuts for businesses and the wealthy do not lead to reinvestment or hiring but simply to keeping it all in house.

McArdle has a great way of making difficult subjects simple, but in this case I hope to one-up her (or one-down her, as it were), because this argument I think can be made even simpler than that. I believe Republicans, financial geniuses that they are, can’t do the simplest calculation: that one half and zero are not equal.

The argument of the Mad Laffers, as I can’t resist calling them, is that the rich will stop working if they have had their taxes increased to some larger number. Why would they work, after all, if they got nothing? A very linear argument for a very linear crowd. The financial advisors I interview might call this an example of the tax tail wagging the dog: You wouldn’t ignore a good investment, say, just because you’re worried about the taxes on it. Nor would you stop working. In the worst case scenarios in the past, the very rich were getting 10% of an obscenely large number–which in this country today could be something like 450 times what their lowest paid countrymen are getting. Just to keep you guys up to date, 10% is never zero unless it’s a percentage of zero. If the government asked for a part of your bar of gold, would you turn down the bar of gold completely if the choice were nothing?

The argument seems counterintuitive, of course, to people who believe Ronald Reagan invented economics (and who have no real idea of how our last 30 years of “prosperity” really came about). These people can conveniently ignore the fact that our post-World War II economic boom, and the inventions of tons of gadgets and the building of oodles of homes and the construction of myriad space craft, took off in an atmosphere of progressive tax rates that reached 90% for the wealthiest Americans. Now why would the rich work under those conditions? Were they just stupid? Could it be, as Karl Smith, McArdle’s muse for this article, says, that people making less because of taxes actually work harder to make up for it (and goose the economy forward)? Or was it simply that the rich were still getting paid PLENTY? Is it that something is still better than nothing? The incentive, after all, is not gone, nor is the ability to live well.

Instead, what really disappeared with 90% tax rates was the incentive of people to hoard money and join a rare set of American aristocrats in a country that’s not supposed to have an aristocracy. Of course, following Reagan’s tax cuts of the 1980s, as Paul Krugman and lots of other people have noted, the economy has continued to ebb and flow just as it has before, only now we have fewer people getting a hold of the wealth. The disparity in riches has reached outrageous proportions. The wealthy are holding back more of their money and wages are stagnating for everybody else, especially those making less than the median household income–$50,000 a year or so.

Republicans, convulsed with fear as they usually are that their calculations don’t work out, lash out at Obama with exceedingly silly charts such as this one, which does the unthinkably stupid thing of blaming Obama for not directly controlling world commodity prices, which would, if they thought through it, turn him into Hugo Chavez.

And yet there is a broad dislike of taxes among all Americans, not just red staters. A feeling that it’s the feds who are taking more of your money and your soul and keeping you from the American dream. As far as I know, they haven’t invented an economics term for this fallacy, but I’ll try one from psychology: transference. It’s hard to blame the company that hired you for keeping your wages low or even to blame them for sending your work overseas. The real problem is that your pie is shrinking, but instead you want to blame the entity that’s cutting off a piece of it, even if the portion hasn’t changed in 25 years. Meanwhile, the good that entity is doing for you (keeping your roads built; giving you a good, free education; giving your parents Medicare; giving you unemployment benefits; and pumping R&D money into your economy) largely goes unnoticed.

Another fallacy regular people believe is that Reagan cut taxes and that led directly to making them wealthier. That wealth, however, is largely a phantom euphoria of having credit cards and asset inflation (from your house and stocks, which is mainly rising because foreign money is coming into your economy to take advantage of a cheap dollar). And of course, your feelings of wealth also stem from a completely fallacious belief that a pension and a life of ease on 12% laddered bonds await you as they did for your Greatest Generation Dad.

All bullshit. Even a lot of conservatives would laugh today if you asked them how a single employed household member could support a spouse and children and two cars and a mortgage. The answer: he can’t. It’s a pipe dream of the post war era.

Liberals, of course, have a lot of dippy ideas about the economy. If some pinko told me that it’s common sense wealth should be redistributed, I’d ask him if he’s aware how vanishingly small that wealth would become in transit. (Believe me, after seeing “Capitalism: A Love Story,” I’d like to beat up on some liberals for a while–maybe later.) But why punish hippies for their financial ignorance, when they are usually the first to admit it? Conservatives are far worse, because they are the ones who, according to their own advertisements, are supposed to know better. But the more I get to know finance as a reporter, the more I feel that conservatism, per se, doesn’t necessarily know more about money. Conservatives just love money a lot more and would hold onto it at the detriment of everything else.

Here’s an argument: a person will work for a living. He will work whether that money is a little less or a little more, he’s not going to stop. A living is a living, even if it means living with taxes.

Read Full Post »

I’ve been reading over Congressman Paul Ryan’s budget proposal here, and I’ve got to say, it’s a really great piece of work. I cannot imagine why it’s controversial. It’s a very sober-minded solution to most of America’s economic and budget problems. As we face a government shutdown amid partisan bickering over our budget, let’s see what Ryan’s plan has in store. A few items:

–*Ryan’s proposal will return government discretionary spending to below 2008 levels.

–*It will repeal and defund the health care law passed by Congress and unlocks free market mechanisms that put responsibility and choice back in the hands of the people who can afford to get sick.

–*Only American Idol contestants in the Top 8 will go on the national tour, down from the much less defensible top 10.

–*Every senior American will be given a voucher for a used wine cask to roll around in.

–*Americans born before 1957 will avoid any Medicare cuts and get to sleep with Pamela Anderson or somebody who looks like Pamela Anderson.

–*Prosperity. More money. Hooray!

–*Every German woman will have a husband.

–*There will be no increase on taxes for the wealthy, who know how to better deploy assets by buying items of better quality–real wood veneers and and good caviar–while the bottom 98% would certainly waste their tax savings on baloney sandwiches, hard tack and clabber

–*Americans will no longer have to pay for anything they have bought, even if they have broken it at Pier 1 imports.

–*Eat Irish babies

–*The helpless victims of the military industrial complex will have their rights restored after years of privation

–*Phrases like “Prosperity and freedom for all” will flash from omnipresent televisions in every office and gathering place to remind you constantly of the freedom offered you by laissez faire economic policy.

–*All Americans are promised a job working on a BP oil rig.

–*There will be no more corporate welfare, and unicorns will stop raping elves.

–*Your grandparents are promised free e-mails about penis enlargement and stuff from the Heritage Foundation, all of which is totally believable.

–*Ryan’s bill promises that there will not be another economic crisis due to U.S. government debt. Which should be reassuring to all those who believe that the 2008 economic crisis was due to government debt. In other words, the illiterate, the mentally infirm and Oklahoma.

–*Fiscal responsibility in the face of untenable spending will continue to be the hallmark of Republican policy until Republicans find another country they want to invade.

–*The new bill will make Americans responsible for their own financial problems if they use credit cards, have gas guzzling cars, suffer declining wages, sit in the bottom 98% of the wealth spectrum, bear children, or have stomachs and respiratory systems.

Read Full Post »

Incarcerated swindler Bernie Madoff proved once again he just can’t shut up on Monday as he railed from prison that Oscar host James Franco offered a lackluster and uninspired performance Sunday night at the Academy Awards, and that Anne Hathaway was trying too hard.

“I know I’m no saint,” said the fraudster, now serving a 150-year prison sentence for bilking investors out of tens of billions of dollars. “But I really thought James Franco should have brought it. He thinks he’s all James Dean–that he’s above it all somehow. That doesn’t give the audience confidence. It just makes them hate you. He’s been doing that shtick since ‘Freaks and Geeks.’ and we’re not buying it anymore.”

Madoff also called the SEC a joke, said the entire U.S. government was a Ponzi scheme, and insisted that Anne Hathaway used too many costume changes to make up for her lack of charisma.

“She’s no comedienne,” said Madoff, whose hedge fund was a giant black box promising 10% returns with no underlying securities in it. “I don’t see why they can’t get Billy Crystal back to do the whole thing, not just some lame bit. He knows what comedy is. It means being willing to try anything for a laugh, being willing to fall on your face or use wit barbed with irony. Comedy doesn’t mean glamming it up for a lot of dead-behind-the-eyes teenagers and hoping your C-cups pass for personality.”

Madoff, who has ruined hundreds of families, wiped out billions in wealth and shamed his family, then turned his sights on Melissa Leo, who in an unguarded moment used the “F” word during her Oscar acceptance speech for “The Fighter.”

“This was your moment to shine, and instead you came off like a trailer-park mama with a jug head, bow legs and Vitamin D deficiency. You ought to give that gold statuette back to the artisan gold miner in Nicaragua who dug it out for you.”

Madoff also attacked the rules begun last year that allow 10 nominees into the best picture category.

“If you know the first thing about stock dilution, you know that it cheapens everybody’s share,” said Madoff. “Not that my fund was invested in any stocks, of course. I take full responsibility for my actions, unlike the Academy.”

The ceremony was watched by millions of viewers, including, allegedly, prisoner number 61727-054. It could not be ascertained by press time, however, if Madoff, who looked into the faces and televisions cameras and the eyes of regulators for years and convinced them he had a real business behind the Imperial granite and steel facade of the Lipstick Building, had actually watched the Oscars.

Madoff says he understands that Franco is a polymath currently getting advanced degrees while pursuing his acting career.

“That doesn’t impress me. It seems like he’s hyperactive and taking on more than he can chew. Why not do just one thing well, like acting, rather than jerking me off with your horrible Ryan Seacrest imitation and then pretending like you don’t care.”

Madoff also argued that the Twittering about the Oscars from the backstage and Colin Firth’s early anointment as winner further cheapened the awards.

“The magic is just not there,” said Madoff, who will spend the rest of his life eating jail food. “I don’t know if I’ll watch again next year. But I always like talking to reporters. It’s really lonely in here.”

Oscar Image: Francesco Marino / FreeDigitalPhotos.net

Read Full Post »

If you are interested in either Facebook, Goldman Sachs, the SEC or securities regulation in general, you’ve probably been following this controversy about investment bank Goldman’s deal to secure extra funding for Facebook. A special investment pool for wealthy investors will allow rich investors into the social networking company through backdoor channels that skirt SEC rules so that the company doesn’t have to do an IPO yet. Usually, companies must go public when they have 500 investors. So Goldman set up a special purpose entity in which several investors magically become one. It’s a deal that’s got some people apoplectic, because as always, it will allow the wealthiest Americans to get into a private company early. When Facebook eventually becomes the kind of company that we mere carbon-based life forms can invest in, it could well be a less attractive investment. Why do I say that? Yes, I use Facebook, and love it. Yet, you might be shocked when I tell you–Facebook is actually just an Internet bulletin board. It might still be a dog someday. Small shareholders might be the last ones in and get the least value. The large investors are buying because they know you’ll be there to take it off their hands later. Remember AOL-Time Warner? Almost a hundred billion dollars flushed down the toilet?

While others gripe about the rules of trading, I’d like to step back and ask another timely question: Given the many ways the wealthy rig our system, why is our tax system protecting them? From stock options to special purpose entities to private equity investments to poor corporate governance to outrageous signing bonuses, the rich already have many great advantages to suck value out of our investments. We are to believe as small investors that we are participating in the great wealth-generation of capital, but we do so at a disadvantage to those who get in early and to others who trade at lightning speed. So why are we laboring under the delusion that continuing low marginal tax rates for the wealthy are fair and/or productive?

Many people shrug and say that it’s a necessary evil of capitalism–that the rich need more advantages than the rest of us because they will reinvest and give us jobs. But then you might have also noticed that American companies are posting record profits–and sitting on them without doing much new hiring. The American worker, meanwhile, has seen her wages stagnate while unemployment has remained at 9% to 10%. Corporations are sending their reinvestments overseas.

Most Americans believe that the tax rates on the wealthy should rise. And yet in the last election they elected a Congress that made sure rates wouldn’t.  What gives?

Could it be an abiding belief among many Americans that the wealthy deserve the big money for some reason? They work for it, don’t they? Splenetic Fox commentators insist the richest 1% are actually working 400 times harder than those in the bottom 50%. But let’s keep everything honest here: they aren’t. Corporate governance is a sham. People are vastly over-rewarded in corporate America for things they don’t deserve, including the people who got bonuses in 2009 for destroying our economy. Some companies are responsible in the way they compensate their employees. But we have to trust them to do it.

Yes, capital creates wealth, but only to a point. But somewhere along the way, lower taxes simply prompt the wealthiest not to reinvest but to hoard. These nuances, if not lost on supply siders, are conveniently ignored. And when they address their arguments to lower income people, they try to appeal to what they think is an innate sense of fairness. The rich work hard for that money, don’t they?

Well, yes, if you consider a used car salesman lying to you and selling you a shitty car with a bad engine for three times its book value working hard.

Read Full Post »

I don’t usually press my financial articles on people. I’d much rather you go watch the hilarious comedy “The Retributioners,” or listen to my often eclectic but increasingly accessible rock music on the right hand side of this page. But if you want some insight into the China and its economy, you might like this article I wrote for Financial Advisor magazine.

First of all, China has taught us that free markets are superior to ones that are totally government controlled. In 1979, Deng Xiaoping introduced market reforms to China, conferring a special economic zone status on a sleepy fishing village. That village, Shenzhen, has become one of the fastest-growing cities on the planet, a place where China still tries out new free market experiments while also learning how to balance it with its responsibility to its people’s well-being. To the shame of the Chinese, they have not yet developed Western style free speech, and the country’s human rights record is abysmal–government critics are imprisoned, vital AIDS statistics are suppressed, and the country is in denial about the environmental impact of its boom. These are all things to fear about a country not totally awake from its legacy of totalitarianism. But don’t let these things cloud your vision of what the country has done economically or get confused that free markets alone are saving it. What’s making the country better is a sober-sided and smart mix of capitalism and socialism both.

Now that it has been unleashed, China is now about to explode with a rampant consumer economy. More than half of its population is still rural, and as the country inevitably urbanizes, it will gobble up the world’s iron, copper, oil and coal. It’s become the biggest market for cars and, according to some sources, for energy. Its economy has fuel to burn. This growth was threatened by the economic crisis of 2008, so China’s government did what any responsible leaders would do: they spent money on stimulus. About a trillion dollars. This has kept their GDP humming while the United States’ has faltered. Some say that China’s growth can’t be compared to ours, because it’s a actually a brand new economy with lots of room to run. A country where many of the cell phones and cars have yet to be bought, where there are few hackneyed businesses and lots of room for innovation and enterprise. Nevertheless, government stimulus indubitably can help an economy out of trouble when markets overheat, an idea that short-sighted Americans have either forgotten, out of impatience in 2010, or deny themselves, out of ideological fanaticism because fanaticism is part of their identity, much like their old company t-shirts and pet rocks.

It’s a bit harder to see how a mature economy such as ours can explode again when we first have to cut out all the cancer–the overleveraging, the overspending, the abundant undeserved credit. Some say we just wait for the next tech bubble and get rid of our government in the meantime. That’s a cruel, nihilistic philosophy, and if that doesn’t chill your heart, let’s just call it completely wrong. For anybody with a memory (hard to find in the United States), I’ll remind you that America got through the years of the New Deal (let’s say 1932 to 1980) with high progressive taxes and Social Security and Medicare, and at the same time we created computers, lasers, televisions, FM stereos, new ways of distributing and preserving food, new ways of communicating and we went to the moon–all under the aegis of what is now called socialism by the right wing. This large government presence didn’t hold America back one damn bit. In fact, if it didn’t create the middle class, it certainly helped preserve it.

Unfortunately, these people wearing tricorne hats and waving “Don’t Tread On Me” flags have learned the wrong lessons from Ronald Reagan. Our economy will indeed come back in the next couple of years, but it will likely be because we take up where we left off (pursuing all the bad habits Dutch left us)–by selling IOUs to each other, insuring them, and trading monopoly money and putting that in place of productivity. We can also hold our breath and wait for a new asset bubble. But what they don’t realize is that China (and oil-rich nations with lots of petrodollars) are going to continue to fund it, because we refuse to pay for the things we demand. Some of us want roads. Some of us want firemen. Some of us want to build bombs. But whoever it is in charge, Americans love to spend other people’s money. If I thought the Tea Party would address that issue, I might take sides with them. Unfortunately, they won’t. The “Leave Me Alone” party wants it all for free and won’t tell you the truth about any of these issues. They wave the flag and scream that they are victimized–somehow while they are also stomping on people’s heads.

And elsewhere, the highly productive Chinese will be earning their strong economy and handing our asses to us.

Read Full Post »

Older Posts »